Attack, defence

DAVOS DIARY

The stalled Doha round of trade negotiations figured prominently on the Davos agenda, as might have been expected. At a final session on Saturday afternoon, the former Mexican president Ernesto Zedillo put the American and French trade negotiators on the spot by asking them bluntly whether they were willing to give in on agriculture, because that was the defining issue.

The PricewaterhouseCoopers chief executive, Sam Dipiazza, who was asked to report on the discussions during earlier Doha sessions at Davos, followed up on Zedillo said by asking whether the US and Europe were willing to reduce farm subsidies, including on cotton, and open up their markets while reducing domestic support operations.

The response from Grant Aldonas, the US under-secretary for international trade, was 'yes' to all Dipiazza's questions, the rider being that they would want something in return so that the US Congress could be told it had been two-way negotiations.

The French trade minister, Francois Loos, remained resolutely stubborn: We have an open market, he asserted. We were asked to open up to the poor countries and we have done that, he claimed.

We were told to switch to income support programmes and that is what France has done, he said. And in any case the concessions given on agriculture in the Uruguay Round had benefited only Australia and New Zealand, so give me a real proposal that will benefit the poor countries, he challenged.

The WTO director-general, Supachai Panitchpakid, insisted on being confident about outcomes, and promised a breakthrough before long.

At the end of all the Davos discussions, it wasn't clear how.

Calling the CEO's bluff

Do CEOs earn their pay? By and large, yes: that was the conclusion at a Davos session on the subject, with two chief executives and one head-hunter agreeing that by and large things were fine except for a few embarrassing exceptions.

It took a young Indian professor at the Harvard Business School, Rakesh Khurana, to blow the whistle. CEO pay, as a multiple of the average pay in their companies, had gone from 42 in the 1980s to 534 now, he said.

Stock options to CEOs were never properly valued, and accounted for 13 per cent of company liabilities, he added. And CEO pay went up hugely even in years when company stock prices moved down.

The author of a book on The Irrational Search for the Charismatic CEO, Khurana went on to say that, in any case, company performance was not primarily determined by CEOs; more important for performance was the industry to which the company belonged (a weak pharmaceutical company would do better than a strong mining company), the intellectual property (like drug patents) that the company owned, the phase of the business cycle, and so on.

And he quoted Warren Buffet as saying that if a strong CEO went to a weak company, it was usually the latter's reputation that remained intact!

That wasn't all: excessive pay is actually detrimental to the CEO himself, Khurana argued.

For if the CEO's primary task was team-building, then the huge pay difference between the CEO and his immediate colleagues on the management team did not help team-building. If anything, excessive CEO pay only reduced his effectiveness vis-à-vis his own team.

In the family way

Family-run businesses are superior to professionally-managed ones and have a much better profitability record, was the assertion at a dinner session in Davos.

And not just that, family businesses are flourishing and account for 85 to 90 per cent of all firms in even the developed countries, including a hefty representation in the Fortune 500""despite the fact that two-thirds of family companies never manage the transition from first to second generation, and half of the remainder don't make it to the third generation.

As the evening wore on, the reasons for all those trends became clear. For it turns out that business families are increasingly writing out clear positions on the rules within the family: who qualifies to be in management and who does not, the requirement of prior external experience, what you can get paid, how you use professional managers, and so on.

The last word came from Christie Hefner of Playboy Enterprises, who was one of the speakers. Talking of succession planning, she said the secret was to have many children so that you could choose your successor from a large talent bank, and then do genetic selection by marrying carefully! Ms Hefner has no children.