Today I am reviewing The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. You've undoubtedly heard of Jack Welch, the celebrity "CEO of the Century" who generated 20.9% annualized returns for his shareholders while at the helm of General Electric (GE). But what about Tom Murphy or Henry Singleton? No? Maybe Bill Anders, John Malone, Bill Stiritz, or Dick Smith? Well, you can be forgiven if these names have escaped you; the popular media have largely ignored these CEOs despite their equally exceptional shareholder returns.
In fact, according to author William Thorndike, these CEOs' returns should be viewed far more favorably than those of Welch, who happened to preside over one of the longest bull runs in recent memory (the S&P 500 averaged 14% returns over the period). While Welch bested the market by 3.3x, lesser-known Henry Singleton of Teledyne outperformed the market by 12x over an even longer period than Welch. The eight CEOs as a whole outperformed the S&P 500 by over 20x and their peer groups by over 7x, proving that these were not just the luckiest operators in uniquely lucky sectors.
The Outsiders is a collection of eight CEOs who eschewed the prevailing wisdom, forging their own path to great returns (if not great renown). Among the CEOs profiled are two that should be well known to my readers (Warren Buffett and Katherine Graham), as well as six who largely operated out of the popular imagination. The list includes:
- Bill Anders, General Dynamics
- Warren Buffett, Berkshire Hathaway
- Katharine Graham, The Washington Post Company
- John Malone, TCI
- Tom Murphy, Capital Cities Broadcasting
- Henry Singleton, Teledyne
- Dick Smith, General Cinema
- Bill Stiritz, Ralston Purina
Each chapter focuses on one of these CEOs, providing a brief biographical sketch of how he or she arrived in the top position (e.g., one was an astronaut, another was a widow without prior business experience, two were PhDs, etc.) before delving into the unconventional strategies employed in achieving market-topping returns. Thorndike manages to suss out a few common characteristics of how these returns were achieved, including:
- Focus on per-share value rather than sales or earnings
- Decentralized operations ("Delegating to the point of anarchy")
- Cash flow based metrics
- Significant stock repurchases at opportune times
Beyond these four points, there is significant divergence in their strategies which largely stems from industry conditions. This divergence allows Thorndike to keep the book interesting while reiterating the same key points. Overall, I found The Outsiders to be a quick, interesting read about many CEOs whom I had never heard of. I think there is value in seeing examples of best practices for company management, if only for informing our ideal of how our portfolio companies ought to behave.