The Real Yet Shocking Advantage That ALL CEOs Start With-Part 3-
Whenever Leo Dennis Kozlowski visited Harvard Business School, he got standing ovations. Even before he started speaking, the students would clap and cheer for him. They hung on his every word. They took notes about his mythology and how he structures his deals. They studied how he shaped Tyco International, a 400 million-dollar security company, into a 40 billion dollar acquisition machine. Under Dennis, Tycho slated over 3,000 alarm, safe, and sprinkler companies and absorbed them into Tycho. But let's be real about college students. It takes more than a good resume to impress them.
Want to know the real reason they cheered to see a hairless, egg-shaped Monopoly man standing at the head of the classroom in the late 90s? When Dennis Kozlowski was giving talks at Harvard Business, he was the highest-paid CEO in the country. During his last four years at Tycho, Dennis raked in 300 million dollars. Imagine sitting in business school and hearing, “Okay, class…we have a special guest speaker. It's the highest-paid CEO in America who is about to tell you how to earn 75 million a year.” Wouldn't you cheer?
Those applause, the respect and admiration from students and peers - that's what kept him going in prison in his 10 by 10 cell, where he wasn't allowed a cellmate because killing the highest-paid CEOs in America would have been big bragging rights. So alone, on his bunk, Dennis dreamed about those applause, the cheers, and the admiration. That was before Wall Street magazines gave him the nickname Piggy and before he would spend nine years in a correctional facility for organizing his own unauthorized bonuses, which exceeded 80 million dollars - a heinous, jaw-dropping crime back in 2005 when he was convicted. By the way, Tim Cook, the current CEO of Apple, receives a package of 99 million.
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In past episodes, we've talked extensively about what wealth and power does to your mind. In our celebrity insulation episode, we discovered that excessive wealth calluses us emotionally and stunts social growth. In our episode about FDR and stress, we discovered high-powered leaders struggle to empathize with subordinates and that their ability to recognize emotional states and others dropped as their power accelerates. In our episode about intelligence, we found it better financially to have a high social consciousness quotient rather than a genius IQ.
In short, money is good enough to get above the happiness index; The kind of money that pays for your grandchildren's education - that's the best. But when we start throwing around hundreds of millions, we become a target. We isolate ourselves. And if our fortune can be blamed on luck or timing, we can run the risk of imposter syndrome. We're going to get to our myth - could you even call having Bruce Wayne billions a problem? What's wrong with CEOs' egos that they need all that cash anyway? And if you're a CEO, how do you live in a world where everyone sees you as a walking dollar sign? But before we just start feeling too sorry for these poor, lovely CEOs, I want to tell Joe how Dennis kolinsky Justified his huge stupid bonuses.
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Todd: Joe, you and I both talked a lot about social class; we've studied it, and we talked about it on the show. We also talk a lot about minimum wage and poverty and slavery in the world today. Now, we're on the other extreme.
Joe: I've been waiting to get to the other extreme. I didn't know we'd be looking at Dennis doing it, but I have been waiting for this part. I want the pool full of money and the Tigers and sleeping on cash. I'm ready.
Todd: I want to talk about some of the CEOs out there so we can kind of put this into perspective. Tim Cook makes about 98 million dollars a year in salary.
Joe: Is it justified? A lot of companies say that they have to pay extraordinarily crazy rates to the point where it is no longer something that they will ever spend in their lifetime. Like, it's beyond anything touching human needs or necessities, and they say they have to do that because it keeps them competitive; It incentivizes the best CEO to step into that position. Do you believe that?
Todd: Tim Cook got the keys to the car from Steve Jobs, right? Just like Steve Ballmer got the keys to the car for Microsoft. They didn't take them; they've been there for a long time, and they've helped the brands get to that point. But it isn't really safe to say that they're worth that much to the company. If some other CEO came in from, let's just say, Starbucks or from anybody from Walmart, wouldn't they do the exact same job? Would you agree with that?
Joe: I used to not agree with that. I'm going to push back a little bit. I still believe it is such a niche skill, like studying your whole life for it and being extraordinarily diligent in getting it. I still believe it's a job that nobody really can do except these people. But I now know that it is almost incidental that a CEOs’ leadership ability translates into a successful business. I used to think that every company was tied to its CEO. Now I just think a strong company is a strong company. What the CEO does is almost incidental sometimes. So I've almost come around on this.
Todd: I just don't find these people to be that Dynamic. I still think they're working for the brand. And I hate to say men to be sexist, but that seems to be the case a lot of times.
Joe: I listen to the Freakonomics series on CEOs, and I know some of them are very dynamic, and they actually do steer things, but I'm starting to think a lot of them just kind of nod and listen to smart people.
Well we discussed the last episode about stock buybacks and how CEOs are compensated. So now we're going to get into the part where we talk about what separates them mentally because we want to keep asking the question in different ways. Can we be wealthy CEOs? And the reason we keep asking that is because we are or at least started as ostensibly a self-help podcast and at the root of self-help is all these books say we're going to make you a success; the author of How Rich People Think had a heck of a lot to say about what millionaires value and what they think about. If you're okay with that, just kind of want to start there.
Todd: Please. Sounds interesting.
Joe: I was talking to a couple of friends about doing this episode, and the first thing out of one of the researcher’s mouth was they all inherited it; that they inherited enough money to get started, and that's not necessarily true. I looked it up, and 80%+ of millionaires didn't inherit it; they actually worked for it. I will put a big fat “however” in front of this, 88% of them did graduate college. So the key difference is they didn't start off as millionaires, but they did have opportunities, with college being one of them. When we say that 88% of them started with degrees, it was not just their parents who got them to college; it was that their parents got them the kind of mentoring and extra information they needed to excel. When they all say I did it myself, they did it for the money, but when we're talking about just opportunity, they had that already. In the last episode, I kind of talked about how millionaires think. Todd mentioned that they seem street-wise.
Todd: I think it's tough competing with all those other ivy league high achievers. I mean, let's face it -Just swimming in those shark-infested waters of the corporate world, you'd have to be savvy to survive.
Joe: I come from a labor family and so to my brain, you spend your whole life getting so good that you could make something that is prized by people and passed down on the family. And that's how you make money. These people, they're master craft they've honed is dodging the corporate world. It's swimming through those shark-infested waters - that is their athletic sport; that's everything for them and they build their mind to look for opportunities. That's the savviness; they look for opportunities every day all day, and they build a net in their brain that catches opportunities. They're more concerned about building good teams. CEOs know social conscientiousness is worth more just dollar-for-dollar than IQ. Good CEOs are born communicating. These people are built with a mechanism and their brains to build teams and networks. So it really is their sport. They network, they listen to people, and when they see a problem they can solve, and it's worth something to somebody else, they solve it and they cash that check.
Todd: Do you think when they hear jackasses like us talk about CEOs, they think we are simplifying. They think, guys you don't know how much work this was. And the camaraderie of who to team up with. I mean, they have a lot of loyal soldiers on their team and women that have helped them that they wouldn't be there without.
Joe: That’s ultimately what our episode today is about; they're not thinking about the money. They're thinking about the camaraderie, what they're building, and what they're working on. That's something Steve says in his book - it's about fulfillment. Once you find that fulfillment, invest so much heart and soul into the work that you become the most competent person in your field. They're paid very well to focus on it that hard and to make it. At the end of the day, the money is a score; It's a metric. It no longer becomes about safety or security like the rest of us like poor peons. It is simply just a metric, a scoring device. We're going to get into studies about how the fears of the super-rich work and that’s the thing that comes up over and over again, is they really do look at it as this is the scorecard that gives you dopamine. That's all money really is; it's how you build your bunkers and buy your Yachts but those are just metrics of your success. The real thing you're focusing on is what you're doing day-to-day, what the fulfillment is and the people that are helping you change the world. I almost sound anti-capitalist when I talk about this, so I hope this doesn't come off as me waxing poetic about CEOs and glorifying them. But it really does take a different kind of mind to do a lot of what they do.
Todd: I think you're doing okay. You're walking the line though. You're forgetting some of the breaks and blessings these people have had.
Joe: Oh yes, they had a lot of opportunities, and they network and a lot of people. I found a pretty good Atlantic article written by Michael Norton, and he is a Harvard Business School Professor who backs up a lot of what we're talking about. He says two central questions that people ask themselves when determining if they're satisfied is: am I doing better than I was before? And am I doing better than other people? So when we talk about the guy that cheated Wall Street before the 2008 crash. But as Todd said at the beginning, he cheated Wall Street for less than the amount that we currently pay in bonuses to the CEO of Apple.
Todd: It has to be painful, though, when you're in jail, and you're thinking, I wasn't the only one doing this.
Joe: That's a question we want to get to eventually, but Norton and his colleagues went through two thousand people who have a net worth of at least 1 million. And they were just asking on a scale of 1 to 10, how much more money would it take to make them a 10 on happiness. Basically, everyone says they need two or three times as much. So it doesn't matter how much money they had, they always said they needed two times as much or three times as much as what they had already.
Todd: That's funny. You think it would stop at some point. But it just never does.
Joe: I think lottery winners learned that is; it's not about the number you have right now, it's about your ability to get more. They said, every billionaire I've spoken to is extremely excited by each additional increment of money they make. So they compete against one another and it's not about the money they currently have. It's not about the success or the financial security they currently have. It's always about one-upmanship. It is about scorekeeping and it's a personal value.
Todd: I know what you're saying. There's nothing wrong with the 30 million, you're trying to get that same feeling that Joe gets when he buys a new, upgraded computer.
Joe: Piggy could have gotten through life with just a couple of million. But once you get past the point where money is not a necessity, it becomes your value; it becomes a score of you, which is crazy to think about. It's like playing a video game where, like you, you play a game that keeps the score up in the top right corner as you sort of jump on enemies and shoot stuff. That's the scorecard for these people. And I'm not making this up, by the way, there's a book called Lake of Success. And in this book, they compete against one another. At the end of the day, they would play competitive poker against each other. And the spirit of one-upmanship pervaded even the donations they made to charities. If you can basically say that my skill sometimes is just luck, then the money is your score of how successful you are. The money is the scorecard.
Todd: I see that in sports a lot, especially with the NFL quarterbacks and MLB baseball players. When it comes down to contract negotiations, you would think that they were living paycheck to paycheck. I used to think it's the ego, but it's really just upping their value scorecard.
Joe: We’ll run into how lonely that is. If we want to simplify relationships for the super-wealthy, you have to find somebody who is on the scoreboard like you. Otherwise, you end up with an insulating and isolating dichotomy. We had a celebrity insulation episode where we realized that the more money you have, the more you instinctively isolate yourself from other people. People buy a house in the woods, a mansion on the hill, or you put large fences up; we naturally isolate ourselves for comfort but socially, what it does is stunts us. The author of this book said that too. He said people could purchase anything they ever wanted, and they weren't content; the pleasures of consumption wear off through time and they depend heavily on one's frame of reference. So, keeping in mind that a lot of these CEOs are scorekeeping for themselves, that's effectively what the money is - they have to spend that. It’s not just scorekeeping, you have to tell other people what your score is; otherwise, there's no point in having that high score.
Todd: A lot of the press came out on Piggy because of his extravagant spending. He kind of had pretty humble roots, though. He attended Seton Hall University, joined Tycho in 1975, and became CEO in 1992. So he didn't just show up like some hotshot; he worked his way up over 18 years. I think he knew that company like the back of his hand. Now, he became famous and got a lot of press because he was buying all kinds of companies. But he started getting some attention for how he was spending his money. He had Tycho pay for a 30 million dollar New York apartment with 6k shower curtains a piece. He had a specially-designed dog umbrella stand, and that was 15,000 dollars. He also had a private party that ended up costing two million dollars. He also had a party where he hired a private musician, Jimmy Buffett. The one that got a real bad press was the 2M dollar party he threw for his wife called the Tyco Roman Orgy. It was absolutely stupid, and this was in 2002. And he finally got busted when buying very expensive art. That's exactly what got him, his obsession with collecting art. And of course, he had Tycho pay for it because he can't pay for it with his ridiculous salary and to me, that just reeks of stupidity. This is ego out of control.
Joe: Now, tell me if this sounds crazy when I make this comparison, but I found out that a lot of the people that shoplift are people who were not hurting for money. Oftentimes, the shoplifters were people who were well off, and they were frequent customers. They just felt like they had earned it. Like, I've spent so much money here, I deserve this bag for free. It feels to me like a sense of entitlement. For Tycho, it sounds like Dennis really did come up through the ranks and earned them a ton of money. So maybe he felt entitled to what he was doing.
Todd: Business-wise, he wasn't buying foolishly; he was just spending personal wealth foolishly. But for the company was a very brilliant businessman.
Joe: So, it's just a case of the CEO thinking he was the business. This is the case of somebody who thought they were entitled, felt like they had earned it, and they believed they were the organization they had built.
Todd: I don't care how successful you are; you shouldn't have a 2 million dollar birthday party for your wife that are Roman orgies. That is just too far. I think we would be staff there. That would be our role.
Joe: If anyone thinks we're making this up, go look at the pictures. It is literally a Roman orgy. It's almost like something someone would throw to make fun of rich people, but it is rich people doing it. So it's crazy. So, what did the trial look like? What did he justify all of this greed with?
Todd: The first trial was a mistrial because one of the jurors was seen giving a thumbs-up sign toward Dennis. Dennis was sentenced to prison in Lincoln Correctional Facility in New York. And they immediately put him in protective custody because it would have been a real notch on your belt to kill a big CEO like that. So they took care of him. He never felt endangered any time and one of his buddies in jail who was there on a gun charge was rapper Ja Rule. They used to hang out and Piggy used to give stock tips. His first parole was denied, but then he was granted parole and later got out in 2017. The state of New York filed against him that 500 million in compensation that he received between 97 and 2002 had to be forfeited. So he lost everything, and it turns out that under his watch, the company Tycho lost 3.55 billion dollars. So that's a pretty big hit. But today, he lives a much different life than they used to. He doesn't have Bentleys and the helicopters. Instead of getting 6K shower curtains, he now gets them from Bed Bath and Beyond. And his wife's ring, the cubic zirconium is under $300, and his new wife, his third wife (added), came with free shipping.
Joe: Their Roman orgy party is going to look so much cheaper. That's going to come from Party City. It's going to be cardboard armor.
Final Thoughts
For most of us, the dream of extreme wealth is one of security. In this economy, we fantasize less about yachts and mansions and more about a world where you don't need a full-time job to cover life-saving surgery or a monthly rent that isn't over half your paycheck. What if you had all your basic necessities covered? Wealth may start as security, but what happens when you grow into your fortune? Wealth becomes a scorecard.
How do the fabulously wealthy really think? People are all different. If they're arrogant, they may think they earned it by being there first. If they're confident, they blame their extremely niche skills that society decided to reward them for. Or, like most people, the wealthy might see themselves as heroes of their own narrative with one fundamental difference. The rest of us merely believe we are the heroes of our own story because that's how humans work. Whereas the fabulously wealthy have an actual scorecard telling them they're the hero of their own story - one that the bank issues and the rest of the world generally seems to agree with their metric.