The Book got the rare honour of being recommended by Warren Buffett in his Berkshire Hathway Shareholder Meeting, 2012
What makes for a good CEO?The answer is capital allocation.
CEOs who can allocate capital well are the ones who are able to reward shareholders.
The Book covers the corporate tales of Eight Extra-ordinary CEOs who were able to generate returns to shareholders in excess of 20% per annum handily beating their peers and the broader indices.
How were they able to do so?The Book offers some clues:
- Getting rid of businesses which gave below par returns
- Focussing on cash,cash and cash
- Running lean operations
- Doing buybacks when their own stock traded below intrinsic value
- Doing acquisitions with cash when their stock traded cheap and with their stock when it traded expensive
- Using spinoffs to generate shareholder returns
- Eschewing dividends as it a tax-inefficient way of using capital
- Focusing on tax saving strategies and post-tax returns
- Incentive structures where employees own shares
While the stories in the Book are of the Titans of American Business such as Buffett,Tom Murphy,Malone etc, there are easy parallels to be found in the Indian context.
For instance, shareholders in PEL have benefited tremendously as Ajay Piramal is a master of capital allocation.He not only got a great price for his pharma business but was also able to deploy the capital effectively
Another example of a CEO trying to allocate capital judiciously and sell non-core businesses is N Chandra,Chairperson of Tata Sons.His moves should improve shareholder returns significantly.
A good example of a super smart CEO using his expensive stock to acquire is Uday Kotak.He got ING Vysya for almost free !
In the Indian context, nobody has done more spinoffs than Mr.Biyani of Future Group. His spinoffs have created shareholder wealth. Others on the same path include Arvind,TCI etc
Do buy this book to know which CEOs to bet on.