CEOs are unlikely to admit their successes are due to luck. But that is exactly what Harold G. Hamm, CEO of Continental Resources, did. He used the ‘Jed Clampett’ divorce defense to argue that only 10-percent of his enormous wealth ($18B) was due to his skill and effort.
Hamm and his wife were in the midst of a divorce battle and he hoped to use the Clampett defense, (named after Jed Clampett, a poor farmer who found oil on his land and became an instant multi-millionaire in the 1970s TV series The Beverly Hillbillies), to shield his wealth by saying that the majority of it was due to passive appreciation, e.g. high oil prices beyond his control, and should not be part of divisible assets. This, of course, runs contrary to the idea that CEOs deserve the outsize salaries, options, expense accounts, and other sundries they receive in exchange for services rendered. Basically, Hamm was admitting that 90-percent of his wealth was due to simple, dumb luck.
Like many people, I, too, automatically believed that those with mighty titles were not like the rest of us toiling in the background. However, since having moved up the corporate ladder myself and had numerous opportunities to watch some of these folks up-close-and-personal, I’ve come to realize that, while some of them are indeed exceptionally talented, many are of average skill with above-average luck. The list of “failing up” CEOs is long: Jeff Immelt at General Electric, Steve Ballmer at Microsoft, John Sculley at Apple, etc.
Blame this misperception of a CEO’s true abilities on confirmation bias, a trick of the mind that leads us astray when we seek out examples or information that confirms what we already believe. So, for example, if we believe that a CEO has above-average skills, we look for signs of confirmation that might include massive salaries and benefits, trappings of success like corporate jets, golden parachute severance packages, oversize offices etc.
During the last big software boom in the 1990s, I worked for a high-tech company in Toronto. After a hugely successful IPO—and weren’t they all bonanzas then—the founders became multi-millionaires. Not long after the public offering during a general staff meeting, I glanced over at one of the co-founders, who also happened to be a senior vice-president. She sat on the floor, her eyes unfocused, while absent-mindedly picking at her bare feet. After the initial shock, I concluded that she must be some kind of genius because who else would do that? Her eccentric behavior abetted by the big job title and sudden wealth seemed to confirm that she must have some kind of super-extraordinary abilities.
Years later, after the mea culpa cheques had been sent off to the SEC, the now-disgraced founders went their separate ways. The smart ones admitted that luck, in this case in the form of vigorous cheerleading from the San Francisco-based software industry sell-side market analysts that promoted the stock and the rapidly forming speculative bubble in high-tech stocks, had graced them. And, more importantly, that that kind of windfall may only happen once in a lifetime, if at all, like the oil that gushed out of Jed Clampett’s yard in The Beverly Hillbillies.
This particular VP, instead of launching a new high-tech business, took her remaining chips off the table and moved with her husband to the Tuscan countryside. So, come to think of it, maybe she was a genius after all?