Ted Audio Collective Hi everyone, you're listening to After Hours.
I'm Yang Mi and I'm here with Meher and Felix.
Hey guys. Hey, we're dying to know Yang Mi.
How's the cooking going?
Oh! And why didn't you bring anything to the taping for us to try?
I'll ignore the second question.
Cooking is going great.
You guys both cook, right?
I do a little bit, yeah.
Not nearly as much as I think what you're doing.
But yeah, I try. But over the course of your life, you cook much more than I have.
I have found that baking is my strength.
So this was a revelation to me when we were growing up.
Why don't you bring us baked goods?
That's a good point.
I should do something better there.
But this was a revelation because during Thanksgiving, the cooking would be spread across the siblings.
And I would always do desserts and do baking.
And my brother would do the main.
And my sister was stuck with sides.
And I always wondered why anybody let me get away with this.
Because desserts and baking, it's like minimal effort and maximum payoff.
Like people love this.
My sense of baking is it's very technical though.
It's very precise. Yes, precision is very different.
I think that's oversold.
I think that's totally oversold.
I mean, you have to have some.
So you need to bring something otherwise.
You know, we can't really...
fair enough. Okay, fair enough.
Fair enough. And then Felix, I know.
Because I've eaten your cooking.
Yes. Yes, I love to cook.
This is actually a great time for me.
Because my cooking changes dramatically over the seasons.
For me, it's more process.
It's more technique.
For instance, in the winter, I love braising things.
This past weekend, I made duck legs that were braised in sweet wine for three hours.
And now I just feel like a complete beginner.
There's nothing to it.
Really? Yes. Because I'm at the point where I just take such pleasure out of creating my mise en place.
I have the most beautiful mise en place.
We should post a picture.
I will send you a picture.
I think we need an episode where we all bring in our things.
Okay. All right. But guys, we have to talk about stuff besides cooking.
The broadcast. I almost forgot.
Exactly. And you both brought in stuff to tell me, right?
Yes. So I would love to talk about CEO turnover.
This past year, we hit a peak in the number of CEOs who left their posts, both voluntarily and involuntarily.
And I'd love to know what you think about it.
Okay. Meher. So I wanted to talk a little bit about a topic that's related to what we talked about last week, about financial security, but particularly about the 401K.
And before you shut off the podcast...
Which is, it's the 40th anniversary of the 401K, which is the dominant way that Americans save for retirement.
And I think it has completely been an unheralded revolution in financial security for Americans, maybe for good and maybe for bad.
So I wanted to get your sense of what that means and how we should think about it.
Hmm. You took a boring topic and with that intro made it super intriguing.
I thought you were going to say more boring.
No, no. Okay. All right, great.
Okay. Feelings. I want to talk about CEO turnover because this last year has been particularly active.
Thousands of CEOs have left their jobs.
In fact, if you look at the last 10 years or so, the only year during which we had more separations was 2008, which you remember is the Great Recession, when, of course, lots of companies were in financial difficulty and many top CEOs had to leave their jobs.
More generally speaking, the observation is that in particular for large companies, CEO tenure just falls year after year after year.
On average, we're now at roughly five years, so the CEO of a large company will turn over every five years.
There are always notable exceptions, CEOs who stay on for a decade or more, but the trend is pretty clear.
Shorter and shorter tenure, what's your sense?
Good news? Bad news?
I mean, by and large, I always say good news in the sense that if it represents more active shareholders actually saying something about the quality of CEO performance, I think it's great.
I think the important piece to think about is what that average is maybe obscuring, that average tenure.
So what I would love to see, and I think it's showing up a little bit, is something a little more bimodal, right?
So you want a lot of exits after two years, and then you want people staying for eight or ten years.
If it's really like a bell -shaped distribution and everything is at five years, I think that's a little bit problematic because...
So why is that problematic?
Well, I'm not sure it's problematic, but my guess is that for an agenda to be developed and to be executed upon and to see the results, five years is a short amount of time.
But the reason I like the idea that tenure is coming down is if there's some more exits at two years where there's a mismatch, it becomes clear, people are willing to call it a mistake.
I think if it means that we're getting a lot of mistakes, call that early, I think that's good news because that's been a problem, which is people are not willing to say we made a mistake.
And so if we're seeing a lot more kind of two -year ones, I think that's great.
I do think that there are a couple other variables that sort of play into this.
So one is I do believe boards have become more impatient.
The second is my intuition, and I don't have any data to support this, but my intuition is that the way CEO compensation is structured in this country is such that you don't have to be CEO for that long to walk away with a big chunk of change.
This is an important piece of it.
Yes, and so when things get a little hot, I think CEOs are much more willing to say, you know what, okay, I'll resign, or I'll step aside, and they'll just take that pay bundle and they'll just walk away.
And just to be clear, I think that you're exactly right, and the data that would support that is at least in the market, right, which is 2018 was a peak of many kinds of big run -up, and so that could entirely be what's going on here.
Yeah, the other thing is, is I do wonder if particular in the Me Too era, there are just so many more dimensions along which we scrutinize CEOs now.
Is there any evidence that that is playing into some of these departures as well?
There is, yes. So an increasing number, you know, if you look at the category, scandal -related departures.
Of course, it's always hard to know because many companies will make it look like it was— Spending more time with the family.
Yeah, spending more time with the family, when in fact sometimes we can know that that is not true.
Although relative to the thousands who leave, that's a relatively small number.
A relatively small number.
I think the other interesting thing about this is if it's voluntary separation, meaning CEOs leaving as opposed to getting pushed out.
Now we have a private company market, venture and private equity, that is very big and very robust.
And really attractive.
And really attractive.
And so I think the other piece of this that we haven't really figured out is, is it about public companies or is it about CEOs generally?
Because I think the other thing that may be happening is private equity firms, of which there are more and there are larger—sorry, larger companies that are owned by private equity firms.
That's a more attractive option.
So I wonder if there's some talent migration going on as well.
Yeah, I don't think we know.
No, I don't think we know that.
One of the things I do feel has happened is that we're living in an era of these big shifts.
So it used to be if you became CEO of a large -cap company, you knew what you were supposed to do.
You know, you become CEO of a big automotive company.
You got to run the automotive company.
If you are CEO of Ford today, it's not quite so simple because it's not just about figuring out, how do I run this business, but what business should I be in, which is a much more fundamental question.
So Ford last year, for example, announced they're not going to make cars anymore.
They're only making trucks.
If you're CEO of Ford, you have to be thinking about artificial intelligence, and you have to think about alternative sources of energy.
If you're AT &T, you're thinking about what do I do with Time Warner?
How do I contend with Netflix?
A telecom CEO never had to contend with these questions.
When Amazon bought Whole Foods, overnight, the CEOs of every other competitive grocer in the country were suddenly put under this other microscope.
And the expectations for what those companies are supposed to do just changes overnight.
So we're living in this era of these big shifts where what we're asking CEOs to do is not just run a business, but we're asking them to define what are the spaces in which to play, what are the competencies that our company needs to acquire.
And so it doesn't surprise me that you see a lot of variability in how boards are selecting those people.
So I think this is really interesting.
I hadn't really thought about this, but I can think of it two ways.
I'm not sure which way you mean it.
One is that the actual jobs are harder, and they're trying to do this.
But I think the other piece of it is also that if you're running a car company or you're the board on a car company, you actually look everywhere.
So there's a lot more mobility across sectors.
And that is actually also really interesting.
The cases that you outlined for it shows somebody who did not have a real automotive background for a little while.
There's a lot of examples like that.
I actually think that the latter suggestion, which is there's you're not looking for industry CEOs.
You're looking across industry CEOs.
I think that's really interesting.
And that would be interesting to see in the data if that's true.
It's fascinating to think about the implications of that, that we get less, quote unquote, insiders, industry specialists.
Much seems to hinge on how good our boards at reading performance data early on.
Yes, yes. Like as the new person comes in, you see a number of initiatives.
But of course you understand that it's going to take a little while for the initiatives to really take root.
It's going to take a while for the financial results to show up.
And so that's another sense in which giving people the runway and giving people time to really show what they're doing and whether or not it's working.
That would be one of my concerns that every board member wants to be seen as accountable.
And what's an easy way to do this, you look at short term financial performance and you respond relatively quickly.
And that's not really what we mean by saying, oh, accountability is a greater issue today than it used to be.
The tension that I think emerges is that while I agree with you for sure that it takes time, everybody is very cognizant that speed in and of itself is a really important dimension along which to compete.
And so if there is a sense that this company is moving too slowly, then as a board member, one of the pressures that you feel is how do we accelerate the pace at which this company is transforming?
And in many cases, absent any other alternative, what you do is you look for a new CEO, right?
I mean, I think one way to think about this, Felix, and your point, Youngmi, is historically, on average, what's been the mistake?
Meaning historically, have we had boards that are too trigger happy to shoot someone and just basically get rid of them too quickly?
Or is the average error been historically a collective action problem where we just don't want to fire somebody?
We don't want to recognize our own mistake?
And what's your sense?
My instinct is that it's the latter, which is actually historically, the average problem has been an unwillingness to it.
Take too long. Yeah, take too long.
So that's why I kind of agree with you.
I agree with you. I find it fascinating.
So Ford is a great example, right?
So now things are not going that well at Ford.
And what do people say?
Oh, we shouldn't have fired the previous CEO so quickly.
And so in a way, we're missing the counterfactual.
We never quite know how it would have turned out if you happen more patient.
And as a result, we basically look at current performance and we say, oh, firing happened too quickly or firing didn't happen soon enough.
It's a tricky thing.
I mean, one of the most prominent CEOs in the world right now is Tim Cook.
And he's under incredible pressure.
This will be his, I think this summer he'll hit eight years.
And you hear, I mean, at least I hear zero conversation about maybe it's time for him to begin to think about transitioning off.
There's zero conversation about that.
And so I do think we're not uniform in how we think about this.
Right? I think the other piece that's interesting about this, I hadn't thought about it, which is if the average tenure comes down in this way, you know, succession planning is non trivial, right?
And so if you don't have the time to create the next candidate, I mean, one of the issues in Apple is, do you think there's someone inside Apple who's the natural next candidate?
I don't think they would ever pick someone outside.
And so it's a complicated decision.
And so you kind of do worry about succession planning.
And so it is a really, I think it's a really hard problem.
So Felix, before we run out of time, were you surprised in a negative way when you saw that number for the first time?
So I do think that the trend is troublesome.
I do think that what is sort of the impatience in the market with what CEOs are trying to do and trying to build in particular in large and complex organizations, that it pushes us towards the kinds of investment where we can see very quickly whether or not it's working out at the expense of other more
complicated things.
And I think mostly because that's my intuition to begin with.
Then when I see the news, oh, and the trend seems to accelerate, my first intuition is probably not a great thing.
Interesting to see if it's a blip or if this trend continues.
Yeah, it could be market -induced to me here's earlier point.
Just like the 2008 blip was market -induced.
So now we get roughly the reverse.
Okay, Mehear. The exciting topic of 401Ks.
I know. Hold on to your seats.
Talk about the tax code.
Well, so it's not just about the tax code.
It is about the most fundamental things between employers and employees.
It's about financial security and it's about retirement.
So here's what has happened.
Forty years ago, we began 401Ks in a traditional sense.
Historically, how was retirement handled?
Well, social security has always been there.
But historically, there had been what are called defined benefit plans where employers are making payments to employees.
Yeah, traditional pensions.
And then in 1978, there was a law that began, by the way, in a completely unanticipated way, the defined contribution revolution, which is not firms making specified payments to retirees, but firms and employees contributing to a savings vehicle.
And then that becomes your retirement pool, basically, for an employee.
Completely unintentional thing that happens in 1978 gets picked up by employers who are less interested in defined benefit plans.
Gets picked up by mutual fund companies who see a complete bonanza in the defined contribution in the 401K revolution.
And so before you know it, we have 401Ks that are the dominant retirement vehicle.
And pensions have gone down.
And defined benefits have gone down tremendously outside of the public sector.
So there are several things I think this touches upon.
It touches upon a topic we talked about previously last episode about financial security, because in a way, this represents a shift of risk from employees to employees.
Second, it hits on issues of kind of progressivity, which is the benefits, the tax benefits associated with this have largely accrued to higher income people who take advantage of the savings, where a lot of lower income people don't.
So in that sense, it's a little bit of a - Can I stop you?
I want to unpack both of those.
So to just make sure our listeners understand.
Okay. So the first is when you move from pensions to 401Ks, you're transferring risk from the company to the employee.
So unpack that. So historically under these defined benefit pension plans, employers are on the hook for payments to employees after they retire.
So I know I get a thousand dollars every month.
And the company has to figure out - How to do it.
I mean, look, until my mother passed away recently, she was receiving a check as a survivor of my father, who was an employee at Pfizer for a long time and a big defined benefit plan.
So what's the case today?
Well, that's not happening.
What's happening is your employer is contributing, you're contributing, it becomes a pool.
It does whatever it does in terms of its investment, you decide, and then you retire, and then you got to figure out how to annuitize it, how to make it into a retirement savings.
So the shift of risk is both employers are no longer on the hook, but you are also investing that money for your retirement.
And then the second piece about it is that this is largely a benefit that has been accruing to higher income people who can take advantage of these plans.
At the same time, it is - And that's just a function of I can save more, I put more in my 401K than someone who has a - Exactly.
Really top executives and upper management are the ones who avail themselves of this.
Okay, so that's a long prelude to saying, first, what do you make of this transition to 401Ks?
And what does it tell us about the way we should think about designing retirement security and financial security for people?
We hit upon this last week, which is people are tremendously financially insecure.
And so do you kind of see the current state of affairs as sustainable, and do you think the anniversary of the 401K is a great thing?
Or do you see it as symptomatic of a larger problem, where we have a lot more insecurity, and we have a lot more risk piled on employees?
So my general intuition would be to assign risk to parties that are in a better position to handle it.
And from that perspective, I don't think the change has been a good change because both, you know, now millions of people have to worry about how the financial markets work.
People who have zero interest in financial markets and financial market products have to worry about, well, what's a target fund, and is that a good idea for me?
So just think about, like, the millions of hours that get spent on worrying about something where you're just not the expert.
And so I generally don't like this shift of risk towards parties that are less able to bear it.
When it was first introduced, my sense was that it was viewed as almost a supplement to what was already existing.
And in many ways, it was sort of this brilliant idea that first of all, pre -tax contributions, how nice is that?
Employee matching? That's like free money.
I mean, it's so magnificent.
And then this idea that everybody had this kind of easy on -ramp to participate in the stock market.
There are a lot of people who would not even touch the stock market if it weren't for their foreign case.
That's the only access they have for the stock market.
And so you think about all those things in isolation and you think, well, that's fantastic.
And then you read, well, most of the benefits flow to, like, the top 20 % of Americans.
And pensions have pretty much disappeared from the private sector.
And you think, well, how did we go from there to here?
And I think that's the part that's really troubling.
And in the process, as you look at the industry that has emerged around 401Ks and the complexity associated with that industry, and the high fee structure associated with that industry, and the lack of transparency and how people are making decisions that they are themselves going to have to be accountable
for down the road, then it all starts to feel super, super uncomfortable.
The biggest beneficiaries of a 401K is someone who has the wherewithal to begin making contributions at an early age.
So last episode, we talked about how 70 % of people are basically living month to month.
So if you're not one of those 70%, if you already have the wherewithal to begin making contributions early on, and you have the level of sophistication by which you can navigate the system, then you're going to end up better off down the road.
But if you're not, you're sort of just left to your own devices.
Yeah. As you point out, it's an incredible story of kind of unanticipated consequences, which is, yeah, this sounds good and in a supplemental way, fantastic.
Fantastic, right. And then it displaces a lot of things that were in the...
And by the way, I think because private sector actors, firms and money managers understood what a great vehicle this was going to be for their businesses.
But it still kind of begs the question, what do you want the retirement security system to look like in the US?
And so can you imagine a return to kind of traditional defined benefit pension plans?
Or is the answer we kind of muddle along the way we are now?
Or is the answer where I think you were going Felix, and I increasingly find myself going there too, which is a considerably more generous social security problem, which by the way has its own issues.
So where do you end up thinking about retirement security?
So first of all, fixing social security the way we have it, I think that's part of what needs to happen.
And then thinking about a recommitment to a public scheme.
Because in the end, both from sort of an expertise kind of view, but also from the view how expensive is it going to be to operate a particular system.
I think there are a lot of pros for a more generous public scheme.
The more fundamental question is to what extent do you think we should encourage individuals to tether their retirement to the stock market?
I mean that's essentially what these programs do.
What's the answer to that?
Well I think the answer is, you know this is going to be unsatisfying, but the answer is over the long run, we believe that on average, it's a good thing to do.
But your timing could end up being very unlucky.
Look at the last year.
I mean exactly right, your timing can be very unlucky.
And so again, it's not clear that they're sophisticated enough to make those choices or that the actual they're able to bear those risks in the way we're talking about.
So the government offers to federal employees this thrift savings plan, and it's a filtered set of diversified index funds with very low fees.
Should something like that be available to all citizens, not just federal employees?
Yes, so I think that's an interesting possibility.
It's almost like a public option like we talk about in healthcare, but it's on retirement savings.
I think that's interesting.
I mean two thoughts.
One is in the last five years, we've seen this remarkable rise of indexation.
We should actually talk about this at some point, which is going to pass the investigation as mushrooms.
So fees have come down and now index funds are fairly standard in the choice set.
They should be everywhere.
But not everyone knows to choose them.
Not everyone knows to choose them.
And so you're both architecting something that's a little bit more of a forced choice or a narrower set of choices.
And I think the advantage of the government thing is just the low cost they're able to obtain.
And I think that can make a ton of sense.
I'm still open though to the idea that maybe we need to see employers play a more significant role and have a commitment to workers.
I mean, do you think that's attractive in the labor market?
Or do you think like, can you imagine a firm deviating and being like, you know what?
We're offering a defined benefit plan.
Can you imagine that?
Or is that so historically just gone?
Or is that a possibility even in today's world?
Most companies I think when they try to lure employees, they'll say, hey, we have this amazing 401k.
And then this other company said, hey, we have this pension plan.
I think most workers, they wouldn't even be able to suss out the pros and cons of those two things.
And it's not clear to me which one of those they would judge to be more appealing.
And also, I think from a historical perspective, it was always true that even in the good old days of pension plans, that you needed to be about 10 years at a company before you started to benefit.
And if you look at the reality of careers today, you're staying with a company for 10 years.
I mean, that's increasingly, and I think it's two sided.
Talent, you don't really want to stay with the same company for that long.
But also for companies, it's not clear that you want to keep the same people over.
But it's a theme that has run through a number of these episodes.
And that is when it comes to the safety net, who should be responsible for?
Should it be the government?
Should it be companies?
Or should it be individuals?
But I think what Felix is getting at is that we want public solutions.
I think that's what I hear you saying.
My sense is that I am not sure this is like the textbook application of a well -functioning market where I can say, oh, let's create competition.
We'll be okay. Is there a progressive, increasingly progressive stream that's running through our episodes?
I'm asking this genuinely.
Well, I think it's a great point.
I think what my sense is is that there are so many questions today about instability.
And there's a great deal of distaste for the current solutions.
And so I find myself worrying about these problems more.
And I wouldn't say that I'm migrating in that direction, but on some of these issues, like on retirement security, I find myself asking, the system right now is just not working.
I feel the same way.
But it's hard to imagine others.
Yeah, I have a much simpler explanation.
I remember seeing this chart of the voting records of Supreme Court judges and how they tracked over time what happens to your, quote, unquote, political views.
And guess what? You get much more liberal as you age.
I think we are aging.
When I was growing up, the stereotype was the older you got, the more conservative you got.
Yeah. But I think there is a little bit of a U -shaped thing, right, which is there is a sense in which young people tend to be left and then they migrate right when they start working.
And then I think they migrate left to some degree.
I think what happens when you get old is your views harden, or at least that's what I observe of a lot of older people.
Well, the other possible explanation is because we know business, it's very easy for us to look at a situation and say, hey, this is how the market is failing.
These are all the problems.
Whereas if we understood government really well, we would say you guys are crazy to think government can solve this problem.
No, that's right. And if we were more familiar with the inner workings of government, we would say that is absolutely the wrong party to turn to to solve these problems.
So who knows? Well, I'm banking on this podcast continuing through the retirement.
We'll be in our 80s.
What a zero listener.
We'll just sit here outside.
Our listeners may have much more time to listen to us.
Yeah, this is true.
We'll do five hour episodes.
And then I'll say, eh, what did you say, Felix?
What? Say that again?
And it'll always feel fresh because we can't remember what we talked about last week.
Okay, you guys have picks for me?
I do. Remember when we talked about Netflix?
I felt one of the really fabulous aspects of Netflix is that it brings television from all around the world to my house.
And so I got hooked on this series from saying no, nothing.
Oh, thank goodness.
Yes, I knew we would get at least two recommendations that I had to do with Great Britain.
So I couldn't do the UK.
So the show is called Money Heist, and it describes an attack on the royal mint in Spain.
It's funny enough. It's a professor who figures out the perfect plan to take over the royal mint in Spain.
I love high smoothies.
And it's sort of a story of a perfect plan.
It's super popular in Spain, obviously, by Netflix, but it's proof popular.
It's globally available.
So it's really one of these phenomenon where you now have like millions and millions of people watching it.
The other thing that I'll say is in these kinds of shows, you often have sort of like someone who's trying to do something.
And then one side makes a series of mistakes that then eventually leads to the big consequences.
Here you have both sides constantly making mistakes.
If you have an extra five million hours to watch TV, Money Heist should definitely be part of it.
It's a professor. Yeah, not our type professor.
It is a professor. Before I give my recommendation, I forgot I did want to just provide an update, which is I followed...
So the update counts against the two?
There may be multiple recommendations.
So I just want to say that I had three follow ups to previous recommendations.
So two of which are related to Young Me, which is I both finished Educated, the Tara Westover book.
It's amazing. It's so good.
And I saw RBG, which was also amazing.
So thank you for those two.
And then the third update is I had once pitched Indian Accent, which is an Indian restaurant in New York.
I went to the original in Delhi, and it was even better.
So Indian Accent, I want to reaffirm that.
So my actual pick though for the week is...
So that counts as four things.
I'm a little confused about how to count, but yes.
So my pick is actually a writer, maybe an article and then a writer.
So there was this incredible profile of Mark Burnett in The New Yorker, who was the guy who launched reality TV.
And he launched Survivor and then he launched The Apprentice.
And it's really about him and his role in the Trump phenomenon.
The article is amazing.
But then, you know, sometimes when you read an article and you love it, you do some research about the author.
So this guy Patrick Radenkief has been writing for now 15 or 20 years.
And I just realized so many things that I've liked have been written by him.
Written by him. You know, so for example, he had this great piece on Oxycontin that came out a little while ago.
It just came out with a book, which I just started now, about Northern Ireland and The Troubles in Northern Ireland.
He's basically a nonfiction writer, but he takes these really interesting subjects...
What's his outlet? His primary outlet in The New Yorker.
He's on The New Yorker.
I think I read that Oxycontin piece.
It's amazing, right?
It was just one of those revelations where you look at an author's name and you're like, I never have heard that before.
And then you look and you're like, I've read like five things by him and they're really, really great.
So Patrick Radenkief and the Mark Burnett story.
Ah, cool. Okay, I have a cooking update.
So you know how I told you that I like to watch something that inspires me while I cook?
The other thing I've learned is that if I can't find something to watch, I listen to a food podcast while I cook.
So I've sampled a whole bunch, but the one I really enjoy, it's almost like Cooking With Friends, is this podcast called Cooking by Ear.
And what they do is they bring on a well -known personality and that well -known personality will cook their favorite dish and be interviewed while they cook it.
And so if you want to start with an episode, I would start with the episode where Frances McDormand is making her favorite risotto.
And in the process of cooking is she's talking about how she cooks it.
She's also talking about preparing for movies and how she prepared for Fargo and other things.
It's just a wonderful thing to listen to as you're cooking because you feel like you're with somebody.
When you live a lonely life, you have to come up with imaginary friends.
So Frances McDormand has become my imaginary friend.
It's called Cooking by Ear.
Sounds great. So that's it for this week.
Thanks everyone for listening.
This is After Hours.
