Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

If you are a CEO of a publicly traded company this book is for you. Some good stories and examples but allocation of capital, stock buy backs, leveraged debt; there wasn't much in here about managing and leadership. It's more like a blueprint for creating shareholder value.

The Outsiders is a breezy review of several successful investors and businessmen; there's not much meat here. I am frankly surprised that Buffett would strongly recommend a book that promotes the "copious use of debt" to achieve wealth. While it may be true that the winner of the race is highly levered, it does not follow that highly levered players are the winners.
Read the Berkshire Annual Letters instead.

The Outsiders is the epitome of overrated. Thorndike makes the data fit a pre-conceived hypothesis; this is not at all an academically-serious piece of work. There is a total confusion between correlation and causation...to the point where Darwin is probably rolling over in his grave!

Thorndike's pre-conceived hypothesis is this: 'outsider' CEOs are independent thinkers who buy back shares, focus on cash flow, and run lean organizations. Great. Except, there are about 500 companies beyond the 8 featured here that do all three of those things... without 'outsider' type results. And... when you really get into the meat of Thorndike's examples, you realize that his 'outsider' CEOs can issue shares too! As long as they do it smartly! And they can make giant acquisitions and expand their organizations massively, as long as it is smart!

There's no way companies like General Dynamics or the Washington Post are run by 'outsiders', even by Thorndike's own definition. In the case of General Dynamics for instance, each of THREE CEOs profiled came from military backgrounds, each was groomed for the post, and then they all did completely different things! One made a lot of acquisitions, another did a bunch of divestitures; one wanted to grow laterally by acquiring Gulfstream (to mitigate the ups and downs of the defense business?! -- as if that's a good, 'outsider' reason?), the other wanted to shrink and be very focused on doing a few things well; one issued stock, the other bought it back... so, is the reader to assume that all of these behaviors are characteristic of "outsider" CEOs? Wait... let me get this straight... an outsider CEO can do acquisitions, not do acquisitions, buy back stock, issue stock, have a conventional background, or have an unconventional background, lead from ahead, or lead from behind... So basically an outsider CEO can do anything, and be anything... as long as in 20 years, when we look back at the stock price, it has compounded at a rate that is way better than the market and peers.

Instead of writing a whole book with a bunch of weak 'theory' behind it, couldn't we just have said -- outsider CEOs are the smart ones that make good decisions about shareholder value?

What use is the book then? All of these fluffy management books follow the same process. Screen the universe of stocks over the last 20-30 years, find a handful of extraordinary examples (with perfect 20/20 hindsight), and look for correlations between the examples to 'explain' the success. This is exactly the process of "Good to Great" by Jim Collins, which has since been de-bunked by various academic studies (not only that -- many of the "great" companies Collins highlighted in that book ended up being mediocre over the next 20 years!)

The KEY is that this book does nothing to help an investment analyst identify FUTURE outsider CEOs and/or companies. That's because there are too many exceptions to the rules. There are tons of companies who have bought back stock, with leverage, to disastrous results, because the underlying core business is shrinking (see value traps galore like Best Buy or Bed Bath and Beyond). There are tons of companies who have made large, game-changing acquisitions, that then changed the game for the worse rather than the better. There's tons of companies that have run their business in a totally decentralized way only to create various fiefdoms fighting against each other. So... for every Kay Graham or John Malone or any of the three CEOs of General Dynamics... there are 100 managers who have done the exact same things but haven't had nearly the same result. So are we talking about correlation here or causation?

It would have been a far more interesting book if Thorndike put himself out there and tried to identify 'outsider' CEOs that didn't yet have a 20-year track record of perfection. And then we could see in real-time if those CEOs actually turned into superstars decades later, by doing the things that Thorndike claims only outsider CEOs do. But of course he didn't do that, because by the skimpy theory espoused in the book, it would be basically impossible.

In fact, there's no guarantee that even the outsider companies ALREADY FEATURED in the book will remain any good! For instance, the Washington Post's returns for the last 10 years have been mediocre under Don Graham. The education business has been a disaster, the newspaper was sold for pittance, etc. Wouldn't a true outsider CEO (or outsider company culture) have seen the disruptive threat of the Internet coming decades ago, and sold Washington Post at the peak... rather than to Bezos for pittance?

Overall, I think that The Outsiders is HIGHLY overrated, just like "Good to Great". It confuses correlation with causation, and ends up just reading like a compilation of magazine puff-pieces, profiling CEOs whose stocks have done well looking backwards. But of course readers love to read this kind of stuff because it makes them feel nice and warm inside! Good luck identifying future 'outsiders' with these rules that are rules except when they aren't.

Most would identify Jack Welch as the greatest CEO of the last 50 years. During his 1981 - 2001 run, G.E. shareholders received a compound annual return of 20.9%. Thorndike, however, contends that Welch was not the greatest CEO of the last 50 years, pointing out that Welch's tenure coincided almost exactly with the epic bull market that began in late 1982 and continued until early 2000 - during this period, the S&P averaged a 14% annual return. When compared to the market, Welch suddenly doesn't look as golden as initially. Thorndike also contends that a CEO should be evaluated relative to peers - and there early 1960s Teledyne founder Henry Singleton, for example, far surpassed Welch. Over his nearly 30-year tenure beginning in 1963, investors received an annual compound return of 20.4% - $180 for a dollar invested in 1963. That same dollar invested in a broad group of conglomerates would have been worth only $27, and $15 if invested in the S&P 500.

Most CEOs focus on managing operations. Singleton, however, gave most of his attention to deploying the cash generated by those operations. Unfortunately, there are no courses on capital allocation at the top business schools, and per Warren Buffett, very few CEOs are prepared for this task. Most rise to the top because they have excelled in an area such as marketing, production, engineering, administration, or sometimes, organizational politics. Again, per Buffett, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business after ten years at the helm. Singleton focused Teledyne's capital on selective acquisitions and a series of large share repurchases - while making frequent use of debt and not paying a dividend until the late 1980s. Other conglomerates actively used shares to buy companies and pay dividends, with less use of debt - creating very different results. Singleton also had very little headquarters corporate staff, and concentrated authority in the general managers of the various business units.

Thorndike contends that the most extraordinary CEOs of the last 50 years shared this mastery of resource allocation. The group includes Tom Murphy at Capital Cities Broadcasting, Bill Anders at General Dynamics, John Malone at TCI, Katherine Graham at the Washington Post, Bill Stiritz at Ralston Purina, Dick Smith at General Cinema, and Warren Buffett at Berkshire Hathaway.

Please note, I received a copy of this book for review from the publisher, Harvard Business Review Press, on a complimentary basis.

Capital allocation uber alles

"The Outsiders" rests on a premise, that the increase in a public company's per share value is the best metric for measuring the success of a given CEO, which lends itself to the book's major thesis: that superior capital allocation is what sets apart the best CEOs from the rest, and that most modern CEOs seem to be only partially aware, if at all, of its critical performance to their companies long-term business success.

Notice! This book is examining the efforts and measurements of CEOs of public companies, not all businesses (public and private), so as a result in comes up a bit short in the "universal application" department. Yes, capital allocation is still critical even in a private business, but you can not measure a private business's per share value (because there isn't a marketable security price to reference) and the CEO of a private company is missing one of the most powerful capital allocation tools available to public CEOs, the share buyback (because there is no free float for them to get their hands on at periodically irrational prices).

The CEO capital allocation toolkit

Thorndike describes five capital allocation choices CEOs have:

--invest in existing operations
--acquire other businesses
--issue dividends
--pay down debt
--repurchase stock

Along with this, they have three means of generating capital:

--internal/operational cash flow
--debt issuance
--equity issuance

With this framework, Thorndike proceeds to review the business decisions of 8 different "outsider" CEOs, so labeled because they tended to use these tools in a contrary fashion to the mainstream wisdom of their time and to much improved effect as per comparison to their benchmarks. Some of the CEOs are well known and oft mentioned and studied (Warren Buffett, John Malone, Kay Graham, Tom Murphy) and a few are known to the value cognoscenti but may have managed to escape notice of the wider public, academic or otherwise (Henry Singleton, Bill Anders, Bill Stirlitz and Dick Smith).

The author tries to tie together the various common threads, such as how,

"All were first-time CEOs, most with very little prior management experience"

and many of which (such as Singleton, Buffett and Graham) were large or majority equity holders in their companies, making them part of the vaunted owner-operator club with its resulting beneficial incentives.

Thorndike also tries to use the hedgehog vs. fox metaphor, claiming,

"They had familiarity with other companies and industries and disciplines, and this ranginess translated into new perspectives, which in turn helped them to develop new approaches that eventually translated into exceptional results"

Interestingly, the share buyback stands out as a particularly effective capital allocation tool for all and the author claims that during the difficult inflationary conditions and market depression of the 1974-1982 period,

"every single one [emphasis in the original] was engaged in either a significant share repurchase program or a series of large acquisitions"

In broad strokes, Thorndike's efforts to paint these CEOs with a common brush works, but there are numerous times where his attempt to establish commonality in genius comes across as forced and unworkable. Often, one of these CEOs will operate in a way inconsistent with Thorndike's major thesis and yet he'll end up praising the CEO anyway. In poker, we'd call this the "won, didn't it?" fallacy-- judging a process by the specific, short-term result accomplished rather than examining the long-term result of multiple iterations of the process over time.

Some quibbles

This is actually one of the things that rubbed me rather raw as I read the book. In every chapter, Thorndike manages to strike a rather breathless, hagiographic tone where these CEOs can do no wrong and everything they do is "great", "fantastic," etc. Unfortunately, this kind of hyperbolic language gets used over and over without any variety to the point it's quite noticeable how lacking in detail and critical analysis Thorndike's approach is at points.

Eventually, I reached a point where I almost wanted to set the book down, take a deep breath and say, "Okay... I get it, this guy is absolutely amazing... can we move on now?"

The editing seemed a bit sloppy, too. Thorndike is a graduate of Stanford and Harvard and runs his own financial advisory. He's obviously an accomplished, intellectual person. Yet his prose often reads like an immature blog post. It's too familiar and casual for the subject matter and the credentials of the author. I'm surprised they left those parts in during the editing process. I think it makes Thorndike's thesis harder to take seriously when, in all likelihood, it'd probably be quite convincing if you happened to chat with the author on an airplane.

From vice to virtue

Something I liked about "The Outsiders" was the fact that there were 8 profiles, rather than one. It was reinforcing to see that the same principles and attitudes toward business and management were carried out by many different individuals who didn't all know each other (though some did) and ALL had huge outperformance compared to their benchmark.

And I think for someone who is just jumping into the investing, management and agency problem literature, "The Outsiders" is a good place to start to get a broad outline of the major thesis which is that companies that are run by owner-operators, or by people who think like them, where the top management focuses on intelligently allocating capital to its highest use (which, oftentimes when the company's stock remains stubbornly low compared to its estimated intrinsic value, makes buybacks in the public market the most intelligent option versus low margin growth) consistently outperform their peers and their benchmarks on a financial basis.

I think if this was one of the first books I had read on this theme, I would've found it quite illuminating and exciting, a real eye-opener experience. As it were, I read this book after reading a long train of other, often times significantly more comprehensive and detailed literature, so my personal experience was rather flat-- I came away thinking I hadn't learned much.

More to the story

There's more to this story in two senses.

In the first sense, I actually highlighted many little comments or ideas throughout the book that are either helpful reminders or concepts I hadn't fully considered myself yet, pertaining to best operational and management practices for businesses and the people who invest in them. In other words, the book is a little deeper than I bothered to share here. As a collection of anecdotes and principles for mastering the concept of capital allocation, it's a good resource.

In the second sense, I think there's a lot more to the success of the businessmen and their companies profiled (along with many others) than just good capital allocation. The text alludes to this with quotes from various figures about how they operated their businesses and managed people aside from the specific challenges of capital allocation. But it never goes into it because that isn't in focus.

And as a business person myself, I know from my own reading, thinking and personal experience that capital allocation IS a critical factor in successfully managing and growing a business over the long-term -- after all, if you can't find good places to put your cash, you'll inevitably end up wasting a lot of it -- but you won't have capital to allocate if you aren't operating your business and managing your relationships with employees and customers well, in addition. The book just doesn't do much in the way of explaining how it was that Ralston Purina, or General Dynamics or Teledyne or what have you, had so much capital to allocate in the first place.

There are no charismatic Steve Jobs' or screaming Bill Gates' profiled in this book. Rather than focus on those whose success was based on product innovation, author Thorndike focuses on the activities of CEOs who ran successful not-so-glamorous businesses, quietly creating double-digit returns to shareholders without coddling them with dividends.

CEOs heeding the advice of this book will make their obsession capital allocation, as opposed to making Wall St. analysts happy by hitting quarterly numbers.

It's made a big impression on me, as I run my own business.

Besides the above and more, I though Thorndike's very straight forward simple narrative style to be refreshing.

The characteristics of outstanding CEOs pitched by the author, a fund manager, are as follows:-

Capital allocation is a CEO's most important job
What counts in the long run is the increase in per share value, not overall growth or size
Cash flow, not reported earnings, is what determines long term value
Decentralized organizations release entrepreneurial energy and keep both costs and rancor down
Independent thinking is essential to long term success, and interactions with outside advisers (WS, the press etc.) can be distracting and time consuming
Sometimes the best investment opportunity is your own stock
With acquisitions, practice is a virtue....as is occasional boldness.

In short, this book is well researched, organized and written. A good read for value investors and CEOs who dare to turn themselves from hedgehogs (experts in a few industries/businesses per Buffet/Munger) into foxes (the other end of the continuum). For those who want to sharpen their leadership skills, business acumen and so on, I suggest them to give it a pass.

p.s. Below please find some of my favorite passages for your reference.
Isaiah Berlin introduced the instructive contrast between the "fox", who knows many things, and the "hedgehog", who knows one thing but knows it very well. Most CEOs are hedgehogs....Foxes, however, also have many attractive qualities, including an ability to make connections across fields and to innovate, and the CEOs in this book were definite foxes. They had familiarity with other companies and industries and disciplines, and this ranginess translated into new perspectives, which in turn helped them to develop new approaches that eventually translated into exception results. Pg5
The goal is not to have the longest train, but to arrive at the station first using the least fuel. Pg15
In a typical roll-up, a company acquires a series of businesses, attempts to improve operations, and then keeps acquiring, benefiting over time from scale advantages and best management practices. Pg15
This decentralization fostered an objective, apolitical culture at Teledyne. Several former company presidents mentioned this refreshing lack of politics - managers who made their numbers did well; those who did not, moved on. As one told the author, "No one worried who the CEO was having lunch with." Pg44
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. - Warren Buffet pg129
You are right not because others agree with you, but because your facts and reasoning are sound. - Benjamin Graham pg197

Certainly an interesting take on the KPI's for a "successful" CEO. Most of my previous business readings are far less financially oriented, so this one provided a good counter point to my traditionally operations focus. That said, it's a little "one note." His tunnel vision on shareholder value entirely omits the plurality of requirements necessary to build a holistically value adding business. To that end, his analysis feels insular with respect to operations, personnel, and corporate citizenship - or at least it's entirely unaddressed. Classic draconian HBS Grad! The point of the book was to be financially focused and he certainly succeeded at that.

For a good foil, check out Marketplace's series with Business Insider called "The Price of Profits" about the corporate shift to an entirely shareholder value focus. Thorndike is certainly a product of the Jensen school of thought - a notably singular mindset.

(...)

A great book that showcases the traits of uncommon CEOs and how they take average companies in cash flow generating machines. The main point of the text is that they (CEOs) "disdained dividends, made disciplined acquisitions, used leverage selectively, bought back stocks, minimized taxes, ran decentralized organizations, and focused on cash flow over tried net income”.

A fundamental piece of information to try to navigate and filter current companies in the stock market. Above traits will help you select with confidence the next 100 bagger.

William Thorndike has done the world of skilled but less-than-flamboyant CEOs and long-term investors alike a massive favour. Via eight years of painstaking research in collaboration with Harvard Business School students - one year per CEO/company studied - Thorndike has written a reference book for measuring and identifying outstanding CEOs. The simple approach behind the book is both its beauty and its beast; by screening for U.S.-based managers whose 1) total shareholder returns was higher than that of the poster-boy of great CEOs, Jack Welch at General Electric and 2) did it over a longer time frame. This dual herculean demand of 20,9 per cent annually over a minimum of twenty years weeded out all but eight CEOs. The Outsiders bring you the stories, common traits and lessons from these truly outstanding leaders.

William Thorndike is a Harvard and Stanford alumni and founder of the investment firm Housatonic Partners. His investor angle shines through in several ways; mainly in the call for a clear numbers-based yardstick in defining greatness (total shareholder return over the long term) and in the great effort of finding common, identifiable traits between these leaders. The line-up of CEOs and companies profiled in the book are save a few not exactly household names; Henry Singleton (Teledyne), Tom Murphy (Capital Cities), Bill Anders (General Dynamics), John Malone (TCI Liberty), Katherine Graham (The Washington Post), Bill Stiritz (Ralston Purina), Dick Smith (General Cinema) and Warren Buffett (Berkshire Hathaway). But the shareholder returns they have created are far from unassuming; outperformance vs S&P 500 of a factor of 20 times! Truly mindboggling.

Henry Singleton of Teledyne is the Godfather-figure that knits these CEOs together, where Thorndike cleverly uses the "Graham-and Doddsville" approach. In essence, as opposed to the pure luck factor in explaining winners of a coin-tossing game, if there are several successful members from the same population, one can safely assume a clear involvement of skill. The CEO-inhabitants of "Singletonville" have upon deeper studies a number of skills (areas of focus) in common, even though a few are borderline pattern-seeking. Among the more important ones in my opinion are the laser-like focus on capital allocation (where timely buy-backs are a heavy ingredient), decentralisation taken to an extreme, running the business on cash flow instead of earnings and keeping a very low public profile. Given the importance of capital allocation, one wonders what proportion of CEOs are actually picked based on this skill as opposed to production, marketing or "leadership" skills. Crucially, Thorndike manages to bring out supporting anecdotes and real-life evidence in all eight CEO-studies, making these shared specific traits reality, rather than just fancy words.

There are of course plenty of things separating these managers as well - had there been a Singletonian blueprint for how to produce a 20 times shareholder relative return, it would soon have lost its allure. Some used more debt, some less. Some diversified outside of core operations, but most did not. Some restructured heavily, some kept compounding away. However, they were all unconventional. Again the ghosts of Keynes' `failing conventionally' and Templeton's `you must do something differently' whisks by. But oh how hard it is, both to do and to believe in. Upon learning more about the sheer "madness" (at the time) of Teledyne's unheard of buy-backs or General Cinema's foray into retailing, I am also reminded of Philip Fisher's stocks-as-restaurant analogy.

Like restaurants, certain stocks are just not for everyone. And so it is with most of these eight companies. Even with two decades of proven success, the audacity with which Teledyne reversed course in the early 1970s spooked most investors, causing the stock to trade at a single-digit P/e. Another reminder that investing actually does offer second chances.

This is a review by investingbythebooks.com

The book details the stories of 8 outstanding CEOs who outshone their peers and competitors alike. The secret sauce for their phenomenal success were the following traits:

1. They disdained dividends due to tax inefficiency
2. They made disciplined acquisitions
3. They used leverage selectively
4. They bought back a lot of stock
5. They minimized taxes
6. They ran decentralized organization
7. They focused on cash flow instead of the reported net income

I highly recommend this book to investors and management who wish to learn the secret to creation of unprecedented shareholder value

Focused on Capital Allocation as a trait for CEO success, this book draws heavily on the ideas of Buffett. The research is amazing and truly takes you into the situations that various companies were in when their executives had to decide whether to sell assets, start buy-backs etc. If you would like to learn how to evaluate and spot great management, there is no better book

Outstanding. The author covers the history of several excellent CEOs who excelled in the area of capital allocation, and does it in a well-written and well-researched way. The great thing about this book is that it enables the reader to re-frame his or her thinking about investing, in a way that emphasizes capital allocation. This issue is very key to investing success and will improve one's results in the long run. Highly recommended.

This is how 8 ceo's rand companies in such a way as to maximize shareholder value. The major themes were that these ceo's were very frugal, very decentralized, sold off poorly performing units, bought only when prices were good, they had an iconoclastic style and were driven by their own values.

There were some questions left unanswered. Are there highly effective CEO's that did things differently? Are there CEO's that behaved like these guys but weren't successful? Either way this was an interesting look at business and gives a good idea of what to look for when trying to make investments.

There are countless examples of once-great companies such as Kodak and Sears that became victims of what had once been the reasons for their success. When George Eastman founded Eastman Kodak (in 1901) and Richard Sears and Julius Rosenwald founded Sears, Roebuck (in 1906), they did so with what William N. Thorndike characterizes as a "radically rational blueprint for success." Both companies eventually became among the largest and most profitable in the world. However, for reasons that vary from one company to another in nature and extent, that is no longer true.

The business lessons to be learned from companies such as Kodak and Sears were obvious to CEOs such as Tom Murphy (Capital Cities Broadcasting), Henry Singleton (Teledyne, Bill Anders (General Dynamics), John Malone (TCI), Katherine Graham (the Washington Post Company), Bill Stiritz (Ralston Purina), Dick Smith (General Cinema), and Warren Buffett (Berkshire Hathaway). They are the "outsiders," focal points of this book. As Thorndike explains, there are immensely valuable lessons to be learned from the "radical rationality" of their leadership.

These are among the dozens of passages that caught my eye:

o The Capital Cities culture (Page 23)
o The Cap Cities Publishing Division (Pages 31-33)
o Buffett and Singleton: Separated at Birth? (56-58)
o Postscript: The Sincerest Form of Flattery (80-81)
o The Edifice Complex (88)
o Benjamin Graham's investment strategy during the recession of early-1900s (121-126)
o Stiritz's "fiercely independent mind-set" (145-146)
o A recent example of flattery of imitation: Sara Lee (146-147)
o The "nuts and bolts" of management at General Cinema (159-162)
o How Buffett achieves Berkshire Hathaway's operating results (190-193)

Thorndike includes a mini-profile for each of the eight "outliers." Here is a brief excerpt from the first three:

Tom Murphy (Pages 13-34 plus cross references): He and Dan Burke "were comfortable giving responsibilities to promising young managers. As Murphy described it to me, 'We'd been fortunate enough to have it ourselves and knew it could work.' Bill James was thirty-five and had no radio experience when he took over WJR; Phil Meek came over from the Fiord Motor Company at thirty-two with no publishing experience to run the Pontiac Press; and Bob Iger was thirty-seven and has spent his career in broadcast sports when he moved from New York to Hollywood to assume responsibility for ABC Entertainment." (page 26)

Henry Singleton (37-58+): Arthur Rock's response to Singleton's proposed repurchase strategy, "I like it," launched "one of the seminal moments in the history of capital allocation...To say that Singleton was a pioneer in the field of share repurchases is to dramatically understate the case. It is perhaps more accurate to describe him as the Babe Ruth of repurchases, the towering Olympian figure from the early history of this branch of corporate finance...[Between 1972 and 1984] Singleton defied orthodox thinking, in eight separate tender offers, buying back an astonishing 90 percent of Teledyne's shares." (46)

Bill Anders (61-81+): "When it came to capital allocation, Anders and his associates made coinsistentky often radically, different decisions than their largest peers. At a time when his peers were on an acquisition binge, Anders was an active seller. He made no acquisitions, spent very little on capital expenditures, and made savvy use of dividends and share repurchases, both of which were new to the industry." (79)

There are also mini-profiles of the other five: John Malone (TCI, Pages 83-107+), Katherine Graham (the Washington Post Company, 109-127+), Bill Stiritz (Ralston Purina, 129-147+), Dick Smith (General Cinema, 149-166+), and Warren Buffett (Berkshire Hathaway, 167-195+).

However different the eight may be in most respects, all agreed on certain core principles which serve as the foundation of what Thorndike characterizes as "the outsider's mind-set": the denomination matters when attempting to maximize value over share; maintain feisty independence when making capital allocation decisions; charisma is overrated and (more often than not) self-serving and counter-productive; develop a crocodile-like temperament that mixes patience with occasional bold and aggressive action; and finally, take a consistently rational, analytical approach to all decisions, major and minor.

William Thorndike offers an immensely informative and consistently thought-provoking explanation of how and why eight "outliers" refused to allow their companies or themselves to fall victim to what James O'Toole so aptly characterizes as "the ideology of comfort and the tyranny of custom." As he well realizes, how easy it is to identify the core elements and defining characteristics of a "radically rational blueprint for success"; how difficult it is to then build an organization with that blueprint, one that achieves and then sustains extrordinary success.

The positioning of this book is awkward - it would be a bit too technical for the general manager (a basic understanding of corporate finance is required to understand some of the principles outlined in this book) while a bit too basic for those already familiar with corporate finance best practices like share repurchases, using one's overvalued stock (higher value acquisition currency) to acquire businesses trading at or below fair value, etc.

The book is also pretty repetitive and I believe is summarizable into a long article emphasizing the characteristics common to these CEOs.

Finally, hindsight is 20/20 and the author seems to portray an overly glowing assessment of these CEOs - if you have read "Fooled by Randomness" or other probabilistic books, the author doesn't address the scenario of what could have gone wrong. In Ralston Purina's case, I was amused that if you looked at the share price graph, it is essentially in line with comps except for the year prior to its sale to Nestle when the stock price incorporated a control premium -- surely that should have been obvious to the author who is an active investor!

fantastic fantastic book. read it in one sitting and it was enlightening... there's a good reason Warren Buffet put this as his #1 read in Berkshire's annual letter. Have a new appreciation for what capital allocation is, and how to think more strategically about that skill.

When I finished the book (at like 3 AM!) I immediately got in touch online with a client and structured a deal very differently to benefit both myself and the client, a true win-win... using the insights in tis book. highly recommended, and well worth the investment!

A CEO has five essential choices for deploying capital raised through internal accruals, debt and equity. a) Invest in existing operations, b) acquisitions, c) debt reduction, d) dividends and e) buybacks.

Essentially, the most vital skill a CEO must have is capital allocation which will determine the return to shareholders. This crux is the key focal point of William Thorndike's excellent book The Outsiders. In this book Thorndike writes about eight CEO's whose average returns during their tenure have outperformed the S&P 500 and their peers by a huge margin. All these individuals were first time CEO's with insignificant prior managerial experience but they still succeeded owing to their consistent analytical and rational thought process and having a long term perspective. The other significant trait common to all these CEO's was none of them was obsessed with boosting up market capitalization. The eight terrific CEO's featured are:

*Tom Murphy - Capital Cities Broadcasting
*Henry Singleton - Teledyne
*Bill Anders - General Dynamics
*John Malone - TCI
*Katharine Graham - The Washington Post Company
*Bill Stiritz - Ralston Purina
*Dick Smith - General Cinema
*Warren Buffett - Berkshire Hathaway

These eight individuals were champions in capital generation, capital allocation and decentralized operations. All of these CEO's were "foxes" (as against "hedgehogs" - knows one thing, but knows very well) who knew many disciplines and were very efficiently able to make connections across industries and disciplines and this variety rendered fresh perspectives and innovation. For e.g. Buffett before becoming CEO was a highly successful investor and was fully prepared (his prior experience in evaluating an array of investments) for allocating capital as the CEO of Berkshire Hathaway. For fans of Charlie Munger, there are some inputs from him as well as the author interviewed him for some portions of this book.

These CEO's made capital allocation decisions themselves (unlike at many organizations) and firmly believed in independent thinking, razor sharp focus on cash flow based metrics and operating costs, buybacks as an investment opportunity and patience with acquisitions. Each one of them attracted doubt and uncertainty from peers and Wall Street during their tenure but increasing per share value was their primary goal and that translated in exceptional returns for their long-term shareholders.

Lastly, the author provides a checklist to think like The Outsider's CEO. This book is worth the money and time and one will surely gain many insights on a variety of businesses. Strongly Recommended!

The Outsiders is a must read for anyone interested in value creation (which is everyone tagged with investment decision-making) especially finance professionals and business leaders. So much is written about value generation through operating optimization but not nearly enough about capital allocation.

Thorndike provides a very readable and insightful view of eight individuals that excelled. Most well-read business professionals have familiarity with many of the highlighted business leaders but Thorndike offers a view that is unique. He draws linkages not only by citing commonality in the business decisions of these leaders but offers other more personal insights that complete the picture and render the analysis far more entertaining than other similar works.

Thorndike highlights a few core principals common to all these leaders:

- They all do the little things right,
- They are not seduced by the allure of growth for the sake of growth,
- They recognize that cash and return of same is often a sound investment decision,
- They are patient and get the big moves right, and
- They define the big moves as selecting stewards of capital and undertaking major growth (acquisition) investments.

Overall, this is an excellent and enjoyable read that I highly recommend.

Over the years, I have read every business book of significance. Will Thorndike's "The Outsiders" is among the very best.

The book chronicles the business career of eight CEOs with extraordinary records of achievement.

One key trait common across all eight CEOs was great abilities when it comes to capital allocation. They bought low, sold high. They used their company's stock intelligently when making acquisitions. They did not fall prey to the much too common disease of CEOs who overpay in making acquisitions to build empires and entrench themselves. These "Outsiders" CEOs were owners of major stakes of the equity in the companies they led. Each chapter includes hard long term numbers illustrating their incredible records. These amazing individuals did not just beat their competition. They left them far, far behind.

The book highlights with great stories how rationality, pragmatism and independent thinking can lead to extraordinary financial results. We learn best from stories. Stories are easily recallable and stick to our minds. Will Thorndike does a masterful job of doing just that in this book. He tells stories. Some of these stories badly need telling. Another common trait of these eight CEOs is how they value their privacy. These were not people who seek appearances on covers of magazines and constantly show up on TV shows on business channels. Far from it. It brings to mind the saying of "Those who know don't tell and those who tell don't know." By telling their stories Will Thorndike lets us in on important lessons we can learn from people such as Henry Singleton and Tom Murphy.

Every investor should buy this book and read it carefully. I have highly recommended it to all of the partners in my investment fund. "The Outsiders" will become a classic still read decades from now.

Claude Leveille
Managing Member, Courant Investment Management LLC

The book goes about doing the research the wrong way. It first picks up great CEOs and then looks at what they had in common. Will incorporating these "virtues" make one a great CEO ? It is unclear. At least there is no research which confirms it.

For this book to be useful one needs to conclude that behaving in a iconoclastic way as the author describes will lead to good performance of the stock. To confirm this hypothesis one will need to find CEOs who have the virtues we want and then look at how they perform relative to S&P and their peers. Only then we will know if the hypothesis holds water.

Another gripe I have with the book is that it underplays the role of luck. A CEOs job is sometimes very unpredictable and any decision may look stupid in the hindsight. Even a great CEO with all the nice properties may fail to achieve greatness in terms of shareholder performance because he was unlucky.

This book has an interesting and in many ways genius thesis but thats about as far as it goes. The useful information within this book is hardly enough to fill a blog post, let alone an entire book. There are no actionable strategies and the data is cherry picked to support the thesis. I can save you the money and frustration of wading through redundant conjecture within this purchase by giving you an simple summary: CEOs who make smart capital allocation decisions with the best interest of the shareholder in mind create the best returns for shareholders.

Overflowing with practical wisdom gleaned from the careers, methods and insights of "hiding in plain sight" masters of creating shareholder value, The Outsiders profiles eight corporate leaders who quietly redefined how to run a public company. The eight, each from dramatically different circumstances and with little or no formal training in business or management, built immensely successful companies producing off-the-charts investor returns by dint of their unorthodox, independent,"outsider" thinking and "radical rationality".

Their working lives stretched from the 1960's to the present. Some enjoyed tailwinds, some stiff headwinds, yet each played the hand they were dealt, as the author puts it, far more adroitly than their industry peers or, for that matter, their media superstar contemporaries.

Thorndike presents concise descriptions of who they were and what they did to deliver sustained, extraordinary results for their shareholders. He goes on to distill the common threads of their thinking and behaviors to arrive, in the final chapter, at a virtual checklist of best practices for managers to contemplate and investors to seek out.

The book is a quick 220 pages, in nine bite-sized chapters. The first eight each deal with a different CEO, with the last a "what we can learn from these people" synthesis and wrap up. While ostensibly about business management and achieving superior investment returns, I think the book will be of interest to anyone with an interest in leadership, organizational dynamics, or just doing better by thinking independently. The touchstone quote, from the inside cover flap, sums it up: " It is impossible to produce superior performance unless you do something different" - John Templeton.

Thorndike's book cuts to the crux of the last remaining inefficiency in today's market - the importance of a great CEO. By examining share price appreciation over time, especially as compared to peers, Thorndike identifies eight individuals who have changed the game of creating shareholder value. The average investor can usually quickly list those CEOs perceived as "great," but those CEOs are often only the one's that grace the newspaper headlines. In fact, the "great ones" are often obscure, reclusive, and solely focused on driving returns as opposed to driving fancy cars. Every serious investor should read this book...and then read it again...but buy another copy for the second read.

Will Thorndike has hit upon a winning formula - find exceptional, successful, shareholder-friendly CEOs and capture their secret sauce through a detailed study of their character and beliefs. These eight CEOs march to their own drum but share some salient traits. They are: self confident but surround themselves with talented folks; frugal; loathe to add overhead; willing to ignore Wall Street; and focused on long term success. And each profiled CEO is a fascinating study of individuality proving that successful stewardship/leadership comes in many flavors and from unexpected corners.

The Outsiders is essentially a dual primer on leadership and straight-forward capital allocation. It is a quick read made lively through anecdote and quotes from the principals studied. One of my favorites is from John Malone, the then CEO of TCI, who related that, "We don't believe in staff. Staff are people who second-guess people." For some no-nonsense business acumen, consider The Outsiders as an excellent stocking stuffer.

This book is extremely valuable and interesting for a variety of readers, and must reading for business executives.
First, for business managers it provides an important new angle for analyzing what has separated great CEO's from ordinary ones; namely, intelligent and thoughtful allocation of capital. For investors, it provides another way to evaluate CEO's and perhaps spot a long-term once-in-a-decade winner like Berkshire Hathaway, Capital Cities Broadcasting, TCI or General Cinema. These are the rare stocks that could have produced extraordinary wealth with a modest investment and the mental strength not to sell too early. For example, if a person had invetsed $10,000 in Capital Ciyties decades ago, he or she would never have had to make another investment decision in an entire lifetime-- one could have devoted the rest of one's lifetime to arts or scuba diving while that one investment created many millions of dollars in wealth. And finally, for those whose interest is more oriented toward biography and the unique journey of 20th and 21st century business leaders, this book provides a fascinating look at the lives of peope who made a difference in the financial history of the country.

I took this book with me on my winter vacation and thought it was great. It was written in a manner that makes it a nice light read that can be easily digested in a single sitting by people with and without an in-depth knowledge of financial markets. The basic premise is that provided you have a reasonably decent business, a CEO can create tremendous value for shareholders by allocating capital in an intelligent manner. The book goes through eight examples of CEOs who did just that, largely by acting opportunistically with respect to making acquisitions and repurchasing shares. I run a small investment fund and actually bought copies of the book to send to the CEOs of my portfolio companies...if nothing else I hope that it will inspire them to try and emulate the performance of the CEOs profiled in "The Outsiders". Similarly I recommended the book to the various analysts that work at my firm, with the hope that it will help us identify the next candidate for the CEO hall of fame.

In the pursuit of business knowledge it only makes sense to figure out who has been very successful and then attempt to study what that individual did to achieve such success. Mr. Thorndike does a masterful job of studying eight such individuals and a great job as a writer. The book is a very fast read.
If I were teaching a course on running a business this book would be part of the curriculum.

I read a lot of books about management and investing. The lessons in many are similar and therefore learning is limited. The findings in the Outsiders are surprising and unexpected. The qualities shared by eight of the best CEOs over the past several decades are not what you might expect. You would expect charisma, hiring, management, six sigma, customer service, systems, planning, strategy, or brilliant product design, etc. Instead, Will found capital allocation as the core skill set.

The consistency in the attributes of the CEOs profiled was incredible. The greatest extreme, of course, is Warren Buffett, who is perhaps the greatest capital allocater of all time and used this skill set to transform a sleepy and doomed textile mill into one of the world's largest and most respected business.

Outliers is a worthwhile read and will change your outlook on the core attributes of a truly great public or private CEO.

A rare and exceptional book about capital allocation. Using "Hall of Fame" CEOs and their companies as case studies, Thorndike tackles the most fundamental misunderstanding of public equity investing: how outstanding deployment of excess cash leads to exceptional and peer-crushing stock performance. Thorndike's analysis identifies several common behaviors of these all-star CEOs. Flexible thinking regarding the cost of debt and equity is chief among them (e.g. acquisitions when stocks are expensive, monstrous buybacks when stocks are cheap and assiduous avoidance of tax-inefficient dividends). Governance is also similar. Small boards and extreme decentralization are two examples. Regrettably few CEOs and companies possess these combined traits. The book is a quick and incisive read - especially valuable for fundamental equity investors.

Will Thorndike shines light into a blind spot in management literature and academia, by exploring the overwhelming importance of disciplined and rational capital allocation. The book is extremely readable and the stories behind the CEOs are each compelling in a different way.

This book is a must read for managers and value investors alike (or anyone else). Patterns emerge throughout his exploration of history's greatest value creators, and the lessons are applicable across industries and time periods.

There is no stretching of stories needed to illustrate the author's points, but rather very extensive supporting research and a lot of great history and anecdotes.

It will change the way you think for the better.

11/10 - Don't pass this one up

Very clear and comprehensive. A very valuable tool and lesson for those who think they are doing well in their managing their (own) business but forget the importance of allocation of profits. A must read for those who want to focus on high profitability of the business.

Will Thorndike writes an engaging and cogent book about the often unexplored role of CEO as Investor in Chief. The short biographies of the CEOs introduces the reader to the characters and instantly makes them familiar and accessible whereas they were often the opposite while operating their companies. The most valuable piece of Thorndike's writing is his ability to boil down the essential elements and explain the most important details about how, and more importantly, why these CEOs made the decisions they did. He highlights key details and does not allow the reader to overestimate or forget the role the environment played in the performance of each company. His research is crisp and illustrative, always providing a backdrop for context. This book is worth reading.

I highly recommend The Outsiders by Will Thorndike for anyone interested in investing or management. It's perhaps the most valuable book I've read on these topics.

The book is a series of case studies on CEOs who massively outperformed their peers over long periods of time. These CEOs compounded value at 15%-25% CAGRs for decades.

The book tells each CEO's story, which are individually very interesting, while identifying common traits amongst them, which, the book convincingly posits, caused them to be so exceptional at creating shareholder value. The book covers the CEOs' personality traits and backgrounds (the book is called The Outsiders because these CEOs generally took unconventional approaches in conventional industries), as well as their capital allocation, operational, and business model traits.

It's a really fun read for anyone who enjoys business case studies, and I expect will have a real influence on how anyone who reads it thinks about management and investing.

I highly recommend The Outsiders for the Value Investor's library. Will Thorndike turns the traditional concepts of a star CEO on its head - forget the charisma and the media savvy, shareholder value is all about capital allocation. The book shares interesting stories and data of how 8 CEOs created enormous value for shareholders over time, outperforming peers and the broader market. It highlights the value of identifying certain management traits early in the CEO's career and sticking with them as they compound value through a focus on capital allocation and return on incremental investment.

A fun read that's a must for students of value investing.

I'm going to keep this short and to the point: The Outsiders is the most inspirational investment book I've read since Joel Greenblatt's first book, You Can Be a Stock Market Genius. As Greenblatt's book inspires one to begin searching for "special situations" to uncover hidden values, Thorndike's book unveils a new form of hidden value: superior capital allocation. Naturally the search for the next "Outsider" has to follow. Thorndike's study provides clues on what to look for. It appeals to investors and managers alike and is the most powerful pursuasion on the importance of capital allocation I've read.

While I have read many of the seminal pieces recommended by established investors, professors, and the like, Outsiders is one of the more recent publications (over the last couple years)that has had a profound effect on my investing framework. Thorndike and his team of HBS researchers are very thorough in proving out their thesis. Aligning your capital behind a Master Allocator CEO can be the gift that keeps on giving. Not only does it translate into higher ROIs, but it also enhances your 'Return on Time'--resulting in management-driven compounding machines.

Thorndike provides a detailed, real-world look at long-term value creation. The book provides business professionals with a framework and toolkit to examine business structure, strategy, and capital allocation. Thorndike presents a group of mentors for the modern businessperson to study and mimic, a group that exceeded their peers in the most important aspect of business, long-term value creation.

Anyone interested in business should read this book. Don't be surprised if you end up reading it multiple times.

The author is absolutely right when saying that earning profit as well as investing that profit are two important aspects of being a CEO. The author is also correct in noting that many CEOs are good at the former but not the latter. I find this a great start. Then we get eight super-glorified portraits of CEOs. To the credit of the author he has actually met and interviewed them. Sadly, that does not come across very clearly in the actual material. The underlying message is that they got the investing aspect right too. And then the book ends!

Academics call it sampling on the dependent variable. Take eight extremely successful people and see what they do. Maybe they all read The Wall Street Journal. Then recommend reading WSJ. The fallacy is that thousands of less successful people also read WSJ. I think the author understands this fallacy, but I am not sure. In any case, I am find with this approach as a -starting- point to gather new ideas. Sadly, the next couple of steps are totally missing (e.g. testing, elaborate, create a conceptual framework). The author does nothing in this regard.

After Buffett's recommendation, the investment community seems to love this book. I am amazed by their lack of sophistication. Sure, capital allocation is very important, but you do not need this book to understand that. Buffett probably likes the book because (1) he likes capital allocation and (2) he was interviewed in the book.

I am giving the book two starts because the author is clearly intelligent and I got some interesting thoughts. Maybe I am generous.

Whether in the macro debate about our economic future or the micro analysis of how businesses operate, the pivot is always capital and resource allocation. Having studied business history and operated in Thorndike's field for many years overseeing businesses, I found this book captivating because of its focus on capital allocation as well as its general insights into the drivers of business success. I highly recommend The Outsiders to practitioners as well as anyone interested in what makes businesses great.

Phenomenal and concise book by Will Thorndike, Jr.

As a long-time value investor and voracious reader of Buffett-esque books, I loved reading what is essentially 8 case studies of near-perfect capital allocation.

Every public company management team (CEO, CFO) and public-market investor should read how to think about cash flow and growing a business in the frame of Singleton, Buffett, K. Graham, Stiritz, Malone, et al.

The Outsiders is one of the best business books I have read. It is similar to Good to Great in that it studies companies and CEOs that have dramatically outperformed the market and their peers. But it was more financially oriented and sophisticated. The conclusions are very powerful and convincing because you understand exactly how these CEOs acted differently than their peers every step of the way.

Thorndike does a great job telling the stories of patience CEO's who stick to their discipline of returning value to shareholders. The book creates an easy to understand framework for evaluating choices the management team and board faces when deploying capital. Very helpful way to simplify the approach to getting it right.

The Outsiders is the must-read business book of the last couple years. Thorndike nicely lays out the case for why intelligent capital allocation is so crucial for value creation in a corporation. The "Outsiders" he profiled demonstrate success across a wide-range of industries. Every CEO/CFO should read this book, as should every member of a board of directors

Will Thorndike's The Outsiders has immediately risen to the top of the required reading list for our investment team and for my Security Analysis course at Columbia Business School. I do not know of a better book that exists that more keenly demonstrates the key attributes that differentiate an average CEO from an exceptional CEO when long-term compounded annual shareholder returns are the brass ring.

Christopher M. Begg, CFA, CEO and Chief Investment Officer of East Coast Asset Management, Inc.
Adjunct Professor, Heilbrunn Center for Graham and Dodd Investing at Columbia Business School

For anyone interested in business building, leadership or investments, this book is both entertaining and thought provoking. Thorndike's profiles are personal and human and bring serious business topics to life. And his focus on the importance of capital allocation can be broadly applied, whether a business is a start-up or a mature business. Well worth putting in the business book arsenal.

Interesting stories and narrative. Author manipulates the graphs and cherry picks data. I find his commentary too absolutist. The ideas he presents are not very robust, but his topic choice is intersting and tells some good stories. At times I had to put the book down out of frustration with the presentation of data.