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The Era of the CEO?


The late 1990s and early 2000s brought seismic changes to corporate America and U.S. financial markets—changes that shook our collective confidence in several of our most important institutions.

The events that played out during those tumultuous years (roughly 1998 through mid-2002) had a substantial impact on the shape and content of this resource. What started out as a straightforward task of chronicling the business tactics and methods of a small group of successful CEOs became a far more complex challenge.

The business environment could not have looked much better. In the late 1990s, the U.S. stock markets were riding high, having enjoyed almost two decades of unprecedented and nearly uninterrupted growth. The Dow Jones Industrial Average, which at the start of the bull market in 1982 had hovered at around 800, had broken through both the 10,000- and 11,000-point psychological barriers. (Pundits were then prognosticating about the Dow soaring to 30,000 in the not-too-distant future!) The tech-heavy NASDAQ Index, meanwhile, was on an even more breathtaking ride up to the 5000-point level. In a display of hubris that seems quaint in retrospect, the NASDAQ had begun calling itself the stock exchange of the next century.

This upsurge in market valuations had profound effects on the investing public—the base of which had also grown enormously as defined-contribution retirement plans replaced defined-benefit plans. (Several decades ago, only a small percentage of Americans owned individual stocks or shares in mutual funds. Today, approximately 60 percent of U.S. households do.) Simply put, a lot more of us had a lot more of our assets in the markets, and we were doing well. In the words of Fed Chairman Alan Greenspan, a "wealth effect" took hold: We felt richer, so we spent more, and the economy climbed to new heights. The so-called new economy promised even more riches in the years ahead.

Popular historian Frederick Lewis Allen once referred to the 1920s as an "entrepreneurial riot." The same could be said about the later 1980s and the 1990s. Business was king, and business leaders such as Microsoft's Bill Gates and GE's Jack Welch were idealized, and even idolized. In the summer of 2000, a publisher paid more than $7 million for the right to publish Jack Welch's memoirs. This was a record advance for a business book and a near-record advance for a nonfiction book (only the pope had had a richer payday, until both Clintons eclipsed that level later).

It was a heady time for corporate America, and just about everyone caught a touch of the fever. New business and finance magazines hit the stands, and we snapped them up. Cable financial news programs—even whole networks— came into being, and we gave them good ratings. Successful mutual fund managers, who in earlier years would have labored in near-total anonymity, became the financial equivalent of pop stars. (Who was as well known as Peter Lynch before Peter Lynch?) But the brightest stars in the business firmament were those top-tier CEOs. Their pictures were emblazoned on the covers of books and magazines, and they weighed in on the important issues of the day.

In 1997 and again in 1999, Time chose a CEO as its Person of the Year (Andy Grove of Intel and Jeff Bezos of Amazon, respectively). This distinction was normally the turf of potentates and ultra-celebrities; now it was being given to entrepreneurs and chief executives.

But inevitably, the party ended. Some of the people we had been celebrating—Andy Grove among them—turned out to have been just as visionary and influential as we had made them out to be. Others did not. Some of those hot companies—certainly Microsoft, and probably Amazon— turned out to have staying power and the ability to create value over the long run. But most did not. By the end of 2001, the vast majority of the high-flying dot-com companies had crashed and burned, sparking the greatest swoon of any financial market in history. The NASDAQ, which had enjoyed 3 years of record growth, fell from a high of more than 5000 in March of 2000 to under 1200 by the fall of 2002.

Almost everything is obvious in retrospect. From the vantage point of early 2003, it's easy to see the lessons of this strange period in American business history. Very few of those lessons are new, or even that surprising. For example, "A soaring stock price alone does not a business make." A viable business requires a viable business model that is capable of producing a respectable revenue stream. This was true in the days of Carnegie and Morgan, and it remains true to this day.

When the new-economy house of cards came tumbling down, the reverberations were profound and far-reaching. The precipitous drop of the NASDAQ, for example, helped push thousands of businesses under water. It also wiped out trillions of dollars of shareholder value, destroying the nest eggs of many millions of individual investors. (The phenomenon was not restricted to the United States; Europe and Asia were hit even harder.) And this was only the first of many heavy shoes that were dropping on an already stunned investing public.

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