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Power Sheet – January 29, 2015

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In a month or so, we’ll begin to see this year’s crop of corporate proxy statements, the annual SEC filings in which companies invite shareholders to the annual meeting, propose the election of directors, and—the hottest news—report the CEO’s pay for the previous year. We’ll see lists of the highest paid CEOs and hear outrage over the giant pay packages some chiefs received in a year when their stock price or profits declined. The big problem is that such evaluations, while easy to do—last year’s pay vs. last year’s performance—are at best flawed and at worst nonsensical. A story in Friday morning’s news illustrates why.

Yesterday, just 12 days after the West lifted sanctions against Iran, the country signed a deal to buy 12 Airbus A380 superjumbo jets (and 112 other Airbus planes). The deal breathes “new life into the European group’s troubled superjumbo jet programme,” the Financial Times reported. It does indeed, but it still won’t save the jet. The company has sold just over 300 A380s since their introduction in 2007. No analyst seems to believe Airbus will ever recoup its $12 billion investment. Financially, the world’s largest passenger plane, which can carry 800 people and lists for over $400 million a copy, is a bust.

Virtually no one would have predicted that outcome back in December 2000, when Airbus announced its decision to build the A380. On the contrary, the conventional view held that the move was brilliant. Business professors wrote about how Airbus had outmaneuvered Boeing. Airbus CEO Noel Forgeard looked like a genius.

One of the few people who might have guessed the A380’s unhappy fate was Alan Mulally, Ford’s future savior CEO (2006-2014) and back then the chief of Boeing’s commercial aircraft business. Three months after Airbus announced its decision, Boeing said it would not follow and would instead focus on smaller, faster planes. “It’s a different perception of the world going forward,” he told the WSJ. That turned out to be the winning bet. The Boeing 787 – 1,100 orders since its introduction in 2011 – is better suited to today’s market, which values frequent departures and more flights to second-tier destinations like Jakarta and Manila that can’t handle the massive A380.

But wait – there’s another twist. Despite the A380’s failure, Airbus booked more total net orders than Boeing last year for the third consecutive year. That’s largely because Airbus’s revamp of its workhorse A320 is strongly outselling Boeing’s revamp of its equivalent 737.

The common thread is that the key decisions are made years before anyone can possibly know how they’ll turn out. Last year’s performance was probably affected significantly by a previous CEO. And Boeing CEO Dennis Muilenburg and Airbus chief Tom Enders are making decisions today that won’t prove wise or foolish until after they’ve left. It’s the same with CEOs generally. Their job is to lead the company toward a future beyond their time.

I wish there were a a simple way to evaluate CEOs, but there isn’t and never will be. Let’s by all means debate each one’s skill or lack of it. Boards of directors are required to do so. But let’s not judge their pay based on a formula that’s chosen because the math is easy.

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What We’re Reading Today

Xerox to split in two

The decision by CEO Ursula Burns will create one company focused on office machines and another on services. It’s a plan pushed by activist investor Carl Icahn, who will receive three seats on the board of the services company. The move undoes  Xerox’s biggest acquisition, a 2010 merger with Affiliated Computer Services for $6 billion, which propelled Xerox further into the services business. WSJ

Bank of Japan imposes negative interest rate

The Bank cut rates on new reserve deposits from 0.1% to -0.1% in order to encourage banks to lend money instead of holding it in reserves. BoJ Governor Haruhiko Kuroda and the rest of the board reiterated that “it will cut the interest rate further into negative territory if necessary;”other stimulus efforts haven’t taken hold. Japan joins the European Central Bank and three Scandinavian countries in setting negative rates. Fortune

Walgreens steps back from Theranos

A day after the U.S. government outlined how Elizabeth Holmes‘s company jeopardizes patient health, Walgreens announced it will close its Theranos Wellness Center in Palo Alto, California. It will also cease sending samples to Theranos’s lab in Newark, Calif. The decision by Stefano Pessina‘s company will limit Theranos’s largest retail partnership, increasing pressure on Holmes as she tries to respond to the government’s demands.  Engadget

Takata CEO to resign… or maybe not

Reports surfaced that reclusive CEO Shigehisa Takada would resign in order to show the company takes full responsibility for the faulty airbags that have led to nearly 24 million recalled vehicles and potentially 11 deaths. But Takata said the CEO has no plans to resign, and no successor has been picked.  Reuters

Building a Better Leader

Obama proposes new rules to show gender pay gap 

He wants companies with more than 100 employees to provide salary information according to sex, race, age, and job groups. USA Today

The winner of a 30-second Super Bowl ad…

…is a coffee entrepreneur who tried his first cup of joe at age 25.  Fortune

Those amazing corporate offices come with tons of perks…

…but can you ever escape work? Aeon Magazine

At The GOP Debate (And He Who Wasn’t)

Ted Cruz and Marco Rubio lead the debate

Without the presence of Donald Trump, Cruz and Rubio took control of the conversation. Rubio and Rand Paul hit Cruz hard for his shifting views on immigration. Cruz’s insistence that he’s a consistent conservative came under continuous attack, possibly setting him back. NYT

Meanwhile, Trump holds a rally

In protest over Megyn Kelly‘s presence as a moderator on the Fox News-hosted debate, Trump held a rally to raise money for veterans. He also invited Mike Huckabee and Rick Santorum, two candidates who were relegated to the undercard debate, to speak. CNN

Trump and Fox News share shots

Trump says he spoke to Fox News CEO Roger Ailes many times in the past few days and that the organization has apologized to him. Not so, says Fox, which had previously issued a cheeky press release in response to Trump’s decision not to participate. Fox also said Trump asked for $5 million to join the debate, which Fox wouldn’t pay. Fortune

Up or Out

James Murdoch, son of Rupert Murdoch, returns to U.K. pay-TV company Sky as chairman, four years after stepping down because of his connection to a phone-hacking scandal at his family’s News of the World newspaper. Fortune

Politico co-founder Jim VandeHei will step down as CEO after the election, along with star writer Mike Allen and some executives. CNN Money

Fortune Reads and Videos

Apple expected to unveil new upgrades in March 

And the company could announce an iPad Air 3. Fortune

Google spent over $2 million last year… 

…rewarding security researchers for finding bugs in its system. Fortune

The man suspected of causing the flash crash…

…probably wasn’t the culprit, according to a new study.  Fortune

Defense Dept. standardizes military maternity leave at 12 weeks

That’s great for Army and Air Force moms, but Marine and Navy mothers will lose six weeks. Fortune

Happy Birthday

Speaker of the House Paul Ryan turns 46 today.  Biography

Former Vice President Dick Cheney turns 75 on Saturday. Biography

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