I recently finished William Thorndike’s book “The Outsiders – Eight Unconventional CEOs and Their Radically Rational Blueprint for Success”, and think it is a great read. As usual, I jotted down the most important lessons & thoughts to me and document them below.

To get an initial understanding of the quality of this book, it is worth mentioning the origin of this book. Thorndike is a PE investor and a founding partner of Housatonic. When he was preparing a presentation to CEOs of their portfolio companies about “what makes an exceptional CEO” circa 2004, Thorndike wanted to do a case study of Henry Singleton, whom he regarded as one of the best CEOs, with the help of a HBS second year student. From there, Thorndike and subsequent then-HBS second year students continued studying 7 more CEOs who had pass his rigorous test (beat annualized returns of both peers & Jack Welch’s GE during their tenures by large margin), one CEO a year. Note that GE during Welch’s tenure has 20~% annualized return, which itself is a very high bar. Along the way, Thorndike found striking similarities between these CEOs and decide to make a book on these traits. Here is a Harvard Business Review short podcast in 2014 about the book & its origin [Link].

Below are important points & thoughts to me:

• How to avoid Valeant: An inversed thought, but I think this is the most important lesson/thought I have from reading this book. It’s no coincidence that so many renowned value investors (Bill Ackman, Ruane Cunniff & Goldfarb, etc.) fell for Valeant – as J. Michael Pearson basically tried to model himself to these CEOs. Ackman had a pitch presentation for Valeant with the title of “The Outsider” with explicit reference of this book and nominating Pearson to be the ninth CEO fitting this book, you can see it here [Link]. William Thorndike, during a Motley Fool interview in 2014, also called out Valeant when asked about any younger generation CEOs he liked. Below is an excerpt where Throndike compared Pearson to Malone in their “roll up” strategy. [Link]

Continue reading →