Nvidia sends a painful message on how to value a CEO

{"text":[[{"start":4.28,"text":"The first human to make $1tn was Elon Musk. The first person to incinerate $1tn may prove to be Jensen Huang. His exit from Nvidia, which has already eroded $600bn of market capitalisation since last Friday, should be a nudge to rethink a pervasive problem in tech: the “charismatic founder” bubble."}],[{"start":4.78,"text":"The true cost of Huang’s resignation, amid a probe into his romantic relationship with a suspected Chinese spy, won’t be clear for a while. Nvidia’s generous pricing power, customers’ hunger for its AI chips and its critical relationship with manufacturer TSMC were all built over many years by the defrocked co-founder. As more facts emerge, there may be long-term benefits too, if Huang’s indiscretions prove symptomatic of wider cultural rot."}],[{"start":5.28,"text":"Founders like Huang exist in a weird financial limbo: they’re not simply employees, nor are they technically assets. Yet there’s no question they are of material value. The reason companies such as Nvidia, SpaceX and Palantir trade at big premiums to the value of their worldly goods is in part because investors think founders can keep turning one plus one into three, or 10. Meta Platforms is one that has gone to great lengths, recently creating a new class of voteless company shares to keep its boss happy."}],[{"start":null,"text":"

"}],[{"start":5.78,"text":"While company filings abound with facts, figures, results and risks, the actual financial impact of an influential founder or chief executive is nowhere to be found. Nvidia’s fate suggests it’s time to rethink that arrangement."}],[{"start":6.28,"text":"But how? Putting Huang on the balance sheet in literal terms — or Musk at SpaceX or Mark Zuckerberg at Meta — wouldn’t fly. Companies can only officially do that with things they actually control. There is, though, a strong case for companies disclosing more about factors every bit as fundamental to the firm’s value as a machine, server or building."}],[{"start":6.78,"text":"The call to view companies more expansively isn’t new. A decade ago, Professors Baruch Lev and Feng Gu complained that accounting was getting less useful because it didn’t capture “organisational capital”, made up of a company’s structure, leadership, processes and philosophy. That problem will only grow as more huge founder-led companies like Anthropic and OpenAI go public."}],[{"start":24.64,"text":"Boards already do some of the intellectual legwork. Nvidia, like all companies, meticulously debates executives’ contribution in setting pay and targets. If the board can calibrate rewards that capture “the scope and complexity of their roles and responsibilities”, as its annual filing says, it ought to be able to give a sense of their value more broadly."}],[{"start":47.52,"text":"Expecting companies to do this of their own accord is pie in the sky. But there’s no reason that “risk factors” can’t be made more precise. Huang, for example, managed nearly 60 reports. Perhaps that lean structure kept Nvidia’s operating expenses lower than peers’. Perhaps his political influence and relationship with TSMC kept its gross margin higher than rivals. Why not say so?"}],[{"start":71.1,"text":"Being clearer about why founders matter, and how much, should help everyone. Asset or not, big personalities have become a bubble. Puncturing it might take some of the wind out of some outlandish valuations — but it would also reduce the shock when a hero falls from grace."}],[{"start":88.64,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1794535627_9193.mp3"}