The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success Hardcover – October 23, 2012

As a businessperson, I have read many, many books over the years that have helped me hone my business thinking and become better at business. As an investor, I also have read so many books that have helped me become a better value investor. Rarely, however, have I found books that have helped me do both at the same time. Roger Lowenstein's book on Warren Buffett, Pat Dorsey's two books on creating protectable value in a business, Howard Mark's book on investing, perhaps the David Clark/Mary Buffet series on value investing, all come to mind.Mr. Thorndike's book not only falls into the third category, but has made its way to the top of my keeper list. it is simply extraordinary, and I could not recommend it more highly.Why did I like it so much? Because it explains, in the most straightforward of ways, in the clearest of prose, (1) the hallmarks of a good business (strong, steady, predictable cash flow, as the sine qua non and core focus), (2) the possible sources of cash and uses of cash in a business that taken together generate cash flow in simple algebra (sources less uses equals cash flow), (3) the strategies flowed by 8 business leaders in managing that flow of capital so that the math works out the right way, (4) the incredible similarities in the strategies pursued by these leaders in working with cash flow and the tight correlation to increases in shareholder value, (5) the mindset of these leaders that separated them from the pack, (6) the ability of this group to decentralize, tune out the outside noise and ignore the "institutional imperative" and (7) the common intense focus shared by these leaders on a small set of metrics (all pretty much proxies for measuring cash flow and thus return on equity.If I had to consolidate those conclusions into a single core principle that came through with crystal clarity for me in this book, it would be that strategic, rational management of cash flow against clear benchmarks may be the single highest priority for leadership in any business. And as a corollary, that so few businesses seem guided by an intense focus on cash flow with its corresponding contribution to shareholder value.I also was so impressed that the conclusions presented in the book were not simply the musings of a very intelligent thinker, but rather were grounded in the most thorough of research. I likely still would have found much of value even without the research foundation, but that aspect provided even more credence to the analysis presented in the book.I spent Saturday of Labor Day Weekend reading through this volume as if it were the latest action thriller (geeky, I know). I simply couldn't turn the pages quickly enough, and look forward to returning to its teachings time and time again. It will have a very important place on both my investing and business bookshelves in the years to come.As Mr. Thorndike says in an interview that I read after reading the book, it would be wonderful if the top business schools would teach more (or, perhaps at all) about management of cash flow as a critical business priority of the CEO that should never under any circumstances be delegated down or away. I think he may have well written the textbook.

Love the examples of the exceptional CEOs. Wish every company had leaders like the CEOs in this book.

In my opinion, this is a book on Applied Corporate Finance. As those who ever took a Corporate Finance class know, the basic premise on which that discipline is built is Maximization of Shareholder Value. Well, this book is about exactly that. According to Corporate Finance theory, the maximization of shareholder value is achieved by following three principles -the Investment Principle, the Financing Principle, and the Dividends Principle. The Investment and Dividends Principles are what in the book the author calls Uses of Cash (Capital Allocation). The Financing Principle has more to do with what the author refers to as the Sources of Cash (asset divestitures, issues of equity/debt, etc). Questions related to operations efficiency are only covered superficially, but that's fine. From the get go, the author is honest about the focus and scope of the book.The book is unique in the sense that there are not many books on Corporate Finance case studies. This book is exactly that. Each of the CEOs/Companies profiled here is a separate case, dealt with in separate chapters. I like that.It is also a well-written, well-researched book. It is an entertaining read and, on top of everything, it has the endorsement of Warren Buffett. You cannot ask for much more than that. Oh wait! Yeah, the presentation is pretty nice. I like good looking, elegant hardcover books.Now, why am I holding back one star? See below:1- The book is kind of dogmatic about certain rules deemed as universal (e.g., never pay dividends, never issue new shares, etc). If things were so simple, then Corporate Finance would not exist as a discipline.2- The author kind of pounds on Jack Welch as someone who, even though successful, has not accomplished the same level of results that the CEOs included in his book did. Well, guess what, you cannot compare apples to oranges. Jack Welch was the CEO of GE. These other CEOs took over when their companies were very small, and completely unknown. I'm not saying the they do not deserve credit for what they accomplished. All I'm saying is that you cannot expect GE's stock price to grow at the same pace small cap stocks grow. Scale is important. So, when adding Jack Welch into the mix, the relevant question is no longer who grew the stock price the most, but who generated the most profits (in absolute dollar value) for their shareholders. Again, scale is important. It's not the same to be the president of the US than the president of Uruguay.I guess the ultimate goal of the book is not so much to teach Corporate Finance lessons but to help value investors select good CEO's. "Good" in this sense means CEO's who are focused on maximizing shareholder value in the long term. In other words, CEO's whose interests are in line with those of the owners of the company. Now, this might be an outdated approach since good Corporate Governance practices are nowadays widespread, which ensures that the compensation of executives is tied to business results. Not to say that there are still not principal-agent issues around, but it is definitely not as pervasive of a problem as it was decades ago.Hope this helps.Cheers!