Last Sunday, in my friend’s kitchen, a mini-tree aeroplaned toward his baby’s mouth.
We held our breath. First broccoli. Two camps decide a baby’s future with vegetables… the love-it camp, and the spit-it-all-over-the-high-chair camp.
To break the tension, I blurted out a fun fact (fun is debatable).
“Did you notice Australian broccoli has a much thicker stem than the rest?”
Pay attention the next time you’re walking through a supermarket here in Singapore… or really, anywhere in Southeast Asia. The Australian stalks are distinctively thicker. Woody, water-dense, harder to chew through. The Chinese and Malaysian ones are slimmer, with more floret and less stalk.
The reason has less to do with biology and more to do with how each country sells the thing.
Australian broccoli is priced by weight. So the rational grower breeds the heaviest plant possible… thicker stalk, more grams, more dollars per crown. The supermarket doesn’t trim it. The customer pays by weight.
Chinese and Malaysian broccoli is usually sold by the piece. So the rational grower breeds for the floret, not the stalk, because no one picks up a broccoli at the wet market and asks how much it weighs.
But none of this is about broccoli, really. It’s about incentives.
The late Charlie Munger put it across best:
“Show me the incentive and I will show you the outcome.”
Munger wasn’t thinking about supermarkets when he said that, of course. He was talking about boards, CEOs, and investment bankers. But the mechanic is identical.
A CEO paid on revenue growth will be incentivized to buy companies, or expand aggressively without regard for returns, to grow revenue.
A CEO paid on EPS growth will more likely borrow money to buy back shares at any price.
A CEO paid on the stock price over twelve months will be tempted to manage for the next quarter.
But a CEO who has a significant amount of his net worth tied to the company’s stock? That one tends to think like an owner.
Again… in the words of Munger:
“Never, ever, think about something else when you should be thinking about the power of incentives.”
My friend’s baby, by the way, ate the broccoli… and spit it right out.
— Thomas
P.S. Next time you spot “Australian” broccoli at the wet market, sold by the piece, with a thin little stem… I’d be very suspicious.