Founders are The Most Critical Pillars of a business. The Question in The Corporate world, though, is how long should they Continue as CEOs. And if they leave, should they Come Back? \
Howard Schultz isn’t exactly the founder of Starbucks, but one cannot deny that he was the one who reinvented America’s most loved coffee chain to what it is today. When he took back the CEO post from Jim Donald in 2008, his strongest, self proclaimed agenda was to bring back the ‘emotional attachment’ for Starbucks. Michael Dell would nod in agreement, since he came back as CEO in similar circumstances; when Dell was taking a beating from HP under Kevin Rollins.
Of all the people who are part of an organisation, the founder will always stand apart on the emotional front, even if he is no longer part of day to day operations of the business. The company, before it even began being formed on paper and on bank accounts, existed in his mind. He defined what it would (or would not) stand for. He formulated the values, the operating philosophy and did the first few rounds of strategic planning. It’s his baby before anyone else. Yet, when logic comes to play, one of the most debatable issues is on the longevity of founder CEOs. While many experts favour the opinion towards a professional executive, as it helps keeping business and emotions in the right place, a lot of experts believe that it is right for the company if its promoter remains as its CEO. Undeniably, both views have been proved right and wrong at different times, locations, situations and companies.
For instance, when Jerry Yang, Founder and ex-CEO, Yahoo! took over as the CEO again in 2007, his short stint of over a year gave a lot of heartache to the search engine giant. Yang not only led a hit to revenues by not being able to seal an advertising deal with Google, but also rejected the sale of the internet company to Microsoft for $47.5 billion (which was more than thrice Yahoo’s market value then). The months that followed saw Yang coming back to the post of Chief Yahoo! and Silicon Valley veteran Carol Bartz taking over the reins. The company is still trailing its counterparts, but the valuation of the share price has improved drastically since Bartz took over. The stock of Yahoo! was trading around $12 in January, 2009 when Bartz took over as CEO and the share price today stands close to $17, an improvement of 41.6%.
Similarly, ever since Bill Ford handed the control of Ford Motor Company to ex-Boeing executive Alan Mulally in 2006, he not only pulled the company out of its one of the biggest crisis ever, but also maintained its position as the second largest auto maker in the US. At the end of February 2011, Ford holds a 15.6% market share in US following GM, which still stands tall with 21.3%. In fact, Ford’s EPS growth rate over the past five years is much ahead of its peers at 14.04% against the sector’s EPS growth of 2.00% and S&P 500’s growth of 4.58%. “Alan Mulally has done an outstanding job of impacting the culture of Ford. He improved the leadership and most importantly, left key leaders in their roles for a longer period of time in order to allow them to make a significant impact,” comments Laurie A. Harbour, President, Harbour Results Inc. from Michigan. Mulally also proved critics wrong, that it will be a bad choice for the company to put a man from a different industry on top.
Ironically, attachment does go against the founder’s case at times. Google has seen its co-Founder Larry Page becoming CEO in January as Eric Schmidt moved on to ‘just’ being Executive Chairman of the company. Considering that the share price of Google has just moved up by 3% against the 12.6% growth filed by the S&P 500 over the past year, the shake-up at the top was much needed at the internet major. While analysts are convinced over Page’s ability as a leader and his efforts to streamline the R&D projects of the company, there are still doubts on whether he’ll be able to make Google a good investment as there are hardly any returns on its R&D activities till now. Undoubtedly, a change in leadership at Google has happened at a very apt time, but Page will have to ensure that he keeps an eye on the results on a quarter-to-quarter basis rather than just focussing on a ten-year horizon for Google. Remember, besides being one of the founders, he is also an engineer at heart!
In fact, if required, Page may even learn this skill from another iconic founder CEO and one of the biggest visionaries in business today – Steve Jobs. In his case, the company would constantly dread the thought of life without him. His continuous efforts to keep innovating and coming out with products that lead to consumer delight have made Apple what it is today. But Jobs may even have a learning session with Page on how to help build the company’s image among its audience.
Clearly, Apple suffers from over-dependence on the founder and it may not prove to be a very beneficial proposition going forward. It may be recalled here that as people queued up to get their hands on the new sensation in the technology circuit – iPhone in 2007, Apple hardly got a boost in its share price. However, as it has been seen time and again in the past, even a rumour of its founder Steve Jobs leaving the building can give its share price a sound hiding. “Apple has a very high dependence on Steve Jobs as far as innovation is concerned and whenever there is even a speculation, its repercussions can be seen on the share price,” says Alex Guana, analyst at JMP Securities from San Francisco. The stock lost over 10% in January 2009 after Jobs, suffering from cancer, went on a medical leave and the stock has lost over 1% in March this year on speculation of Jobs stepping down as CEO. As it seems, it will be better for Apple to push itself back a little from the name of Jobs much sooner than later.
Of all the people who are part of an organisation, the founder will always stand apart on the emotional front, even if he is no longer part of day to day operations of the business. The company, before it even began being formed on paper and on bank accounts, existed in his mind. He defined what it would (or would not) stand for. He formulated the values, the operating philosophy and did the first few rounds of strategic planning. It’s his baby before anyone else. Yet, when logic comes to play, one of the most debatable issues is on the longevity of founder CEOs. While many experts favour the opinion towards a professional executive, as it helps keeping business and emotions in the right place, a lot of experts believe that it is right for the company if its promoter remains as its CEO. Undeniably, both views have been proved right and wrong at different times, locations, situations and companies.
For instance, when Jerry Yang, Founder and ex-CEO, Yahoo! took over as the CEO again in 2007, his short stint of over a year gave a lot of heartache to the search engine giant. Yang not only led a hit to revenues by not being able to seal an advertising deal with Google, but also rejected the sale of the internet company to Microsoft for $47.5 billion (which was more than thrice Yahoo’s market value then). The months that followed saw Yang coming back to the post of Chief Yahoo! and Silicon Valley veteran Carol Bartz taking over the reins. The company is still trailing its counterparts, but the valuation of the share price has improved drastically since Bartz took over. The stock of Yahoo! was trading around $12 in January, 2009 when Bartz took over as CEO and the share price today stands close to $17, an improvement of 41.6%.
Similarly, ever since Bill Ford handed the control of Ford Motor Company to ex-Boeing executive Alan Mulally in 2006, he not only pulled the company out of its one of the biggest crisis ever, but also maintained its position as the second largest auto maker in the US. At the end of February 2011, Ford holds a 15.6% market share in US following GM, which still stands tall with 21.3%. In fact, Ford’s EPS growth rate over the past five years is much ahead of its peers at 14.04% against the sector’s EPS growth of 2.00% and S&P 500’s growth of 4.58%. “Alan Mulally has done an outstanding job of impacting the culture of Ford. He improved the leadership and most importantly, left key leaders in their roles for a longer period of time in order to allow them to make a significant impact,” comments Laurie A. Harbour, President, Harbour Results Inc. from Michigan. Mulally also proved critics wrong, that it will be a bad choice for the company to put a man from a different industry on top.
Ironically, attachment does go against the founder’s case at times. Google has seen its co-Founder Larry Page becoming CEO in January as Eric Schmidt moved on to ‘just’ being Executive Chairman of the company. Considering that the share price of Google has just moved up by 3% against the 12.6% growth filed by the S&P 500 over the past year, the shake-up at the top was much needed at the internet major. While analysts are convinced over Page’s ability as a leader and his efforts to streamline the R&D projects of the company, there are still doubts on whether he’ll be able to make Google a good investment as there are hardly any returns on its R&D activities till now. Undoubtedly, a change in leadership at Google has happened at a very apt time, but Page will have to ensure that he keeps an eye on the results on a quarter-to-quarter basis rather than just focussing on a ten-year horizon for Google. Remember, besides being one of the founders, he is also an engineer at heart!
In fact, if required, Page may even learn this skill from another iconic founder CEO and one of the biggest visionaries in business today – Steve Jobs. In his case, the company would constantly dread the thought of life without him. His continuous efforts to keep innovating and coming out with products that lead to consumer delight have made Apple what it is today. But Jobs may even have a learning session with Page on how to help build the company’s image among its audience.
Clearly, Apple suffers from over-dependence on the founder and it may not prove to be a very beneficial proposition going forward. It may be recalled here that as people queued up to get their hands on the new sensation in the technology circuit – iPhone in 2007, Apple hardly got a boost in its share price. However, as it has been seen time and again in the past, even a rumour of its founder Steve Jobs leaving the building can give its share price a sound hiding. “Apple has a very high dependence on Steve Jobs as far as innovation is concerned and whenever there is even a speculation, its repercussions can be seen on the share price,” says Alex Guana, analyst at JMP Securities from San Francisco. The stock lost over 10% in January 2009 after Jobs, suffering from cancer, went on a medical leave and the stock has lost over 1% in March this year on speculation of Jobs stepping down as CEO. As it seems, it will be better for Apple to push itself back a little from the name of Jobs much sooner than later.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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