Wednesday, August 31, 2011

Tales of When Legends Leave

The founder of a successful corporation steps down. Then what?

At Ford Motor Co. and Walt Disney Co., long periods of stagnation or decline, followed by renewal. At Wal-Mart Stores Inc., continued success for a time, then new challenges.

Now it is Apple Inc.'s turn, following Steve Jobs's resignation as CEO on Wednesday.

Tim Cook, Apple's new CEO, gets high marks for running the company during Mr. Jobs's two medical leaves in recent years. "Apple has done a better job than most to prepare for this," says Jeffrey Pfeffer, a professor at Stanford University's Graduate School of Business, who knows several Apple executives.

But history suggests it will not be a smooth ride.

There are perils in every course. Disney got in trouble for hewing too close to its founder's vision. Wal-Mart is faulted now for veering too far from its founder's strategy.

CSU Archives/Everett Collection

Walt Disney, 1945

The tension isn't limited to the U.S. Japan'sSony Corp. lost its market leadership in electronics after charismatic founder Akio Morita stepped down as chairman in 1994. By contrast, some of Honda Motor Co.'s most innovative vehicles—and greatest market successes—came after founder Soichiro Honda retired in 1973.

Students of leadership say the companies that navigate the transition most successfully are those that embed the founder's values in the organization and groom multiple generations of leaders.

"The difference between a cult and a religion is that one outlasts the founder," said Harvard Business School professor Rakesh Khurana, who has written extensively about CEO succession.

Strong leaders can help, but Mr. Khurana offers a sober outlook. "Most firms don't survive," he said. "In tech in particular, it's like watching fruit flies."

Here are four visions of Apple's future, captured from the past century of American business:

Disney
[LEGACY_Roy]Associated Press

Roy Disney

Walt Disney's death in 1966 ushered in nearly two decades of unsettled leadership.

The company clung fervently to his vision, preserving his office exactly as he left it and adding few new animated features. That left the company creatively dormant.

Subsequent leadership modernized the company but at a price: Key constituencies ended up alienated by the new chief's brusque style. Mr. Disney's older brother, Roy, and other executives, tried, and largely failed, to recreate Walt Disney's magic, particularly in animation.

By the 1970s, Disney was the object of hostile takeover attempts. Its best-known movies from the era were live-action family titles like "Freaky Friday" and "Escape to Witch Mountain."

It wasn't until the board recruited Michael Eisner from Paramount Pictures to be chairman and CEO in 1984 that the company regained focus.

During Mr. Eisner's 20-year tenure, he transformed Disney into a media conglomerate. The 1996 acquisition of Capital Cities/ABC brought in ESPN, which today is the company's biggest source of profit. The company also rebuilt its animation studio and released hits including "The Little Mermaid," "Beauty and the Beast" and "The Lion King."

But the successes and growth were marred by internal rancor and executive turnover.Jeffrey Katzenberg and Michael Ovitz both left amid clashes with Mr. Eisner; their departures cost Disney hundreds of millions of dollars in severance and legal costs.

Mr. Eisner also squabbled with the board of directors. In 2003, a faction led by Roy E. Disney, a nephew of Walt, and Stanley Gold wrote in a public letter that the company was perceived as "rapacious, soul-less, and always looking for the 'quick buck' rather than long-term value."

Mr. Eisner stepped down as CEO in 2005, and was succeeded by his No. 2, Disney President and Chief Operating Officer Robert Iger.

Mr. Iger quickly moved to smooth the many feathers ruffled by Mr. Eisner—including those of Steve Jobs. Mr. Eisner alienated Pixar Animation, where Mr. Jobs was CEO, with his interpretation of a distribution agreement. By the time of Mr. Eisner's departure in 2005, relations with Mr. Jobs were so tense the men were barely speaking.

Messrs. Jobs and Iger quickly reached détente. The following year, Disney bought Pixar for $7.4 billion, making Mr. Jobs Disney's largest shareholder.

—Ethan Smith
Associated Press

Sam Walton, 1984

Associated Press

David Glass

Wal-Mart

Sam Walton, the folksy co-founder of Wal-Mart Stores, who died in 1992 at age 74, provides a cautionary tale of what can happen when a founder's winning formulas are forgotten or cast aside by successors.

Mr. Walton built Wal-Mart from a five-and-dime store in the backwoods of Arkansas into a giant that eventually became the planet's largest retailer. He did so with an indefatigable work ethic—he often began working at 4:30 am — and love for the humdrum details of the retail business. Years after he turned Wal-Mart into a powerhouse, Mr. Walton still visited his stores, and rivals', to soak up intelligence, dictating observations into a tape recorder.

Mr. Walton's almost religious devotion to retailing spawned a unique culture. Workers from headquarters to far-flung store focused on simple maxims such as offering "every day low prices" and "every day low cost" to generate profits.

Mr. Walton handed the chief executive reins to a trusted disciple, David Glass, in 1988. Mr. Glass continued Mr. Walton's vision and accelerated construction of "supercenters." By the end of the 1990s, Wal-Mart was the largest private employer in the world, a title it still holds.

But as years passed and fewer executives in Wal-Mart's Bentonville, Ark., headquarters could claim to have worked with Mr. Walton, some of his principles fell out of favor. With sales growth slowing and fewer spots to build new stores, Wal-Mart in the past decade shifted away from "every day low prices" toward more sales gimmicks, and embarked on expensive store remodeling that raised costs.

Wal-Mart is now trying to reverse an unprecedented nine consecutive quarters of sales declines at U.S. stores open at least a year by returning to ideas Mr. Walton championed. It is cutting back on the remodeling program and curbing promotions in favor of consistently low prices.

—Miguel Bustillo
[LEGACY_Ford]Everett Collection

Henry Ford, 1919

Ford

Henry Ford remained a dominating presence at his namesake company for nearly 25 years after stepping down. Ford didn't benefit.

When he handed the president title to son Edsel in 1919, Ford had already started to lose its grip on the American market. General Motors Corp. had begun offering cars in different styles, prices and colors. Henry Ford insisted on sticking with the Model T—only in black—and rebuffed Edsel's efforts to make a new car.

By 1933, Ford had fallen behind both GM and Chrysler. It survived the Depression only because of the family's vast fortune.

Edsel died of cancer in 1943, and Henry Ford retook control. But he was in poor health and his grandson, Henry Ford II, was pulled from the Navy in WWII to help run the company.

Associated Press

Henry Ford II

Mr. Ford II launched a major restructuring. He hired former GM execs and a group of bright, young Army Air Corps veterans with no auto experience who became known as the "Whiz Kids."

Ford introduced its first group of post-war cars in 1949; the following year, it passed Chrysler to again be the No. 2 auto maker in the U.S.

Ford sold shares to the public in 1956 and grew well into the 1990s, gaining huge profits from selling SUVs. But its fortunes flagged again, particularly after a major recall of Firestone tires in 2000. Ford had too many plants in the U.S. and its luxury brands, Jaguar, Land Rover and Volvo, were losing money.

Bill Ford Jr., the great grandson of Henry Ford, became chairman in 1999 and later CEO, before ceding the post to Alan Mulally in 2006. Mr. Mulally closed plants and borrowed heavily to restructure and develop new products, moves that helped it survive the 2008 economic collapse. Last year Ford reported a profit of $6.6 billion, the most in a decade.

—Michael Ramsey
Getty Images

Bill Gates, 1984

Associated Press

Steve Ballmer

Microsoft

Few successors were better groomed than Steve Ballmer. Mr. Ballmer had known Microsoft Corp. founder Bill Gates for a quarter-century and worked at Microsoft for 20 years when he was named CEO of the software maker in 2000.

But the familiarity didn't make for a completely smooth transition, and Microsoft under Mr. Ballmer has struggled to keep pace with Apple's innovations in fields like music, mobile phones and tablet computers.

"Microsoft has never been the same since [Mr. Gates] handed the reins to Ballmer," said Michael Cusumano, a professor at the MIT Sloan School of Management. He says Microsoft is now a "steady-as-you-go, mind-the-store company."

Mr. Gates withdrew from Microsoft in stages, ceding the CEO role to Mr. Ballmer in 2000 to become "chief software architect." In 2006, he announced he would transition from full-time work and in 2008 he stepped back from day-to-day involvement. Over the period, the two men clashed occasionally.

Before Mr. Gates's departure, Mr. Ballmer studied German sociologist Max Weber, who wrote about how organizations handle the disappearance of "charismatic leaders" in the hopes of finding a way to preserve Mr. Gates's role of technology visionary inside the company.

But by many accounts, the forward-thinking technology company of Mr. Gates is now more staid. Microsoft is trying to steer the profits of its Windows and Office franchises into innovations in fields like mobile computing and Internet search technology. It has introduced many new products, often ahead of rivals, but has yet to land its next "killer app."

"The Gates era was characterized by leadership that reveled in technology, in creating new products that would change the world. In Ballmer's era, I'd argue that it's more of a professional manager focus," said Richard Williams, a senior software analyst for Cross Research.

Microsoft declined to comment.

Since June 2008, Microsoft's annual revenues have grown nearly 16% and its profits by almost 31%. But shares have been roughly flat, suggesting investors are worried about Microsoft's ability to penetrate the tablet and mobile markets, Mr. Williams said.


Labels:

0 Comments:

Post a Comment

Subscribe to Post Comments [Atom]

<< Home


Visitor Map
Create your own visitor map!