Apple (Nasdaq:AAPL) shareholders had been dealing with rumors and uncertainty regarding the end of Steve Jobs' tenure as CEO for quite some time. Perhaps that explains why the reaction to the official announcement of Steve Jobs' resignation was calm and relatively moderate. Jobs' successor, Tim Cook, is already well-known to investors, analysts, and Apple employees, as he has been Apple's Chief Operating Officer for quite some time and filled in for Jobs as interim CEO during prior medical leaves of absence.
This calm reaction notwithstanding, CEO transitions can be major transformative events for corporations. Not only do new chief executives feel the burden of making their own mark on the company, but they live under the legacy (good or bad) of their predecessor and must deal with a company built to execute someone else's vision. With that in mind, investors may want to consider some of the more significant leadership transitions of the past years.
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Sony (NYSE:SNE) was founded by Akio Morita and Masaru Ibuka, and quickly became a major innovator in consumer electronics. Sony was first to market with a variety of innovative products, including the pocket radio, transistor TV, home video recorder, Walkman, Discman, and MiniDisc. Moreover, even in markets where Sony was not necessarily first, the company often found a way to develop appealing new mousetraps (as in the case of the Sony PlayStation).
Sony's innovation was driven in large part by the active involvement of Akio Morita as chairman until 1994 (Ibuka left in 1976). As Morita's involvement and influence waned towards the end of his tenure, so too did Sony's entrepreneurial spirit. It's not unfair to suggest that the "old Sony" might have been first to market with a laptop PC or may have carved out a path similar to what Apple has become in the last 10 years. Though Sony is still a top-10 company when it comes to filing patents, Sony's focus has turned more towards execution, product quality, and brand-building and less towards leading innovation. (For related reading, see Power Up Your Portfolio With Video Game Stocks.)
Following Bill Gates at Microsoft (Nasdaq:MSFT) was going to be a thankless job, and certainly there have been few thank-you notes for Steve Ballmer in his tenure as CEO. While Bill Gates built Microsoft into the dominant business and consumer software company, Ballmer is often blamed for letting the company stagnate and bloat into an unmanageable collection of non-overlapping business.
The numbers suggest that this is not altogether fair. Revenue has nearly tripled under Ballmer's tenure and returns on capital have increased significantly. Moreover, expecting the same kind of growth under Ballmer that Microsoft saw under Gates is just unrealistic - if Ballmer's Microsoft grew at the average rate of Gates' last five years, Microsoft would be producing about $200 billion in revenue a year (more than the Czech Republic's GDP).
Ballmer has not managed to port Microsoft's former dominance in PC and office software to mobile computing or online operations. That said, he's kept a huge company growing more than 10% a year for his tenure and aggressive acquisitions like Skype could lead to new avenues for growth. (For related reading on Microsoft, see A History Of U.S. Monopolies.)
Intel (Nasdaq:INTC) is an odd case study for a tech company. The company's most famous CEO, Andy Grove, was not the first one to run Intel. Yet, he picked up the baton, ran the company for 10 years and made it every bit as much the driving influence in the PC world as Microsoft. Like Jobs, Grove was famous for encouraging experimentation and risk-taking and liked to foster innovative projects.
When Grove stepped aside and Craig Barrett stepped up, Intel changed. Instead of showing the same reliance and focus on internal innovation and lab-driven growth, Barrett was more willing to pursue outside acquisitions. Unfortunately, these did not help growth all that much and Barrett's tenure is shadowed by those failed deals. Now, though, the company is in the hands of Paul Otellini and seems to be regaining momentum. While it is arguably unfair to blame Barrett for Intel apparently getting caught flat-footed by the move to mobile computing, Otellini is moving aggressively to recapture that innovative spirit and regain leadership in consumer computing.
Wal-Mart is one of the best examples that an investor can look to as an example of seamless transition. When Sam Walton stepped down in 1988 and handed the reins to David Glass (and then again when Glass was succeeded by H. Lee Scott in 2000), it would be hard to point to any truly major shifts in the company. Walton built Wal-Mart an emergent power in retailing, and Glass and Scott maintained that momentum to the point where Wal-Mart is in many ways, a proxy of U.S. consumer spending.
That is not to say that Glass did nothing more than keeping Walton's seat warm. Under his leadership, Wal-Mart went global and the company is a significant global retailing presence. Glass also shepherded the introduction of private label merchandise in 1991 - a move that has helped boost company margins and give it even more leverage on suppliers.
Why was so little changed with the CEO transitions at Wal-Mart? Perhaps it is due to the continuing involvement of the founding family. Walton's family owns nearly half of the stock and while they may not be involved in day-to-day decisions, it does not seem unrealistic to suggest that they have a keen interest in seeing the preservation of the "Wal-Mart way." (In this article, we'll take a look at the industries that flourish in a recession. For more, see Industries That Thrive On Recession.)
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The Bottom Line
If investors are lucky, the new Apple will resemble the post-Walton Wal-Mart much more closely than the post-Morita Sony or post-Gates Microsoft. Unfortunately for Tim Cook, Steve Jobs is leaving him a company that has $100 billion in revenue and rampant would-be competition. Double-digit growth gets harder and harder as a company gets bigger, so Cook could be an excellent CEO and still not match Jobs' performance record.
Investors should keep a careful eye on the sort of priorities that Cook highlights over the next few quarters. Is he going to focus on excellence of execution and incremental innovation, or will he continue Jobs' legacy of disruptive innovation? Transitions are always difficult and often risky, but if Apple does not stray far from the core beliefs that built it into such a success story, that success can continue.
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