 "<b>Book Extract:</b> A boardroom with a view")
The mid-1990s was a critical time for the mobile phone business. Technology was changing quickly, and Motorola, under Tooker, stuck too long with its old technology, investing millions of dollars in a new analog-based handset while the rest of the world was moving to digital. The cell-phone carriers made it clear that they wanted to move to digital and, trusting Motorola's reputation for quality, asked the company to provide handsets for them. When Motorola stalled, new players gained traction.
Making matters worse were Motorola's choices among the three competing standards when it did move into the digital field. It focused on GSM phones first, which were popular in Europe but less so in the United States, and was late to the game with CDMA-based phones. Consequently, the company's 60 per cent share of the wireless telephone market in 1995 plummeted to just 26 per cent a year later.
The market misses tarnished the company's reputation and hit the bottom line hard. Predictably, the stock market was punishing. In 1997, directors concluded that they needed a new CEO and this time chose Christopher Galvin, who was then senior executive vice president, having come up through sales and marketing to head semiconductors and then paging systems. Galvin's tenure was hardly smooth sailing. He had to take a huge write-off when Iridium, an expensive space-based satellite system, went online but failed to live up to its commercial promise. He also had to navigate the Asian currency crisis, which hit Motorola hard because a significant percentage of revenues came from that region. But Galvin was driven to rebuild the corporate culture he had seen unravel. He remembered the Motorola where great engineers worked as a tight-knit group to conquer the toughest technology challenges with a clear focus on satisfying customers. Hoping to end the myopic internal bickering that had become commonplace, he reorganised the company into larger divisions and gave people throughout the business greater decision-making authority. Meanwhile, the company was catching up in digital wireless phones and building a business around cable modems.The stock price lifted, but the company's problems ran deep. Costs were too high, and poor decisions were wasting time and money. The stock price rose to $134 in spring 2000 but dropped to $86 one month later as investors lost confidence in Motorola's future. A turnaround was in order, and beginning in 2000, Galvin took it on.
The medicine was hard to swallow: $12 billion in pretax write-offs, a workforce reduction of 55,000 out of 150,000 people globally, the closing of nearly half of Motorola's facilities worldwide, the implementation of a GE-type ranking system, and the replacement of seventy of the top one hundred leaders. It was not all cuts, though. Intent on keeping Motorola true to its roots as a diversified technology company that takes risks and continually renews itself, Galvin instituted a new product development process and preserved $3.8 billion for R&D spending. He also rejected suggestions to narrow the company's focus by selling some divisions," such as semiconductors.
As Christopher Galvin recalls events, West called him one day to insist he sell a piece of the business - any piece, according to Galvin. Galvin stuck to his own conviction not to sell, since he believed that technologies were going to collide, that companies were going to be getting into each other's businesses, and that having more pieces on the chessboard improved the odds of winning. Disagreement about the benefits of a diverse portfolio never got resolved. In 2003, West and lead director John Pepper asked Galvin to step down. Some would argue that the board was governing well by responding to shareholders' impatience. But was it an act of sound judgment and leadership on the part of the board?
BOARDS THAT LEAD: WHEN TO TAKE CHARGE, WHEN TO PARTNER, AND WHEN TO STAY OUT OF THE WAY
Author: Ram Charan, Dennis Carey & Michael Useem
Publisher: Harvard Business Review Press
Price: Rs 995
ISBN: 9781422144053
Making matters worse were Motorola's choices among the three competing standards when it did move into the digital field. It focused on GSM phones first, which were popular in Europe but less so in the United States, and was late to the game with CDMA-based phones. Consequently, the company's 60 per cent share of the wireless telephone market in 1995 plummeted to just 26 per cent a year later.
The market misses tarnished the company's reputation and hit the bottom line hard. Predictably, the stock market was punishing. In 1997, directors concluded that they needed a new CEO and this time chose Christopher Galvin, who was then senior executive vice president, having come up through sales and marketing to head semiconductors and then paging systems. Galvin's tenure was hardly smooth sailing. He had to take a huge write-off when Iridium, an expensive space-based satellite system, went online but failed to live up to its commercial promise. He also had to navigate the Asian currency crisis, which hit Motorola hard because a significant percentage of revenues came from that region. But Galvin was driven to rebuild the corporate culture he had seen unravel. He remembered the Motorola where great engineers worked as a tight-knit group to conquer the toughest technology challenges with a clear focus on satisfying customers. Hoping to end the myopic internal bickering that had become commonplace, he reorganised the company into larger divisions and gave people throughout the business greater decision-making authority. Meanwhile, the company was catching up in digital wireless phones and building a business around cable modems.The stock price lifted, but the company's problems ran deep. Costs were too high, and poor decisions were wasting time and money. The stock price rose to $134 in spring 2000 but dropped to $86 one month later as investors lost confidence in Motorola's future. A turnaround was in order, and beginning in 2000, Galvin took it on.
The medicine was hard to swallow: $12 billion in pretax write-offs, a workforce reduction of 55,000 out of 150,000 people globally, the closing of nearly half of Motorola's facilities worldwide, the implementation of a GE-type ranking system, and the replacement of seventy of the top one hundred leaders. It was not all cuts, though. Intent on keeping Motorola true to its roots as a diversified technology company that takes risks and continually renews itself, Galvin instituted a new product development process and preserved $3.8 billion for R&D spending. He also rejected suggestions to narrow the company's focus by selling some divisions," such as semiconductors.
As Christopher Galvin recalls events, West called him one day to insist he sell a piece of the business - any piece, according to Galvin. Galvin stuck to his own conviction not to sell, since he believed that technologies were going to collide, that companies were going to be getting into each other's businesses, and that having more pieces on the chessboard improved the odds of winning. Disagreement about the benefits of a diverse portfolio never got resolved. In 2003, West and lead director John Pepper asked Galvin to step down. Some would argue that the board was governing well by responding to shareholders' impatience. But was it an act of sound judgment and leadership on the part of the board?
BOARDS THAT LEAD: WHEN TO TAKE CHARGE, WHEN TO PARTNER, AND WHEN TO STAY OUT OF THE WAY
Author: Ram Charan, Dennis Carey & Michael Useem
Publisher: Harvard Business Review Press
Price: Rs 995
ISBN: 9781422144053
Reprinted by permission of Harvard Business Review Press. Copyright 2014 Harvard Business Publishing Corporation. All rights reserved.
| Author speak |
| Directors should step forward to help lead the firm — not just monitor management — on the most crucial issues, Michael Useem tells Ankita Rai The function of the Board is to govern, to monitor, to ensure that shareholder value is protected. In the book, Boards That Lead, you write that “Boards should take more active role in leading the enterprise, not just monitor its management.” How has the role of Boards changed? Management still runs the corporation, of course, but directors can — and should —step forward to help lead the firm – not just monitor management – on the most crucial issues. Doing so, however, requires that boards know when to take charge, when to partner, and when to stay out of the way. Building on the recent experience of a number of companies in the US, China, India, and elsewhere, we have sought to draw a practical map in Boards That Lead. The 2008 financial crisis reflected how the balance of power has been shifting towards CEOs and insiders... Regulators, owners, and employees are pressing Boards to deliver on their responsibilities, and that requires a handful of decisions that only the Board should make: the decisions to select, retain, or dismiss the chief executive; to establish a climate of ethics and integrity; to set the goals and incentives for the executive team; and to pinpoint the company’s central idea, risk appetite, and capital structure. Directors are increasingly stepping forward to claim and embrace those responsibilities, transforming the boardroom from just monitoring to also leading the company. What are some of the biggest challenges board members face in these times of constant change. They can no longer afford to sit back and rubber stamp CEO’s plans. The most forceful trend behind the intensifying obligation for Board leadership of the company has been the increasing complexity of company decisions across virtually every facet of doing business, from sales channels and product categories to price points and product markets. A closely related challenge has been the movement of enterprise operations across national boundaries and the resulting need for company managers to be more conversant with widely diverse regulatory regimes, consumer preferences, and cultural traditions. Experienced Board members can and should provide invaluable counsel and guidance to their executive team on how best to create value when its challenges are ever more complex and global. Michael Useem William and Jacalyn Egan Professor of Management & Director, Center for Leadership and Change Management, |
Wharton School, University of Pennsylvania