Sunday, May 11, 2008

Run by Wall St? Cause or Company?

In light of the Yahoo! - Microsoft fiasco, fellow bloggers Larry Dignan and Vinnie Mirchandani have been asking the question whether there is too much emphasis on just one stakeholder - the shareholder. After all, shouldn't a technology company (or any company for that matter) be equally focused on the value for customers, partners and employees.

I believe that the real problem is not that of prioritization of stakeholders but a more fundamental issue: Does your company stand for something?

Larry and Vinnie discussed the following in a recent conversation:
  • Technology companies cater to Wall Street interests too much often at the
    expense of good strategy.
  • Isn’t what a company does for customers and developers more important than
    shareholder interests?
  • What’s wrong with being a mid-size technology company if customers and employees are happy and the products–software, hardware, services–fit a need? There’s nothing wrong with it, but Wall Street would lead folks to believe that any company that isn’t acquired by Oracle isn’t worth existing.
  • And why are we listening to Wall Street at all given that analysts, investment bankers and other financial wonks can’t even manage their own businesses (subslime, credit swaps, write-offs galore)?

Even as I do agree that the recent focus on shareholder's (short-term) returns is probably misplaced, the real problem is elsewhere.

What Does The Company Stand For?

The problem with Yahoo! is not just its mediocre financial performance compared to its more successful cousin in Mountain View - Google, but that Yahoo! does not seem to stand for anything and rarely arouses any passion amongst customers, employees or partners. Its a listless organization that seems to be going through the motions - see this excellent post by Jeff Nolan.
Marc Andreesen recently wrote up an article praising dual-class structure to help management teams prevent hostile takeovers. I believe this is the wrong remedy - its a cure for a disease that should be prevented in the first place: A lack of clear vision around what a company is trying to achieve.

A company (and its management team) deserve to be independent as long as they inspire confidence among investors, employees, parters and customers that the company has a vision that it aspires to that the stakeholders can commit to.

After all, what does Yahoo! stand for? A hodge podge of websites relating to entertainment, communication, search etc with no grand vision of changing our (digital) lives. There are hundreds of smaller companies that are not under any duress to be acquired because their management teams inspire confidence around a vision.

Here is a list of companies that I don't know what they stand for, and hence will not have shareholders clamoring to keep them independent if the right opportunity came along:

  • BEA (Sold)
  • Yahoo!
  • Tibco
  • WebMethods (Sold)
  • IAC (Bought/Sold/Consolidated/Unbundled)

Contrast this with list with:

  • (Changing the enterprise software world; See my disclaimer)
  • Google (Organizing World's Information)
  • Amazon (Changed Retail, Now Web Services)
  • COST (Concur, Omniture, Salesforce and Taleo - the SaaS horsemen, per Phil Wainewright)

The same holds true beyond technology businesses - if your company does not stand for something bigger than management's entrenched interests and egos, its not very likely to inspire shareholders to forgo a 50% overnight return.

There is a story of two labourers working at a construction site, breaking stones. A passer-by asked one labourer what he was doing. “Breaking stones”, was the bored reply. A few yards down the road the traveller came across the other labourer. This worker was different; there was a spring in his steps and a tune on his lips. So the passer-by asked, “What are you doing?” “Oh, I am helping Christopher Wren to build the greatest cathedral in the world.” The vision of the great architect, Sir Christopher Wren, of building a cathedral that was to be the pride of England, gave meaning to the labourer’s work.

So, the question is: Do your stakeholders see your company as a stone-breaking venture or as a company that's building a Cathedral?

1 comment:

Anonymous said...

This talk of Wall Street being the bad guys is a lot of humbug. I've yet to meet the great CEO that caters much to Wall Street. The good CEOs all resist the idea that Wall Street is in control of their companies, and they will push the envelope there if they have to.

Take a look at the ride Steve Singh took Concur on stock price-wise in his conversion of Concur to SaaS and tell me that guy is afraid of Wall Street. CNQR went from $48 to less than $1. If ever Wall Street could exert undue influence, that would've been the time. But they didn't. Singh held it together and got the job done.

Both Yahoo and Microsoft could stand a little shaking up by shareholders. They're both too complacent, and as a result they're steadily losing ground. Microsoft just has a lot more to lose and their ground has better lock-in, so it'll take longer. We need to quit blaming Wall Street for these guy's blunders and ask where the Steve Singh's are at these companies?

Whether it's that you believe a company should stand for something as Anshu has written (good post), or that the market simply prices in the screwups and doubts as I do, the outcome is the same: it's up to the CEO and employees of a company to make it worth something on Wall Street.