Foundering Founders: A Lesson From Dell

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You might think that most shareholders would put more faith in a company's founder than in some random guy or gal hired off the street. Thankfully, reality indicates otherwise. A considerable percentage of Dell (Nasdaq: DELL  ) shareholders have voiced their displeasure regarding founder, CEO, and chairman Michael Dell's performance.

The heat is on at Dell
More than one-quarter of Dell shareholders withheld votes for Michael Dell's reelection to the board of directors at the company's annual meeting on Aug. 12. Even though a majority of shareholders still supported him, the significant show of dissent is an unusual turn of events at a major company like Dell. What's more, of all the candidates, Michael Dell received the least number of supportive votes. Ouch.

The Summer of Shareholder Activism clearly continues. The AFL-CIO and the American Federation of State, County, and Municipal Employees (AFSCME) continue to agitate, having organized a "vote no" campaign against Michael Dell before the meeting. This campaign centered on the CEO's "excessive" compensation, as well as SEC allegations regarding accounting and fraud. (The company settled with the SEC in July, agreeing to shell out $100 million.)

However, there are even more reasons why a surprisingly large number of shareholders withheld their votes for Dell. The company's sales and earnings have been nothing to write home about for years now, and Michael Dell's return simply hasn't righted the ship.

The comeback-kid mythology
I can't be the only investor who's fond of founder-led companies. The folks who start a company are often have a vision and a passion for their jobs that less engaged leaders might not be able to summon, however much they're paid. Pride in one's own brainchild further implies that founders will be more fully engaged in paving the way to a lucrative future for their companies.

The corporate world's got plenty of examples of founders or former CEOs (or both) who left the helm for a while, only to return with great success. Steve Jobs' triumphant second stint at Apple (Nasdaq: AAPL  ) and Charles Schwab's return to, er, Charles Schwab (Nasdaq: SCHW  ) are regarded as historical comeback-kid success stories. Optimism also greeted Howard Schultz's step back into the CEO spot at Starbucks (Nasdaq: SBUX  ) , and he's currently credited with a fairly successful turnaround for the java giant.

That's not always the case, though. Former leaders' returns to Xerox (NYSE: XRX  ) (Paul Allaire), Gateway (Ted Waitt), and Enron (Kenneth Lay) didn't save the day.

Under the assumption that returning CEOs, particularly founders, can bring foundering companies back to greatness, many Dell investors cheered Michael Dell's resumption of the reins from Kevin Rollins back in 2007. How times have changed since then! It doesn't look like Michael Dell will join the annals of the returning-founder elite.

Proxy votes and reality checks
Shareholders should be willing to cast doubt on their company's leader when it's reasonable to do so, even if the leader in question founded the company. While a founder at the helm is often a good thing, it's no magical guarantee of success. Kudos to my Foolish colleague Tim Beyers for pointing out in February 2007 that Michael Dell might not have been the answer. Thus far, Tim's argument looks awfully accurate.

I'm heartened to see shareholders increasingly willing to show their displeasure with management when it's warranted. Such votes and revolts can revive responsibility at corporations, many of which often sorely need reality checks like these. Hopefully, such displays will also demonstrate that separating the chairman and CEO roles is simply good corporate governance policy.

After all, even if they're founders, CEOs of public companies aren't kings.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Apple, Starbucks, and Charles Schwab are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.

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