Shake Up, Wake Up, and Make Money

Anyone who's been on the wrong side of a stock investment knows how painful and protracted major management problems can be. Meanwhile, shareholders generally have very little recourse other than watching train wrecks take place in agonizing slow motion.

Oftentimes the same problems keep cropping up, even over the course of years, while management teams and corporate boards do little to stop the deterioration. And of course, they frequently fight to keep the power that their track records prove they no longer deserve.

That's why so many of us would rather see corporate governance policies improved, and shareholder voice amplified. That's just one step in pushing for necessary changes that could push enterprises to really think outside of the box.

Falling from bright to blah
Do you remember way back when Microsoft (Nasdaq: MSFT  ) had real teeth? The memories might be foggy. It's been a long, long time.

Vanity Fair recently featured an excellent article by Kurt Eichenwald on Microsoft's Lost Decade, which could be used as a primer for public companies on what not to do. Microsoft's now so far from greatness, the once-underestimated Apple's (Nasdaq: AAPL  ) iPhone alone now rings up more sales dollars than all of Microsoft's products put together. It's hard to recall when we all felt as if Microsoft might take over the world.

The article described a corporate culture that encouraged employees to compete with one another internally instead of focusing on creating great products to take on the company's major rivals. Much of the fault is laid at CEO Steve Ballmer's feet. He has presided over Microsoft for about 12 years now, and the company's competitive position has deteriorated. Eichenwald points out that Ballmer's background was "deal-making, finance, and product marketing." In other words, pretty out of touch with products themselves.

Another company that has lost its former glory is Best Buy (NYSE: BBY  ) . The company has lost its differentiating edge: a focused consumer experience described as customer-centric. Much of the complacency and slippage into mediocrity following the demise of major rival Circuit City happened during the tenure of Brian Dunn, who succeeded Brad Anderson in 2009.

Things have gotten so bad that Best Buy's founder, former chairman, and major shareholder Richard Schulze has offered $24-$26 per share to take the retailer private; he described "bold and extensive measures" needed to save the retailer's future. Rumor has it former executives including Brad Anderson might even be interested in rejoining the company if the deal takes place.

Thinking differently
Innovation has fallen by the wayside at formerly powerful and leading companies like these. I'd venture to guess that management teams and boards have also become used to "the way things are" and encouraged bureaucratic solutions to things rather than coming up with any truly interesting ways to tackle big problems.

Maybe it's time that more corporate managements and boards think outside the box.

Cosi may prove to be one example, as reported by The Wall Street Journal this week. The struggling cafe company has never reported a profit, and has had a long line of chief executive officers that have failed in turning things around.

Now, Cosi is headed up by its seventh CEO since it became a publicly traded entity in 2002, Carin Stutz. Not only is she one of the few female CEOs out there, but she is also a restaurant industry veteran who is actually described as a "corner office rookie" and, according to her own admission, "not a Wall Street person." One more differentiating factor about the change is that Stutz shares leadership responsibilities with newly named Executive Chairman Stephen Edwards, an investment manager who owns a 2.1% stake in Cosi. In other words, he's an actual shareholder.

This scheme may sound crazy, but it may be crazy enough to work. The two individuals are described as having differing skill sets, which could help foster more collaborative efforts and listening to new ideas. Meanwhile, the two have been visiting Cosi restaurants in person to try to figure out ways to turn the chain's fortunes around.

Fresh paths to profits
I'm certainly not gearing up to buy shares of perpetually unprofitable Cosi on that development, but hearing about innovative ideas is refreshing and it's worth paying attention to what ultimately transpires under this fascinating arrangement.

Overall, more corporate managements and boards need to look at innovative ideas like that one to get their heads out of the dusty old archival box and start thinking about new, more productive ways to manage and keep companies fresh and feisty.

That spirit could include all kinds of new approaches, like ensuring that boards of directors are diverse and well rounded, not a collection of like-minded people who rubber-stamp everything. How about an employee director or two, to give honest front-line perspective?

One of the aims of good corporate governance is to make it possible for shareholders to shake up dysfunctional managements and boards.

As shareholders, let's remember that we must track whether our companies' corporate managements can think out of the box. Meanwhile, shareholder-friendly corporate governance policies help us push for forward thinking, too. Let's all think in terms of moving forward instead of getting left behind.

Speaking of Microsoft vs. Apple, years ago, no one would have believed where Apple is today. If you'd like to check out our report on Apple's risks and opportunities, including a year's worth of updates, click here for more information.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Apple, Microsoft, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple and Microsoft, as well as creating a synthetic covered call position in Microsoft and a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2012, at 9:25 PM, mythshakr wrote:

    How many people see the disclaimer "Past performance is no indication of future…" in every stockholder document they receive from every public company they hold shares of? But how many actually take that statement to heart? The same is true of people, from the mail room to the top tier executives. Yet, how many of those same executives are hired exactly because of their past performance and nothing else?

    How many CEOs are hired because they were outstanding VPs of finance or marketing? And how many of those newly minted CEOs are excellent managers and poor leaders? Managers manage resources, leaders lead people.

    Everyone expects those great VPs of Finance or Marketing to be great keepers of the future of the enterprise based upon their past performance. And many simply do not have the ability to do so.

    I wonder in how many of the interviews for CEO positions the chosen individual, when asked what they would do if selected said they would cut costs and streamline operations to enhance shareholder value? And I wonder how many were chosen because their answer to that question was more along the lines they would seek out the people who will innovate the company into the future and give them the wherewithal to succeed? The later is much more difficult and risky to do.

    All great companies are lead by great leaders, people who seek out and find the people, inside or out, who share a vision and who will innovate the company into the future. Apple, Google, Facebook, Berkshire Hathaway and even Microsoft, 30 years ago, have or had great leaders who pushed the company into the great unknown of the future of products and services. Great managers don't do that, they concern themselves with making the most effective use of the resources they have available or finding other resources to do things based upon probabilities of success from past performance.

Add your comment.

DocumentId: 1985737, ~/Articles/ArticleHandler.aspx, 4/24/2014 5:37:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement