‘Great Expectations’: When founders return

Investors should not expect any instant miracles, especially when the US, UK economies remain weak and visa issues continue to prick the sector
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First Published: Sat, Jun 01 2013. 05 06 PM IST
A file photo of N.R. Narayana Murthy. Photo: Bloomberg
A file photo of N.R. Narayana Murthy. Photo: Bloomberg
Updated: Sat, Jun 01 2013. 05 36 PM IST
When accomplished founders come back to save their companies from sliding into ruin, it gives one a mixed sense of excitement and deja vu. On Saturday, N.R. Narayana Murthy was reinducted into the Infosys Ltd board and executive leadership of the company or, perhaps, been cajoled to “rescue” the company. Regardless of how one perceives the situation, it is logical to assume that investors will be upbeat about the founder returning to the fold.
But will Murthy be able to perform his magic once again? The initial results will pan out by the end of calendar year 2013. And while investors and the information technology (IT) fraternity are bound to hail this as a positive move, given the incumbent S.D. Shibulal’s track record and Murthy’s own accomplishments and larger-than-life brand, here are a few cases of how things panned out when founders returned to save their companies—many of them for a salary of just $1, similar to Murthy’s decision to take Rs.1 as salary.
Jerry Yang, for instance, co-founded Internet portal Yahoo Inc. in 1995 with David Filo. Three years later, Google Inc. started its own search engine, and Yahoo used the Google search, unwittingly making it almost a household term. Yang took over as CEO in 2007 from Terry Semel. But by then, Google had dented Yahoo’s spirits. Google today is almost synonymous with online search. But when Yang returned in 2007, investors believed he would get the Yahoo mojo back. That was not to happen. His tenure was shortllived, with most of it being choppy. His biggest mistake, as seen by experts, was his failure to sell Yahoo to Microsoft Corp. Carol Bartz succeeded him but did not create waves, and the current CEO, Marissa Mayer, who came from Google, is now trying to scale up with acquisitions—Tumblr, to begin with, and a lot of buzz around Hulu. On 17 January 2012, Yang left the company, and resigned from the board and all other positions at the company.
The case of Dell Inc. is similar. By 2001, the company that was started by Michael Dell in 1984, had become the largest PC maker in the world. On 4 March 2004, Dell stepped down as CEO, but stayed as chairman of the board, while Kevin Rollins, then president and COO, became president and CEO. On 31 January 2007, Dell returned as CEO at the request of the board, succeeding Rollins. However, despite his return, the company continued to struggle in its core business—the personal computer, or PC, business. Dell’s worldwide PC market share fell from 15.9% in 2006 to 10.7% in 2012. In 2010, the Securities Exchange Commission (SEC) fined Dell $100 million, and Michael Dell $4 million, alleging that the company engaged in accounting fraud intended to mislead investors about financial performance. On 5 February, Dell was reported to have reached a deal with a group of investors that included Michael Dell to go private for $24.4 billion, the largest leveraged buyout since the 2008 financial crisis. The deal is yet to fructify, but the investors are once again said to be backing the plan to go private. With tablets and smartphones gaining ground over PCs, both categories where Dell’s presences is almost negligible, Michael Dell’s task is unenviable. Nevertheless, he remains one of the most wealthiest men on earth.
While the above-cited cases showed failures, that of the late Steve Jobs of Apple Inc., is the story of an unparalled comeback. The late Jobs left Apple in 1985 after an altercation with then Apple CEO, John Sculley. “Getting fired,” he said in his 2005 commencement address at Stanford University, “...was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life”. Jobs returned to Apple in 1996 and, in his case, the rest is history. Tim Cook, the new chief, has very big shoes to fill.
Meanwhile, some founders such as Mike Lazaridis who co-founded Research In Motion Ltd, now called BlackBerry, in 1984 and served as its co-CEO with Jim Balsillie through January 2012, have made news for making successful companies but later failing to recognize trends that could destabilize the company (something similar to what was happening in the case of Shibulal of Infosys, who is said not to have accounted for the pricing wars among IT services providers). They both made BlackBerry phones almost indispensable in enterprises but failed to prepare the company for the tablet PC and smartphone onslaught from companies such as Apple and Samsung Electronics Co. Ltd. The company, under the leadership of CEO Thorsten Heins, is now struggling to regain its past glory.
There are similar cases when founders have become CEOs of their companies after many years. Take the case of Lawrence “Larry” Page, who co-founded Google with Sergey Brin in 2001. On 4 April 2011, Page became CEO of Google, succeeding a very competent Eric Schmidt. Page, with a $1 salary, heads a company that remains a leader in the world of online search and advertising, and is continuously breaking new ground with inventions such as the Google Glass—privacy and monopoly issues notwithstanding.
Closer home, Shiv Nadar and Ajai Chowdhry—co-founders of the HCL group have remained hands-off after very successful stints. Both, HCL Technologies Ltd and HCL Infosystems Ltd being run by professional CEOs. Of course, Roshni Nadar is the executive director and CEO of HCL Corporation. Wipro Ltd is also run by a professional CEO, though founder Azim Premji holds 78.28% stake in the company as on 31 March.
Murthy’s return, meanwhile, even prompted Som Mittal, president of software lobby body Nasscom, to say in a media release on Saturday, “Murthy is an iconic leader who has played a key role in shaping the Indian technology industry and we welcome him in his role as executive chairman, Infosys. His guidance and strategic insights to Infosys as well as for the industry would be valuable as the industry focuses on its next phase of evolution and growth.”
Murthy’s close relationship with Nasscom, clean image, understanding of the Indian political landscape and that of the global IT industry should help him in his role as Infosys executive chairman. However, investors should not expect any instant miracles, especially when the US and UK economies—the main markets for Indian IT services providers—remain weak and immigration and H1-B visa issues continue to prick the sector.
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First Published: Sat, Jun 01 2013. 05 06 PM IST
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