From this morning's Chicago Daily Herald:
By Anna Marie Kukec
Daily Herald Business Writer
Posted Tuesday, July 31, 2007
A Florida-based consultant credited with helping to oust a chief executive at Yahoo Inc. has been gaining a following in his quest to remove Motorola Inc.'s chief executive.
Eric Jackson, president of Jackson Leadership Systems Inc., a governance consulting firm in Naples, Fla., said Monday that he has 126 people now behind him who collectively own about 600,000 Motorola shares.
He submitted a plan Monday to the company's board of directors seeking the immediate removal of CEO Ed Zander and to enlist other changes to get the beleaguered communications company back on track.
"I am hoping that our plan will be taken seriously by the non-executive members of the board and that they will agree to meet with me to discuss our ideas," said Jackson. "It would look badly on them if they refused. From that dialogue, I hope we'll be able to find some common ground which will be beneficial to all shareholders."
Jackson follows billionaire activist Carl Icahn, who earlier this year failed to win a seat on the Motorola board in his quest to change the company's direction.
Jackson's previous campaign was against former Yahoo CEO Terry Semel, who resigned under fire more than a month ago. Jackson included videos about him on YouTube and a page on Flickr as part of that campaign.
A Motorola spokeswoman Monday declined to comment on Jackson's plan. However, Motorola executives have said that the board has not been looking to replace Zander.
Jackson, who owns about 100 Motorola shares, set up a "pledge" site at the beginning of his campaign three weeks ago at www.youchoose.net/pledge/motorolaplanb .
"If they fail to acknowledge us, we will look to pursue a special shareholder vote perhaps sooner than the annual meeting seeking faster changes," said Jackson.
Tuesday, July 31, 2007
From this morning's Chicago Daily Herald:
Monday, July 30, 2007
Fellow Motorola Shareholders:
Today, I formally submitted our finalized "Plan B" for Motorola to the Non-Executive members of Motorola's Board. Over the last 3 weeks, I have received numerous suggestions from you and others like you who have been frustrated by the Company's performance and want to see a significant change versus the status quo.
These comments have come via our wiki, through private phone conversations, by email, or by comments directly on the blog. I sincerely appreciate all the ideas. Many current Motorola employees used this as an opportunity to speak up with their positive suggestions for change to make this a better Company. Our plan is much stronger and specific as a result of their input.
We now have a formal group of 126 individual investors with about 600,000 shares of Motorola stock owned collectively.
In the past few weeks, I have also spoken to a large majority of representatives from Motorola's largest institutional shareholders. Many didn't want to formally "join" our group in publicly criticizing the company (for different reasons), but they are clearly frustrated and many told me that they were sympathetic with our views. They also told me that they would be (or already recently had been) in touch directly with Motorola to express their views.
The letter below was sent this afternoon to Dean Lindroth, Corporate Vice President and Director of Investor Realtions for Motorola. I asked him to distribute it to the Non-Executive Members of the Board and to arrange, as soon as is possible, for me to meet with or speak by conference call with these Directors. Working with them, it is my hope that we can find a solution that will benefit all Motorola employees, customers, and shareholders.
In the meantime, I ask you to continue to support our group with your new pledges, provide suggestions of key Motorola shareholders to speak with, and provide us with your suggestions and observations. Working together, we can ensure that this company is doing everything it possibly can to build a successful future.
Thanks again for all of your support. Here is a copy of the letter and finalized "Plan B" sent to Motorola today:
July 30, 2007
Dear Motorola Non-Executive Board Members:
As a Motorola shareholder, and leader of 126 individual investors with a combined 600,000 shares in the Company, I’m writing to you to demand you fulfill your fiduciary responsibilities to shareholders by implementing our proposed “Plan B” solution (outlined below) for positive and much-needed change at the 79 year old American institution. Working together, we believe the ideas contained within the plan can quickly and most effectively return the Company to its rightful leadership position in the communications industry.
At the moment, there is little for shareholders and employees to get excited about with Motorola. Since January 2nd, 2004, the month Ed Zander took over as the Chairman and CEO, through last Friday’s trading, Motorola has returned 23% to its shareholders. Nokia, the #1 mobile handset maker in the world, has returned 68% over the time period. The S&P 500 has returned 33%. Motorola’s shareholders would have enjoyed a 3x return, if they had put their money in Nokia – instead of Motorola – when Ed Zander started. We don’t believe this past performance and the currently articulated strategy for a turnaround, as well as the more recent announcements in the days since the draft version of this “Plan B” first circulated on the Internet, are sufficient or acceptable. This company has a leadership and a mobile product problem which needs to be corrected today – not in 6 months from now, after it falls further behind its competitors.
Over the past 3 weeks, I’ve had the opportunity to communicate with most of Motorola’s largest shareholders, as well as several current and former Motorola employees. Well over 95% of those I’ve contacted want change and are frustrated by the perceived slow response by the Senior Leadership Team (SLT) and board to the problems facing the company. Most of these shareholders do not want to sell their shares – although seeing the stock price hit a new 52-week low is testing their patience and resolve. They also don’t want to passively wait for the current SLT to deliver on promises for change. Frankly, the last year of broken promises from the SLT doesn’t provide shareholders with much confidence any longer.
As a result, my group has banded together to demand that you act immediately in implementing several much-needed changes for the Company. Other institutional shareholders who do not wish to publicly join our group are nevertheless frustrated with the performance of the Company and are seeking changes. Several have confirmed that they are sympathetic with our views but do not wish to formally “join” our group. However, I will let them speak to you directly to express their views. I know that several have already been in touch with you in these past few weeks. Our group is working towards benefiting all Motorola’s shareholders – whether or not they are formal members of our group.
After the May annual meeting, at which several shareholders expressed their disappointment and asked for change, Motorola and Mr. Zander promised exciting new handset models in the coming weeks which would play a key role in the turnaround for Motorola’s Mobile Devices Business (MDB) and, thus, Motorola itself in the remainder of the calendar year. These models have now been released – to a tepid response from customers and Wall Street. Now, in the latest quarterly results, we have been told not to expect MDB to be profitable this year and the turnaround to take much longer. Mr. Zander has assured reporters following the earnings call that he’s “working really hard.” This is not acceptable.
We demand that the board to undertake aggressive changes at Motorola.
Instead of only presenting the problems facing the Company (which are numerous), our investor group wants to work with you to be part of the solution which will deliver extraordinary value to Motorola shareholders and make it a better company for its employees and customers. Below, we present the finalized version of our “Plan B” to put Motorola on a path back to its rightful place as the worldwide leader in communications. Over the past 3 weeks, we have received many suggestions and edits from supporters through our wiki, by phone, and through emails/comments which have been incorporated into this final version.
1. Ed Zander Must Immediately Leave as Chairman and CEO:
This January marks the 4 year anniversary of Mr. Zander’s hiring. Nokia and the S&P 500 have exceeded Motorola’s shareholder returns by 196% and 43% respectively over that time period. According to recent quarterly data, Motorola will drop from the #2 to the #3 position in worldwide handset sales – for the first time ever. The results from the past year have been under-whelming, as the company sank to negative margins. The Q2 numbers were well-below previous expectations.
We call on you to each honestly answer the following question: What has been Ed Zander’s mark on Motorola? He came with a Silicon Valley background, but how has that experience or those past ties translated into tangible results for the Company? What has he brought to Motorola that is really unique in the last 3½ years? The fact that there are no obvious answers to these questions screams why a change is needed now.
You can agree or disagree with Terry Semel’s vision for Yahoo!, but he had a vision. There is no discernible vision or articulated strategy for Motorola by Mr. Zander. At the May 31st, 2007, Lehman Brothers Worldwide Wireless & Wireline Conference, Mr. Zander stated: “We have a strategy: Seamless Mobility.” This concept is repeated often on the corporate website – even recently by board members – and in letters to shareholders. What does it mean? How does it suggest Motorola will better compete with its rivals in its Mobile, Networks, and Connected Home divisions? If shareholders cannot figure this out, can Motorola’s employees? Many have contacted me in the past few weeks confirming they cannot. A concept (and an abstract one at that) is not a strategy.
When Mr. Zander arrived at Motorola in January 2004, he was blessed with the good fortune of the success of RAZR developed under the direction of his predecessor. He did well at marketing this hit product and was able to take credit for its success, but he did not address the underlying issues at the company around software platforms in MDB and proceeded to make a number of disastrous strategic missteps for the Company. As RAZR showed its popularity, he decided to forgo millions in profits for the Company by slashing prices, in hopes of grabbing market share. COO Greg Brown proudly crowed on the last disappointing earnings call that the Company had just shipped its 100 millionth RAZR. We would ask each of you and Mr. Brown: at what price? Now that RAZR’s run is over – and with Motorola’s share evaporating – Mr. Zander has now pronounced that seeking market share is bad and that the Company instead will go after profits. Why is what was right then, wrong now, and vice-versa?
It was only when troubles became obvious to all, at the end of RAZR's run, when Mr. Zander began to rationalize costs and accelerate plans for a next-generation of phones. It wasn’t Mr. Zander’s fault alone (Greg Brown also deserves blame, as do other members of the SLT and the MDB divisional leadership), but the buck stops with him. This should have been done after the initial release of the RAZR to prepare for the next-generation phone in the GSM space, where Motorola has traditionally made most of its profits. Instead, a huge focus and amount of resources were poured into the development of the MotoQ smartphone, as it was thought that this would be the next-generation phone consumers would want. The smartphone idea might have been correct, but the execution was poor and the initial CDMA target market small; the phone flopped. The subsequent GSM offering of the MotoQ came late behind other smartphones with equivalent technology, such as the Blackjack from Samsung.
Now, the Company’s focus must be on turnaround.
Mr. Zander does not have a track record of success in turnarounds. He has ridden the wave of upward growth in his past positions. He left Sun in 2002, just as it was in greatest need of a turnaround. It’s time to bring in someone who does have a turnaround track record.
We are also deeply concerned with the reports which surfaced in an April Wall Street Journal article that Mr. Zander allegedly said: “I love my job. I hate my customers” in response to a question about why Motorola’s carrier customers were discounting the prices of Motorola’s phones. He later apparently suggested that, one day, he was going to use that line as the title for his memoirs. Motorola tried to defuse this story leading up to the May 7th annual meeting, by stating the company and Mr. Zander care about their customers. Everyone makes mistakes, but, in our opinion, this episode suggests arrogance or at least poor judgment that (1) Mr. Zander would actually say this and (2) he would be contemplating possible titles for his memoirs. According to research done by Dartmouth Tuck Professor Sydney Finkelstein (who is also a colleague), corporate and CEO arrogance is a critical reason “why smart executives fail”. We believe that, although not the sole reason, this poor judgment or arrogance, combined with failing to articulate a strategy, failing to prepare the organization for the end of the RAZR wave, and – most importantly – the under-performance of the stock compared to its rivals are the main reasons why Motorola shareholders would benefit from new leadership at the top.
A final note on this first point: we call on you to immediately renegotiate Mr. Zander's severance package to ensure that he does not receive $30 million simply for leaving the company in its current state of disrepair after these ill-fated last 3.5 years. He has already been highly compensated for under-performing Nokia and the S&P. A $30 million severance package would be an insult to all Motorola shareholders and must be eliminated as a measure of good faith that Motorola's employees and shareholders will not pay the price long after Mr. Zander's tenure has ended.
2. Replace Judy Lewent, Nicolas Negroponte, Samuel Scott III, and Dr. John White on the Motorola Board of Directors:
All Motorola shareholders had a sense of déjà vu watching what happened with RAZR, as Motorola has lived the story before of riding the wave of a hot product without sufficient heed to where the industry is moving to. Ten years ago, it was with StarTAC: the “iconic” hit phone, which was analog-based. All the signs pointed to the industry moving to digital. In fact, as Motorola licensed its digital technology to its competitors like Nokia at the time, the Company could see first-hand through quarterly royalty payments just how quickly this shift to digital was happening in the market. However, the Company did not act on the data in front of it and its plans for digital phones were delayed, so that additional resources could “feed the beast” of StarTAC. The company almost drove off the precipice as a result. Fortunately, for its customers, employees, and shareholders, it pulled itself back from the brink. If we substituted the words ‘RAZR’ for ‘StarTAC’ and ‘3G’ for ‘digital,’ we would effectively be retelling the StarTAC episode as exactly what we’ve just lived through with RAZR. Why have Motorola’s shareholders been condemned to have unlearned Company lessons of the past revisited on them?
Chris Galvin, the former CEO and grandson of Motorola’s founder, is no longer around. However, 4 of Motorola’s current board of 13 were around. Judy Lewent has served on the board since 1995. Nicolas Negroponte has been on the board since 1996. Dr. John White has been on the board since 1995. And Presiding Director Samuel Scott III has been on the board for almost 15 years.
In the wake of Sarbanes-Oxley, a lot of attention has rightly been paid to the issue of board “independence.” We agree that it is a good thing to have directors who are sufficiently vigilant and will ask hard questions of management. Yet, we question how “independent” you can be when you’ve served on a board for over a decade? Meg Whitman, CEO of eBay, famously said that no CEO should stay in the same job for 10 years or they risk becoming stale in the saddle. We agree and think this same benchmark should apply to all corporate directors for the sake of fresh eyes and energetic vigilance.
One argument a defender of keeping a director on the same board for over a decade could make is that: it is critical for retaining some “institutional memory” in board discussions. Presumably, these longer-serving directors could remind their shorter-tenured brethren about organizational mistakes made in the past that shouldn’t be repeated – such as StarTAC. We thank Ms. Lewent, Mr. Negroponte, Dr. White, and Mr. Scott for their extensive years of service, but Motorola needs new independent directors with strong business and communications experience. We call on these 4 individuals to drop their directorships with the Company immediately.
3. Appoint Edward Lampert to the Motorola Board and Others with Deep Communications Experience:
As mentioned above, the Motorola board has – in the past – chosen to appoint directors with an abundance of experience outside Motorola’s core communications markets. While we don’t advocate a board only consisting of industry veterans, we believe a solid majority of directors should be experienced within the markets in which Motorola directly competes, rather than – for example – from the pharmaceutical, consumer packaged goods, agricultural, and academic worlds. Therefore, we suggest replacements for the 4 people named above reflect this. New Motorola director David Dorman who is ex-AT&T certainly has communications experience.
Strong business experience and a track record of success are also important criteria for a director. So is the psychological importance of owning a meaningful amount of stock in the company (which a director has directly purchased, as opposed to stock ownership through stock grants or stock options received as partial compensation for board service). We note that 10 out of 13 of the current Motorola directors own less than 50,000 shares, with 4 directors owning less than 5,000 shares (and we suspect that most of these holdings came through received stock grants or exercised stock options, rather than digging into their own pockets to purchase stock). In our opinion, that is simply not enough “skin in the game” for a corporate director of a Fortune 50 company.
One candidate that we believe fits the bill for a strong track record of business experience, as well as Motorola stock ownership, is Edward Lampert of ESL Investments Inc. His credentials are impeccable. Mr. Lampert also disclosed he is now a holder of Motorola stock following the May annual meeting. We suggest that Motorola make a spot available for him immediately at the board of directors’ table.
4. Reduce the Size of and Insiders on the Board:
Regrettably, the board now has 3 insiders on it: Ed Zander, Greg Brown, and Tom Meredith. Mr. Meredith was initially an independent outsider, but is now clearly an insider - working closely with Zander (as any CFO must with a CEO). In our view, at a time when the current management team has under-delivered to shareholders, only the CEO needs to serve on this board - defending the status quo moves of management. The rest of the board should be outsiders with truly fresh perspectives pushing management. The board needs to reduce this imbalance immediately.
Adding Greg Brown to the board at this time, we believe, sends the message to shareholders that this board is committed to more of the same - not holding management's feet to the fire. Mr. Scott III, Motorola’s Presiding Director, defended naming Brown to the board by saying: “Greg will provide invaluable perspectives to the board on the key opportunities and challenges of our global business.” At any board meeting, it is possible to invite any member of the management team to sit in and present on key strategic issues. You simply don’t need to name someone a director to tap into those perspectives.
Additionally, this board (now at 13 people) is too large. Research has found that, when boards get larger, there is less discussion and debate. The larger group seems to inhibit more active discussion and "devil's advocacy." Instead, more "rubber stamping" of decisions put forward by the Chair/CEO/Presiding Director occurs. No one would say Motorola’s board needs more rubber stamping.
One final observation on this point: at the moment, Nokia has 11 directors, and Microsoft has 10 directors. Why does Motorola need 13? We believe this board should have 10 or fewer members.
5. Outline Motorola’s Strategy and How You Will Add Exciting New Products:
In the May Lehman Brothers speech, Mr. Zander said a company’s strategy shouldn’t change year to year, but its tactics should. We couldn’t agree more. However, the stated Company strategy is simply “Seamless Mobility.” A recent analyst who has analyzed the clarity of Mr. Zander’s letters to shareholders for the last few years, according to the Wall Street Journal, called them “Bafflegab.” A notable quotation from the 2005 Motorola annual report letter cited is: “Motorola's going to own Seamless Mobility, where today's hottest technology is converging -- where the Mobile Me lives -- where mobile broadband means everything everywhere and anything anywhere." A new clichéd term Mr. Zander is fond of using – and we suspect he’s used it more than a few times in presentations to you – is “profit pools” (as in “we’ve got to find the profit pools”). Three and a half years into his tenure, the company and its shareholders desperately need to better understand the strategy for turning things around.
The recent attack which Motorola directed at Mr. Icahn leading up to the annual meeting was – in our opinion – a smoke-screen. By asking shareholders to focus on the number of directorships currently held by Mr. Icahn, Motorola’s leadership avoided having to better explain its own strategy for the company.
A long-term vision and strategy is not cost containments and site rationalizations alone. Controlling costs is obviously critical when your major division is seeing sales recede as much as they have in the last year (and some of our supporters suggest Motorola could benefit from further axing generous travel policies where multiple Motorolans fly to the same meetings and any flight over 5 hours qualifies you to fly business class). Yet, no company shrank itself to greatness. The simple truth is that customers do not like the current line-up of phones and there needs to be a better strategy for more compelling phones that will raise revenue.
Getting 18 new models out to market this year to lukewarm response doesn’t fix that problem. The RAZR2 is 10x as fast as the RAZR and has an armload of new features, but potential customers don’t seem to care. In our opinion, none of the models is a game-changing device that will sweep up the consumer or business space. They are incrementalist improvements on past styles. Recent excitement over competitors’ new product launches makes the differences all the more stark. So, what must the new strategy speak to? Next-generation designs.
When you first saw the Chrysler 300C, you turned your head; and you have designer Ralph Gilles to thank for it. The RAZR made this initial impact, and the beloved late Geoffrey Frost (former Motorola Marketing head) played a key role in this. Yet, RAZR2, KRZR, ROKR, RIZR, and the Q9 now appear to be so yesterday.
Management is fond of talking about finally developing Linux/Java platforms to make richer software experiences, and better competing with Nokia and others in certain tiers of the market in which Motorola doesn’t play. Yet, I was recently told by one Motorola employee that the Company’s Linux/Java platform wouldn’t be available until 2009 at the earliest, in part due to relocating work on this from Urbana-Champaign to Beijing. And only recently did Motorola hire a Chief Architect for its software platform, after this role remained vacant for too long. Small wonder that no one was able to speak with accountability on how the software platform was to progress across the Company.
But this focus on the software platform – important as it is – masks the fact that customers care little about Linux/Java; they want to have a user experience which allows them, once again, to fall in love with Motorola devices. The user interface and product design “know how” for this is already in house, as Motorola has an extensive Labs group. However, the processes and structures need to be put in place to get them to market. And product marketing people need to be given authority to champion these new products. The status quo of operations is not bringing them out.
The RAZR phone was developed by a small, cross-functional group outside Motorola’s standard processes. Since Mr. Zander has joined Motorola, the bureaucracy appears to have grown – not decreased – according to some Motorola employees I’ve been in touch with. More time should not be spent on generating paperwork than actually developing the product.
Corporate strategy also has to be more than just Mobile Devices strategy. With so much attention being paid to problems in Mobile Devices, what strategic focus and resources are being applied to the other businesses? What Motorola investors want to know is what they can expect from the Networks and Connected Home businesses as part of their MOT investment in years to come. What was the rationale for keeping them and jettisoning the Semiconductor business a few years ago? How will Connected Home effectively compete in the years ahead? Where is Government/Public Safety going? Are we prepared for 4G?
Several of our supporters have asked simply why these 3 businesses need to be knitted together at all. The Networks and Connected Home businesses (with $13 billion and $5 billion of annual sales respectively) have been independently successful with attractive margins. As there appears to be little knowledge-sharing between these groups, should they be broken up to extract more value for shareholders. If not, why not?
The process by which Motorola followed for getting out of the semiconductor business demonstrates poor portfolio management and long-term planning on the part of those in Corporate responsible for these choices. Here’s a quick review of what happened. The decision to spin-off the Semiconductor business was announced in October 2003. The IPO came in July 2004, delivering $1.5 billion to Motorola shareholders. The decision was defended as a way for the company to “focus” on its core businesses and increase shareholder value through the spin-out. Yet, Motorola continued to work with Freescale (the newly named spun-out entity), as if it was a business it owned within the Motorola family, sole-sourcing chips for many of its phones. Part of the recent downturn in MDB is due to the fact that Motorola has been producing phones at a cost disadvantage, because it hasn’t multi-sourced silicon from other vendors two years after the Freescale IPO. This risk should have been identified and baked into the corporate strategy by head office well in advance.
6. Give Motorola’s Culture an Inspirational Transfusion:
If you are not aware that this Company has a significant cultural problem at the moment, then you have not sat down to chat with some of its greatest employees. The biggest barrier Motorola faces to righting the ship is not moving some numbers around on the corporate Balance Sheet; it’s winning back the hearts and minds of its own people. As an investor, I was aghast at how much of a disconnect appears to exist between this Company’s leadership and the people they purportedly lead.
Confusion, cynicism, and fear appear to have taken root following the recent rounds of layoffs. At the same time, the employees who drive this company forward feel betrayed by a SLT. At times, they feel blamed by the SLT. This fear and mistrust obviously discourage innovation. Several employees complain about a death by 1000 committees mentality strangling product innovation.
At its core, Motorola is still an engineering company. This must evolve. Product marketing needs to be given more authority to ensure Motorola’s customers get the products they want – not the features only a few engineers want.
How do you inject some life and hope into this culture? Removing Ed Zander will not change the culture overnight, but it is a necessary step. Hiring a capable successor is equally, if not more, important. Look at HP under Mark Hurd versus Carly Fiorina. The differences in the Company’s culture are palpable when you talk to people there today. No HP director would say they should have waited longer before letting Ms. Fiorina go. Just the opposite. The same is true here at this time, which is why Mr. Zander must go now.
I request to meet with you at your earliest possible convenience to discuss our plan and the merits of implementing it. We must move past the mistakes of the past and take the steps now to make a better Motorola.
Let me be clear: our investor group doesn’t believe there is a quick fix for Motorola. Replacing Ed Zander alone is not the solution; it will require a multi-pronged effort. In our view, investors, working with the board and the new SLT, need to take the long-view and dig in for some difficult work ahead. The changes must start now though. Our group is made up of long-term investors in the company who are committed to seeing it return to its rightful place of industry leadership. A stronger Motorola is good for its shareholders, customers, and employees.
The time is now. This is a great company that can be and will be again.
Eric M. Jackson, Ph.D.
Friday, July 27, 2007
From Roger Ehrenberg's Information Arbitrage blog earlier this month:
I understand the power of the Internet: much of my work and personal investing depends on it. But I hadn't put two and two together as to how this power could be harnessed in an investment context until reading a recent Wall Street Journal article titled A New Thorn in Motorola's Side.
The thorn: an investor holding a mere 130 shares - around $2400 worth - of MOT stock. We're not talking Fidelity here, people, or Carl Icahn, either. Check this out:
Jackson on Monday afternoon launched an online campaign called “A ‘Plan B’ for Motorola,” urging the replacement of Ed Zander as CEO and chairman immediately — as well as four of 10 other board members, among other initiatives. He also posted videos on YouTube and put up a Web page where shareholders can “pledge” their shares to support his plan.
Ok, ok. Anybody can do this - no big deal right? Well, Mr. Jackson has shaken the trees before and gotten some pretty impressive results:
It would be easy to ignore Jackson, if he hadn’t helped balloon an investor revolt at Yahoo ahead of last month’s resignation of former CEO Terry Semel. Jackson owned just 96 Yahoo shares, but his barrage of blog posts and online videos quickly got him attention. He launched the campaign in January, agitating for the ouster Semel and some board members. About 100 Yahoo shareholders pledged roughly two million shares on youchoose.net to support him (representing about 0.2% of Yahoo outstanding shares).
I know 2 million YHOO shares isn't exactly going to force a sea change in company policy or lead to a reconstitution of the Board, but it is not a trifling matter, either. A person speaking with 2 million shares (or approximately $54 million) of stock behind them has a voice, and if this grass-roots approach becomes an accepted method by which the retail investor is heard, look out.
Jackson is among a new breed of investors who are savvy about the grass-roots power of the Internet and use it to make activism no longer a game reserved only for wealthy financiers. The goal of his Motorola campaign is to find a solution “which will deliver extraordinary value to Motorola shareholders” and “put Motorola on a path back to its rightful place as the worldwide leader in communications,” he writes in the proposal.
Now I'm not trying to make a mountain out of a molehill, but the Internet is a place where viral ideas can spread - and spread quickly. And as virtual communities become increasingly de rigeur and people are able to efficiently leverage their own networks, it is not hard to see scenario where a meaningful number of shares could be pledged to back a spokesperson championing the cause of the retail investor. The IR outreach stakes have just been raised; it isn't just golf with Fidelity, Janus, Wellington and Capital Research any more. You've now got those pesky, Internet-savvy retail investors to deal with as well. And they want answers, accountability and results. NOW.
This morning, Yahoo! announced that they had appointed Maggie Wilderotter to their Board of Directors.
It was widely expected that there would be some turnover at the Board level, following Terry Semel stepping down as CEO last month. As of now, this is only an addition. There have been no other announcements on changes of the composition to the board. However, that's likely to occur over the coming months.
Ms. Wilderotter appears to be a strong addition to the board with her relevant Microsoft experience, in addition to her telecom background at Citizens Communications, Wink, AT&T Wireless, AT&T, and McCaw.
It's a good step for Yahoo! However, of course, additional steps are required.
Thursday, July 26, 2007
Last evening, Motorola announced two new members of its Board of Directors, bringing the size of the group from 11 to 13 members.
The two new members of the board are Anthony Vinciquerra and Greg Brown.
Vinciquerra, 52, was named president and chief executive officer of Fox Networks Group, a primary operating unit of News Corporation that includes the Fox Television Network, Fox Cable Networks, FOX Sports and Fox Networks Engineering & Operations, in June 2002. Mr. Vinciquerra joined Fox in December 2001 as president of the Fox Television Network.
Greg Brown is Motorola's COO.
Breakout Performance's Take on these Developments:
1. Vinciquerra is a fairly good choice as an "independent" director, but lacks direct industry experience and his share ownership remains to be seen. In our draft "Plan B" for Motorola, we said that all directors should be substantial share owners and have experience in the markets in which Motorola competes. Vinciquerra will likely have few Motorola shares except what he's granted to begin with. It would be a positive sign, if he bought a substantial number himself to demonstrate his belief in the business. He's obviously had general business success in an area tangential to Motorola's core business. On the plus side, his "content" business at Fox is similar to the fickle fashionistic trends on Motorola's handset business. However, it's not clear he knows that business. It's certainly closer than if he came from the agricultural, pharmaceutical, or academic worlds, but he will obviously have a learning curve.
2. Brown's ascension to the board suggests the board is looking at him as Zander's replacement. This is troubling from 2 perspectives. Motorola's current problems are as much Brown's fault as Zander's. The company's operations obviously failed to deliver a successor line of phones. As COO, Brown wears that. It is confusing as to why the board would reward these mistakes with a promotion to the board. In our opinion, although it's always ideal to pick an internal CEO successor than an external one, an external one is likely needed here. It's my guess that, if the board did a full search of all internal and external candidates, they would find an external one superior to Brown. At that point, of course, Brown would likely leave the company (a la Mike Z.). Again the question is: why promote him in the first place to the board? The move is also troubling from a 2nd perspective as described next.
3. There are too many insiders on Motorola's board. The board now has 3 insiders: Zander, Brown, and CFO, Meredith. Meredith was initially an independent outsider, but is now clearly an insider - working closely with Zander (as any CFO must with a CEO). Although I believe him to be a professional who would try his utmost to provide an "independent" view at board meetings, 3 insiders is too many. The board needs to reduce this immediately. In our view, at a time when the current management team has under-delivered to shareholders, only the CEO needs to serve on this board - defending the status quo moves of management. The rest of the board should be outsiders with truly fresh perspectives (not decade-long tenures on the board) pushing managment. Adding another member of the management team to the board at this time, we believe, sends the message to shareholders that this board is committed to more of the same - not holding management's feet to the fire.
4. This board is too large. It now consists of 13 people. My research with Dartmouth Tuck School Professor Sydney Finkelstein has found that, when boards get larger, there is less discussion and debate. The larger group seems to inhibit more active discussion and "devil's advocacy." Instead, more "rubber stamping" of decisions put forward by the Chair/CEO/Lead Director occurs. No one would say Motorola needs more rubber stamping. We believe this board should have 10 or less members.
5. We stand by our previous arguments that directors who've served on Motorola's board for over a decade should leave. 4 of the 13 members of this board have been on this board for over 10 years. Lead Director, Mr. Scott III, is approaching his 15 year anniversary of his election to the board. This is too long for anyone to maintain an arm's-length view. If these 4 people left, the Motorola board would be down to 9.
On the one hand, we're happy to see some changes at the board-level, following our calls for change 2.5 weeks ago. However, on the whole, we believe this announcement is more negative than positive for Motorola's shareholders and employees.
Monday, July 23, 2007
By Dominic Jones
ERIC Jackson, the individual shareholder and management consultant who launched an annual meeting campaign against Yahoo! with a wiki, a blog, YouTube and a lot of media interest, has turned his sights on a new target — struggling Motorola, Inc. (NYSE: MOT).
As reported by the Wall Street Journal’s Deal Journal, Jackson on Monday afternoon launched another of his trademark “Plan B” online campaigns, this time calling for the immediate ouster of Motorola CEO and Chairman Ed Zander and four other board members.
Jackson, who owns just 130 shares of Motorola stock, announced the campaign on his blog, posted videos on YouTube and put up a Motorola Plan B wiki, a website where people can contribute and edit the alternative plan for the company.
Most important, though, Jackson is asking Motorola shareholders to pledge their shares behind Plan B on YouChoose.net, a website where people can organize petitions and campaigns. As I write this, 55 shareholders have pledged 329,503 shares behind Plan B for Motorola.
In less than a week, Jackson has 55 pledges totaling 329,503 Motorola shares.
Phase 2 of Web’s democratization of capital markets
I’ve always believed that the Web would be a democratizing force in the capital markets and that companies would need to understand the medium if they hoped to have a clear and relevant voice in the discussion.
It started in the 90’s with online brokerages changing the brokerage business with low commissions. Suddenly, anyone could buy stock without having to go through a full-service broker. That attracted a lot of younger and more independent-minded people who otherwise might not have invested in stocks.
The next phase of the Internet, what people refer to as Web 2.0, is allowing these same independent minded individuals to organize themselves into online communities. And these online communities are made up of people who are more technologically astute and more activist in nature.
A recent study by USC-Annenberg School Center for the Digital Future found that 44% of online community members participate more in social activism since they started participating in online communities.
Roger Ehrenberg, a former Wall Streeter who got Web religion, says he can see something big happening. In a post entitled A New Kind of Shareholder Activist: The Internet-Powered Retail Investor, he writes:
Now I’m not trying to make a mountain out of a molehill, but the Internet is a place where viral ideas can spread - and spread quickly. And as virtual communities become increasingly de rigeur and people are able to efficiently leverage their own networks, it is not hard to see scenario where a meaningful number of shares could be pledged to back a spokesperson championing the cause of the retail investor. The IR outreach stakes have just been raised; it isn’t just golf with Fidelity, Janus, Wellington and Capital Research any more. You’ve now got those pesky, Internet-savvy retail investors to deal with as well. And they want answers, accountability and results. NOW.
Making fund managers blink is road to retail power
My view, which I shared with Jackson when he started his Yahoo! campaign, is that the true path to retail investor power lies not in the hands of the 10% or so of retail investors who own stock directly in online brokerage accounts, but in the hands of those millions of ordinary people who invest in mutual funds.
If you really want to effect change, you need to get to the soccer moms and dads who are invested in the mutual funds that are the biggest owners of Motorola stock. You need to make Plan B resonate with them like that recent campaign that made Fidelity blink.
When mom and pop start writing letters to their fund managers demanding that they pledge their MOT shares behind Plan B, that’s when you start changing the world.
Two guys who got this and did it exceptionally well were Roy Disney and Stanley Gold back in 2004. The Save Disney Campaign and website are long gone, but I have the story and screenshots here. That was the true beginning of shareholder campaigns on the Web.
Against all odds, these two guys changed the rules of the game, in part by getting mutual fund investors to petition their fund managers.
When your salary or earnings are based on the amount of assets you have under administration, the threat of people moving their money out of your fund because you’re not activist enough is like a kick in the stomach to a fund manager. You’ll get their attention because you’re making it personal. You’re talking bonuses, and private schools, and vacations in the south of France.
Disney and Gold got that — and they used it to bring down someone who was thought untouchable, former CEO Michael Eisner.
Not reaching the soccer moms and dads — yet
Eric Jackson’s campaign against Yahoo! and now Motorola are doing similar things to what Save Disney did three years ago. But to date he’s mostly targeted technology companies and used tools that work with tech-savvy web users.
Wiki’s and blogs are not mainstream to the extent that they’re likely to inspire action from mainstream mutual fund investors or shareholders in old economy companies. To reach that audience, you need money and a team.
Still, what Jackson has been able to achieve without money and a team is remarkable. I have enormous respect and admiration for him. He’s a gutsy go-getter who is making a difference.
But until pledging your shares or emailing your fund manager is as easy as buying stock through Schwab, most CEOs and mutual fund managers probably can keep the yacht in Saint-Tropez.
Eric Jackson has already helped to topple one CEO this year. Traders seemed to be betting Wednesday that the activist investor will be able to do the same at Motorola.
Motorola (nyse: MOT - news - people ) shares climbed 3% at one point Wednesday on rumors that the much-maligned Ed Zander was stepping down as CEO due to pressure from Jackson.
The company’s shares ended the session up 33 cents, or 1.9%, to $17.95.
Jefferies & Co. analyst Bill Choi said traders told him the movement was due to rumors that Zander would resign.
Motorola's warning after the close that it would post a second-quarter loss on weak cell phone sales should raise the pressure on the embattled CEO. The Schaumburg, Ill.-based company said it expected a net loss of 2 cents to 4 cents a share from continuing operations. The Street had expected it to post a profit of 2 cents a share. It also lowered its sales projections from $9.4 billion to $8.6 billion to $8.7 billion.
On Monday, Jackson posted a YouTube video message on his blog “Breakout Performance” to his fellow Motorola shareholders with a five-point plan on turning the company around. Replacing Zander was at the top of his list.
Choi said the video was gaining support among shareholders, although he did not know who they were.
Zander has become the target of shareholder discontent at the handset maker, which has been unable to follow up on the success of its Razr phone. The company's price to earnings ratio has dropped during Zander's tenure, and its shares have underperformed against the S&P 500 and competitor Nokia (nyse: NOK - news - people ).
Unlike raiders like Nelson Peltz, who have made headlines by using their wealth to buy large interests in a company and then shaking its boardroom and agitating management, Jackson owns only 130 shares of the company’s stock. But using the power of the Internet he has made his influence known, most notably at Yahoo (nasdaq: YHOO - news - people ). Via a blog and a wiki, he led an investor revolt that contributed to the ouster of CEO Terry Semel last month.
Jackson's campaign is the second activist investor to cause headaches for Zander this year. Carl Icahn waged an aggressive, ultimately unsuccessful campaign to win a seat on the embattled company’s board. He took out a full-page advertisement in the Wall Street Journal in which he derided management for stumbling “badly” and singled out Zander for an alleged lack of leadership and reckless tongue wagging (See: "Carl Icahn Lashes Out Against Motorola Board" and "No Carl. Now What?").
From ISS' Governance Weekly:
Eric Jackson, the shareholder activist whose Web-based dissident campaign resulted in significant withhold votes against Yahoo! directors, is now targeting the board at mobile-telephone maker Motorola.
Jackson introduced his “Plan B” for governance at Motorola via his weblog, Breakout Performance, on July 9. The plan includes removing Chairman and CEO Ed Zander, just as Jackson’s campaign at Yahoo advocated the removal of then-CEO Terry Semel, who stepped down in June less than a week after the company’s annual meeting.
“We think that the company is in desperate need of some changes of direction,” Jackson told Governance Weekly. “We don’t think the solution is as simple as just replacing Mr. Zander, but [it’s] part of the solution.”
Jackson contends that Zander has done little to encourage innovation since the introduction of the of the company’s popular RAZR mobile handset. Jackson plans to seek the ouster of four longtime Motorola board members; he contends that the Illinois-based company needs new directors with more experience in the communications field.
Motorola is officially withholding comment on the matter, a company spokesman told Governance Weekly.
Jackson isn’t the first shareholder to try for change at Motorola. Earlier this year, billionaire investor Carl Icahn staged a proxy contest, aiming to win a seat on the company’s board. The bid narrowly failed, but Icahn won 45 percent of “for” and “against” votes, according to news reports, including shares of some significant Motorola stakeholders such as ClearBridge Investments, which held a 2.2 percent stake.
Jackson said that he received a pledge of 47,000 shares from fellow Motorola shareholders in the first 24 hours after launching his “Plan B” effort, and 120 people representing 600,000 shares after the first week.
According to Jackson, his campaign at Yahoo won the support of holders of over 2 million shares. In advance of Motorola’s 2008 meeting--a date for which has yet to be announced, Jackson said, “we’re well on our way to surpassing Yahoo.” --L. Reed Walton
Saturday, July 21, 2007
Thursday's Motorola results were as disappointing as they were advertised a week ago in the pre-announcement.
We did learn a few things: (1) Ed Zander said in an interview afterwards that "I'm trying hard guys, I really am" and (2) Ed Zander's stopped trying to predict the business because management hasn't been too good at that lately.
That said, this is still a business in tremendous need of changes. Since I launched my "Plan B" campaign for Motorola almost 2 weeks ago, no one has emailed me or commented that they support Zander. In fact, many of the current 125 "pledgers" according to emails I've received are current Motorola employees.
The morale is extremely low at Motorola. It appears that most employees feel that if Zander and the rest of the Senior Leadership Team had been doing their jobs for the last few years, it wouldn't be necessary to hack 8,000 rank-and-file jobs. However, the anger isn't limited to Zander. When I chat with current or ex-Motorola employees, I ask them who else on the SLT they like and admire. I haven't received back any specific SLT names yet. People seem to respect those in legal and finance - that's it.
Changing Zander at the top is not a panacea, but it is a necessary first step.
And what about the rumors that COO, Greg Brown, is being considered as a candidate for CEO by the board? It's puzzling. Although a strong internal candidate for CEO is always preferable to an external one, aren't the operations of Motorola over the last year plus at the heart of the mess the company is currently in? Doesn't that lie at the feet of the COO, after the CEO? Why would the board reward that lack of performance (or put him on the board - as has also been rumored)?
The external candidates whose names have appeared in the press give some positive hope for changes ahead at Motorola. All look good - at least on paper.
Does anyone at HP now think their board moved too fast to remove Carly? Would they have been better keeping her, because how could they have found anyone else to run the business? This is an absurd argument. And, yet, we have heard some analysts in the last week make this kind of pitch for why it would be better to keep Zander in place, rather than search for.a replacement. Ridiculous. Go ask HPers what they think of their company under Mark Hurd and how Carly ran it.
The fixes for Motorola are more involved than just replacing Zander. But until the board pulls off that one band-aid and makes that change, it can't address the other areas.
Yesterday, I chatted with Pat Bolland, ex of CNBC, now with Canada's Business News Network, in Toronto about the Motorola shareholder campaign for our "Plan B."
Here's a link to the video of the 6 minute discussion.
An article from last week's AP:
CHICAGO: After beating back a proxy fight from billionaire financier Carl Icahn, the chief executive and chairman of Motorola Inc. is under attack again.
On the heels of this week's warning of worse-than-expected earnings, Ed Zander found himself the target of an activist-backed effort to reform the once-venerable cell phone maker.
This time, the campaign to boot Zander, along with four other board members, is led by a group of small investors and includes an online petition, blog and five-minute video manifesto.
"Enough is enough and it's time for a change," said Eric Jackson, a Naples, Florida, management consultant who owns 134 Motorola shares and launched the grass roots initiative called "Plan B" on Monday. "There's the substance of what the CEO does, but there's also the symbolism. And I think the problem is that he's just not that inspiring."
So far, about 70 shareholders who claim to represent about 400,000 shares have signed on, though there's no way to verify the group's holdings. A video outlining the plan has received more than 1,400 views on YouTube.
Jackson launched a similar campaign earlier in the year, attacking former Yahoo Inc. CEO Terry Semel, who stepped down last month.
The anti-Zander sentiment may be growing on Wall Street, too.
"If you don't see any improvement over the next couple of quarters, I think his days are numbered," said Morningstar analyst John Slack. "I think the catcalls and the cries for him to step down, or be fired, are only going to grow from here out."
A company spokeswoman declined to comment specifically on Jackson's campaign.
"Ed and the senior management team are continuing to work to restore the profitability and performance that we expect from the mobile devices business," spokeswoman Jennifer Erickson said Thursday.
Zander, 60, took the helm of the Schaumburg-based company in 2004.
Since then, he's overseen Motorola's meteoric rise on the success of its Razr phone along with its stunning decline that began last fall when aggressive attempts to increase market share by lowering phone prices began to backfire and hurt profit margins
On Wednesday, Motorola acknowledged its struggling cell phone business — its biggest — will be unprofitable at least until 2008 and warned of a shortfall in second-quarter revenue due to weaker-than-expected handset sales. It also said it would post an operating loss because of poor results in cell-phone units in Asia and Europe.
The announcement that the company's cell phone business won't be back in the black until at least next year signals Motorola's turnaround efforts haven't gained traction despite assurances by Zander that the company would succeed.
Motorola has announced a series of reductions and a restructuring plan, but has pinned its hopes for a recovery on a new cell phone lineup, anchored by the Razr 2. That phone was to be introduced in Asia this month and elsewhere later in the summer.
Meanwhile, analysts predicted Thursday that Samsung Electronics Co. would eclipse Motorola for the No. 2 position in world handset sales and market share during the quarter.
Motorola said it expects to ship about 35 million to 36 million handsets in the second quarter and analysts forecast Samsung will ship more than 37 million handsets. Meanwhile, JPMorgan estimates put Samsung in the No. 2 spot with 13.6 percent of the market, compared with
Motorola's 12.8 percent. Both trail Nokia Corp.
Standard & Poor's put Motorola's long-term ratings on watch Thursday — short of a downgrade but a move signifying negative implications, the ratings agency said.
"It's going to take some time for Motorola to turn things around considering competition has only increased in recent months," RBC Capital Markets analyst Mark Sue said in a note to investors Thursday. The company, he said, "sorely needs a hit product to turn things around."
Motorola shares, already down 13 percent in 2007, rose 13 cents Thursday to $18.08 in trading.
From last week's Chicago Sun-Times by Howard Wolinsky:
Motorola warned investors after the stock market closed Wednesday that it will post its second straight quarterly loss next week.
The ominous news comes on the tail of another investment activist calling for the resignation of Motorola Chairman Ed Zander.
The Schaumburg technology company said it expects a second-quarter loss of 2 to 4 cents a share, including charges stemming from previously announced job cuts. The company said second-quarter sales will be $8.6 billion to $8.7 billion. Originally, it forecast sales of a flat $9.4 billion.
The company blamed its shortfall on falling sales of its cell phones in Asia and Europe. Motorola said this will result in "a larger operating loss in the second quarter as compared to the first quarter. For the full year 2007, the company no longer expects the Mobile Device business to be profitable."
Motorola Wednesday named Stu Reed, executive vice president of Motorola's Integrated Supply Chain organization, to head the mobile devices unit. The job has been open since February when former unit head Ron Garriques abruptly joined Dell Computer.
Motorola's Connected Home Solutions and Networks & Enterprise businesses are expected to meet expectations.
Earnings results will be reported July 19.
Zander & Co. in May successfully fended off a proxy fight with billionaire investment activist Carl Icahn, who called for sweeping change at the company, including calling on the board to start looking at resumes to replace Zander.
This week, Eric Jackson -- a blogger, Motorola shareholder and president of Jackson Leadership Systems, a strategy and governance consulting firm -- called for Zander's head. Jackson made his presence felt last month when he claimed that some 100 Yahoo shareholders pledged 2 million shares in Jackson's campaign to oust CEO Terry Semel, who eventually was fired.
Jackson's "Plan B" to reform Motorola seemed to give Motorola's shares a boost. Shares closed at $17.95, up 33 cents, or 1.9 percent. Shares have ranged from $17.32 to $26.30 over the last year.
Jackson said, "There is little to get excited about with Motorola these days. Since January 2004, the month Ed Zander took over as the chairman and CEO, through today, Motorola has returned 13.5 percent to its shareholders. Nokia, the No. 1 mobile handset maker in the world, has returned 37.8 percent over the time period. The S&P 500 has returned 35.2 percent. Your returns as a shareholder would have been 3x if you had put your money in Nokia the month Ed Zander started."
In addition to Zander's head, Jackson would like to dump several board members who have little personally invested in the company. He urged that Icahn, who is experienced in turning around struggling companies, and some veterans with deep telecom industry knowledge be appointed to the board.
Jackson lays out his plan and invites shareholders to offer suggestions at the "Unofficial Motorola Wiki" at motorola.wikia.com/wiki/Main_Page.
As a result of the shakeup, Motorola postponed its annual July meeting with analysts until September.
In the shadow of the just-released Apple iPhone, Motorola has argued that consumers will be getting exciting new products, such as the soon-to-be-released RAZR2, the replacement of the hugely popular RAZR thin phone, and its new "media monster" phone.
But Jackson complained that the new line appears "to be so yesterday."
From last week's Reuters:
NEW YORK (Reuters) - Shares of Motorola Inc. MOT.N rose almost 3 percent on Wednesday on speculation that Chief Executive Ed Zander could be about to resign, amid a new campaign by an activist investor to oust the executive.
Zander, whose management of the No. 2 mobile phone maker came under heavy criticism from billionaire investor Carl Icahn earlier this year, now faces fresh pressure from activist shareholder Eric Jackson, who published a statement online entitled "Motorola Plan B" this week.
Jackson became the figurehead for widespread shareholder dissatisfaction at Yahoo Inc. YHOO.O after standing up at the company's annual meeting in June and asking then-Chief Executive Terry Semel to apologize to shareholders. A week later, Semel was replaced.
"There are rumors Zander may be resigning," said Charter Equity Research analyst Ed Snyder.
"This would increase confidence that a serious restructuring is afoot."
Motorola shares rose 34 cents to $17.96 at mid-afternoon on the New York Stock Exchange as investors, who have been disappointed by weakening handset sales at the company, reacted to rumors about Zander.
A Motorola representative declined to comment.
Motorola, whose shares have lost about a third of their value since mid-October on disappointing results, posted a first-quarter loss due to weak handset sales caused by a lack of advanced phones and tough price competition.
Since Zander took the helm in 2004, "shareholder returns have been 13.5 percent," said Jackson, comparing this to returns of 37.8 percent from Finland's Nokia NOK1V.HE, Motorola's biggest rival, in his statement.
"His past performance and the currently articulated strategy for a turnaround are neither sufficient or acceptable," Jackson said referring to Zander.
Jackson said in an email that he is in contact with large institutional shareholders and already has support from 18 individual investors with a collective stake worth just under $1 million in Motorola shares.
Based on Wednesday's share price and a share count of 2.3 billion, Motorola's market capitalization is $41 billion.
Earlier this year, Zander withstood pressure from Icahn, who failed to win enough shareholder votes for a board seat.
Speculation about a Motorola management change also circulated in the options markets. Paul Foster, options strategist at Web information site theflyonthewall.com in Chicago, cited "unconfirmed chatter" that Zander would step down.
Foster said the company's second-quarter earnings report, expected in coming weeks, could be another factor.
According to market research firm Track Data, 50,293 calls compared to 13,123 puts changed hands in Motorola, far outpacing its normal volume of 24,621 contracts during the first half of the session.
Investors often use equity calls in hopes of profiting from a share price rise, and puts to speculate on potential stock weakness.
My interview with Joe Kernan of CNBC from last week is here. You need CNBC Plus to see it.
Motorola is waving a red flag on second quarter results, with Eric Jackson, Jackson Leadership Systems, Inc. president/CEO and CNBC's Joe Kernen
From last week's BusinessWeek by Roger O. Crockett and Olga Kharif:
In mid-May, Motorola's beleaguered CEO Ed Zander was starting to feel optimistic. Zander had just unveiled a new phone lineup and for the first time in months, headlines would focus on something other than missed financial targets (see BusinessWeek.com, 5/16/07, "Motorola's Gamble: Substance over Style"). "I think we're seeing the transformation beginning," he told BusinessWeek in an interview after the event.
Any change for the better was woefully short-lived. Two months on, Motorola (MOT) said sales would miss forecasts for the third straight quarter and that the company would suffer its second consecutive loss. The worsening outlook is stoking Wall Street's impatience with Zander and causing a growing number of analysts to hypothesize that the CEO may be headed for the exits before long. "A number of key executives around Mr. Zander have changed," says Lawrence Harris, an analyst with Oppenheimer & Co. "By yearend, if we don't see significant improvements, we could see more changes."
The Buck Stops
The impetus for the latest round of bearishness was Motorola's announcement late on July 11 that second-quarter sales were $8.6 billion to $8.7 billion, down from an earlier forecast of $9.4 billion, and that continuing operations had a loss of 2¢ to 4¢ a share. Worse, the bread-and-butter cell-phone unit is no longer expected to be profitable in 2007—something Zander repeatedly encouraged Wall Street to expect this year. "Motorola's handset product line is in a bit of disarray right now," says Mark McKechnie, an analyst with American Technology Research. He added that the company's once-sizzling ultraslim handset, the Razr, "lost favor with consumers and carriers."
Zander too is losing favor with his core constituency: shareholders. Until recently, much of the blame for the ailing mobile-phone business was laid at the feet of Motorola's former cell phone czar, Ron Garriques, who was criticized for chasing market share at the expense of profitability. But in the absence of Garriques, who bolted for Dell (DELL) in February, the buck stops with Zander, investors say (see BusinessWeek.com, 3/22/07, "Motorola's Zander: On Razr's Edge"). While he has aggressively cut costs by shedding jobs, problems persist. "A lot of people are really tired of him blaming everyone else," says Michael Mahoney, managing director of EGM Capital. "Motorola has a problem, and he is running out of scapegoats."
No. 3 in Handsets?
Mahoney is not alone. Motorola shares rose almost 3% in the hours before the company's dour sales announcement amid speculation that Zander could be about to resign. The sentiment was stirred by an activist investor, Eric Jackson, who on July 9 published a statement online titled "Motorola Plan B"—an attempt to fuel a campaign to oust Zander. Jackson, CEO of consulting firm Jackson Leadership Systems, laments Motorola's performance vis-à-vis bigger rival Nokia (NOK) in the years since Zander took the helm. "We don't believe this past performance and the currently articulated strategy for a turnaround is sufficient or acceptable," Jackson wrote.
"This company has a leadership and a mobile product problem which needs to be corrected—not in 6 months from now, after it falls further behind its competitors."
Zander was not available for comment, but a Motorola spokeswoman says, "The current management team—Ed, COO Greg Brown, and CFO Tom Meredith—are working on restoring profitability for mobile devices and moving forward with a strategy to fix the business."
That fix is becoming increasingly urgent, as Motorola slips among handset vendor ranks. In the second quarter, Motorola likely lost its No. 2 position in global handset shipments to Samsung, expected to have shipped 38 million units to Motorola's 36 million, estimates Neil Mawston, associate director at consultancy Strategy Analytics. "If our Samsung forecast proves correct, this will be the first time ever that Motorola has lost its second position to Samsung," he says.
And market-share losses might be exacerbated now that Apple's (AAPL) iPhone is on the market. Many iPhone buyers appear to be ex-Razr users, says Ken Dulaney, an analyst with Gartner (IT). "If more consumers move to the iPhone, Motorola could be affected," says Harris at Oppenheimer.
Ill Will Growing
As fervently as some investors want change, Zander has shown staying power. In May, investors voted down a proposal that would have given Carl Icahn a seat on Motorola's board and dealt a big no-confidence vote to Zander (see BusinessWeek.com, 5/7/07, "Motorola Showdown: Icahn vs. Zander"). A signal that Zander is still very much in charge, at least for now, is the appointment of Stu Reed as the new head of the phone unit. Reed takes over for Ray Roman and Theresa Vega, who were named co-heads of the business after Garriques' departure. But sources close to Motorola say that Zander was never fully comfortable with Roman in charge. Reed, on the other hand, is a handpicked Zander guy, snatched from IBM (IBM) in April, 2005. There, Reed held executive roles in manufacturing strategy, process, and information technology for 20 years. He has headed up Motorola's supply chain, and is generally well regarded inside and outside Motorola. "I like seeing him come over," McKechnie says. "The hope is he will help Motorola control costs."
Sober cost management will indeed serve as a useful crutch, but it's Zander who has to demonstrate that he can stop the company's bleeding and turn it around—fast. Ever since the fast-talking former Sun Microsystems (SUNW) executive left the private equity world to take the reins at Motorola, his energy and impatience have been viewed as the right leadership medicine for a company formerly led by the contemplative and cautious Christopher Galvin, the founder's grandson. Contrarians grumbled that Zander's success was really based on strategy implemented by Galvin's team before the former CEO was ousted in 2003.
With each passing bad quarter the ill will is growing. Compared to the previous CEOs, "Zander's style is a little more abrasive, and a little less gentlemanly," Mahoney says. "You get a sense that he is more of a show horse vs. performance horse." With so many problems plaguing the company and changes under way to try and fix them, Motorola announced that it would push back its annual analyst meeting from July to September. By then, Zander will either be stepping on stage to show some tangible signs of recovery in mobile phones, or perhaps the stage will have been handed over to a new head horse.
From last week's Naples Daily News by Laura Layden:
It’s goodbye Yahoo! and Hello Moto.
After leading a high-profile campaign to oust Terry Semel at Yahoo!, Eric Jackson, a small activist investor with a Naples address, is turning his attention to the world’s No. 2 maker of cell phones.
Jackson is calling for change at Motorola, which has seen declining profits with increased competition and greater demand for cheaper phones.
On Tuesday, Jackson officially launched his campaign, announcing it on his blog and through a YouTube video. He’s using the same strategy as he did for Yahoo!, drumming up support through the Internet.
Observers credited Jackson for taking down Semel, who stepped aside as Yahoo!’s boss last month. It was part of his "Plan B" for the company. Using only the Internet, he rallied 100 individual investors, owning 2.1 million shares, behind the plan.
He could be even more successful with Motorola after attracting so much attention from his first campaign. National publications such as The Wall Street Journal and New York Times picked up on his story. He appeared on CNBC and Bloomberg Television.
Jackson recently bought 134 shares in Motorola. Less than 24 hours after announcing his campaign for change, he had about $350,000 worth of stock pledged to it.
"Our track record is more well-known now," he said. "Hopefully we’ll get some institutions to sign onto the group."
He has a draft Plan B for Motorola, which he’s sent to the company. He expects to revise it based on what he hears from other disgruntled investors in what he describes as a "79-year-old American institution."
"The plan is for the next month to hopefully get as much input as possible. Then after that we will take the best ideas, develop a final version of the plan and will send it to the board of directors by early August," said Jackson, 35, a business and management consultant and president and CEO of Jackson Leadership Systems Inc. in Naples.
Then Jackson will request a meeting with board members.
Here’s what he proposes in his draft plan:
• Replace Ed Zander as chairman and CEO immediately.
• Replace Judy Lewent, Nicolas Negroponte, Samuel Scott III, and John White on Motorola’s
board of directors.
• Appoint Edward Lampert of ESL Investments Inc. to Motorola’s board and others with "deep communications experience." Lampert recently disclosed he owned stock in the company.
• Outline the long-term vision and strategy for Motorola.
• Appoint a permanent head of the mobile devices business.
"I’ve been following the company for the past seven years," Jackson said. "I used to work for a software company in which we partnered and competed against Motorola, and I’ve followed Ed Zander since he joined the company 3 1/2 years ago."
In his blog, he points out that Nokia and the S&P 500 have exceeded Motorola’s shareholder returns by three times since Zander came aboard and that many suspect Motorola will drop from No. 2 to No. 3 in worldwide handset sales this year.
"The results from the past three quarters have been underwhelming, as the company sank to negative margins. The Q2 (second quarter) numbers are expected to also be weak," Jackson wrote.
He also raised a concern about a statement made by Zander that he loved his job, but hated his customers when answering a question about why Motorola’s carrier customers were discounting Motorola’s phones.
Frank Gilroy, a former Motorola employee, has highlighted Jackson’s campaign on his own blog, where he wrote an open letter to Zander in June criticizing a decision to close the Urbana-Champaign (Ill.) Design Center and lay off 183 of the "smartest people" he’s worked with in his "entire life."
In a post on Jackson’s blog, Gilroy said he’s unloaded his stock but that he’ll do whatever he can to help the campaign.
"The thing that burns me ... is that even if Ed vacates his position he’ll still be entitled to some sort of huge ‘golden parachute’ kind of package," he wrote.
Jackson’s campaign comes after billionaire investor Carl Icahn lost a proxy fight against
Motorola and failed to receive enough votes to get elected to the company’s board.
Icahn used his bid to get on Motorola’s board to criticize Zander’s leadership. Since he lost that battle, the company has released new phones, which it expects to boost earnings. But the response to the new phones from customers and from Wall Street has been "very lukewarm," Jackson said.
"To think that those phones are going to lead a turnaround I don’t think is realistic," he said. "And if that is what the whole turnaround strategy for the company is predicated on, then I think the company is going to have some real problems."
He added, "I thought now is the time to put the argument forward that some more aggressive changes need to be taken with the company."
He hopes to find more success than Icahn.
From last week's Chicago Tribune by Mike Hughlett:
Eric Jackson's timing couldn't have been better. Just days before Motorola Inc. warned it will post another grisly quarter, he launched a Web campaign to oust the company's embattled chief executive, Edward Zander.
Of course, this raises a question: Who the heck is Eric Jackson, and why would anybody listen to him? Ask Terry Semel, Yahoo Inc.'s former CEO, who resigned under fire last month.
Jackson, a 35-year-old corporate consultant, owned fewer than 100 shares of Yahoo, but wanted to rally his fellow shareholders. So last winter he created an online offensive, including YouTube videos and a Flickr page, aimed at booting Semel and forcing other changes at the underperforming company.
He wasn't Yahoo's only critic, as several big institutional investors were down on Yahoo too. But his effort helped create momentum and won lots of attention, and he was quoted widely in the business press. Jackson's campaign may indeed have added to the pressure on Semel and Yahoo's directors, corporate governance experts say.
Jackson's sudden ascension to a public pulpit is another example of the power that can be granted by the Web. In the old days, gadfly investors with 100 shares and lots to say didn't have much of an audience beyond annual meetings.
"What's new about this is the use of the Internet to contact others and get the message out," said Warren Batts, an adjunct management professor at the University of Chicago's Graduate School of Business. "In the end, it's not the individual, it's the message."
With that in mind, analysts say Jackson's voice could be heard on Schaumburg-based Motorola, which Wednesday warned that its ailing mobile phone business would lose more money during the second quarter and is expected to be mired in red ink for the rest of 2007.
"If there's growing dissatisfaction with [Motorola's] management, [Jackson's campaign] certainly could have some impact on the situation," said Lawrence Harris, a stock analyst who follows Motorola for Oppenheimer & Co. "But the person to watch is still Carl Icahn."
The billionaire financier snapped up 2.9 percent of Motorola's shares early this year and ran for a seat on the company's board. Icahn lost in May but not before stirring up shareholders and calling for Zander's exit if he can't fix things. Icahn couldn't be reached for comment Thursday, but he has said he doesn't plan to go away.
Icahn has been an inspiration to Jackson, who lives in Naples, Fla., and runs Toronto-based Jackson Leadership Systems. The company, which has 10 employees, consults on corporate leadership and strategy issues.
In October, Jackson penned a critical essay on his blog, "Breakout Performance," about Yahoo, which earlier in 2006 had begun disappointing Wall Street. He was bombarded by positive e-mails and blog comments by Yahoo employees and shareholders.
"It started making me think about an activist campaign," Jackson said.
A prime motivator: He said if he could succeed in a grass-roots shareholder activist campaign, he could make a reputation for himself and one day perhaps attract money to start his own hedge fund, like the Icahns of the world.
So in January he rolled out his first campaign. There was video on YouTube explaining his Plan B for Yahoo, which included several other changes besides removing Semel. There also was a page on Facebook and, perhaps most important, a wiki, an online site where shareholders could collectively comment on Plan B, adding their suggestions.
"The extent to which he used the Internet was unprecedented," said Patrick McGurn, executive vice president of Institutional Shareholder Services, a corporate governance advisory firm.
Jackson asked shareholders to pledge shares to the principles laid out in Plan B. Seventy-five investors collectively pledged 2.1 million shares, he said. That's a piddling 0.2 percent of Yahoo's share base, yet Jackson made waves.
ISS, which advises big institutional investors, summarized Plan B in its own analysis for Yahoo's annual meeting. And Jackson got a lot of media attention, landing quotes in scores of news articles, all the while stirring the pot for his cause.
"He was quite successful at Yahoo," said Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. "The CEO left very shortly thereafter. It's hard to find cause and effect, but he certainly raised awareness."
Jackson, who said he owns 134 shares of Motorola, said he chose the cell phone-maker for his next project because in some ways it is like Yahoo.
Motorola is a big, well-known company, so more people pay attention to it. And despite his disenchantment with Motorola's governance, Jackson said it is "a good company with fundamentally good assets."
With Motorola, Jackson is using the same approach as he did with Yahoo: a "Plan B" manifesto that includes several other changes besides axing Zander. He is using the same Web tools, too, including a page on Flickr, the photo-sharing site.
Thursday, the Flickr page had five images of Zander, including three that could best be described as goofy, and one featuring the trio of Zander, Tom Cruise and Katie Holmes. What's the point?
"As a shareholder, you look at that and say, 'How does that make them a better company?'" Jackson said.
Motorola declined to comment.
If Jackson gets his wish, and Zander exits, analysts say Motorola's problems won't go away.
A new CEO might improve morale at the company and provide a psychological boost, instilling a "clean slate" mentality, said Oppenheimer's Harris. That's what Zander brought to Motorola when he arrived in early 2004, after Wall Street hounded Christopher Galvin out of the CEO post.
But Motorola's woes are rooted in its lack of compelling new products, and new mobile phones take a couple of years to develop, Harris said.
Jackson acknowledges that, but believes that the sooner Zander leaves, the sooner Motorola will solve its problems.
From Kara Swisher's All Things D from last week:
Eric Jackson, the effectively noisy shareholder advocate who prodded Terry Semel to leave Yahoo as CEO at its annual board meeting just days before he did, is now targeting Motorola and its CEO Ed Zander.
While Jackson runs a small operation, he uses his Web site, YouTube videos, posting to wikis and other online tools in his effort to build a small group of disgruntled investors and offer a “Plan B.”
Zander, who appeared at our D3 conference, might want to be careful. Jackson craftily asked Semel at the Yahoo meeting–see my post on it here and the video from it below–whether he had the “fire in the belly” to continue as CEO at the troubled Internet giant. At the meeting, Semel answered with a hearty yes, but was gone soon after.
As of yesterday, Jackson now has a lot more fodder in his fight with the telecommunications-equipment maker, when Motorola warned of weak shipments of cellphones and said its mobile-devices division would lose money for the year.
With the stock in the tank, management turmoil, a lackluster product line and rumors of a Zander exit, let us not forget the recent explosive launch of the iPhone to cause even more agita at the company.
But let Jackson take it from here with his recent video on Motorola, followed by mine from the Yahoo board meeting in June:
Tuesday, July 17, 2007
This afternoon, Jerry Yang and Sue Decker will hold their first earnings call since Jerry assumed the CEO position on June 18th. A new CEO can do little with twelve days remaining in a quarter to influence its outcomes. However, we'll all be watching to see how the two handle themselves and what they suggest about the future for Yahoo!
I wish them great success.
Monday, July 16, 2007
It's been just over one week since I launched the Motorola "Plan B" campaign.
Here are quick stats: we now have 122 individual investor supporters with collective shares in Motorola of just under 600,000 - or about $12 million.
How does this compare with Yahoo? At the end of the first week of that campaign which launched on January 7th of this year, we had about 10 supporters with a few hundred shares of stock.
After a 7 month campaign for Yahoo's "Plan B", we had about 100 shareholders with a combined 2.1 million shares worth $56 million.
Clearly, we're way ahead of our previous effort with Motorola. However, more work lies ahead of us.
We have been receiving many new suggestions for additions to the "Plan B" - especially from Motorola employees. We will finalize the plan in early August, based on the suggestions. We'll then forward it on to the Board and ask for a meeting to discuss our recommendations. Please keep the suggestions coming and keep spreading the word to other Motorola shareholders to pledge towards our campaign.
We have already reached out to 9 of the 10 largest holders of Motorola stock and sent them a copy of our draft plan. We will continue to kepp them updated on our progress and look to solicit and incorporate their views into the plan.
I have been surprised at how high the levels of support from current Motorola employees has been so far. We appreciate the support and respect the trust you've placed in us to push hard. All of you believe in this company. That's why you reached out to get involved. As one supporter said: Dissent is the highest form of patriotism.
We believe in you and we believe in Motorola.