Thursday, July 26, 2007

Two New Directors for Motorola: More Negative than Positive for Shareholders and Employees

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.

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Anonymous said...

Motorola analyst calls and the internal townhalls are not pointing the path to follow. Nobody wants to decide where are the strenghts and the weaknesses, which business they want to priorize and which ones it is better to quit.
They are making a lot of defensive purchases of very similiar companies to appear they are doing something but it is not the right strategy.
Motorola wants to be in the mobile devices market? yes ??? which segments? where in the ranking??? no? how to leave then?
the same with other business, particulary, the cellular networks (ran and core divisions)...but nobody wants to takes the risk and decide, and then the company remains stopped.

Anonymous said...

You're not accurate on Greg Bown. He was only recently appointed COO - and was not a part of the current portfolio selection - which of course happened 12-24 months ago. I don't mind your insights, but would like it if your facts were at a minimum accurate.

Anonymous said...

I agree, I work for Motorola .Its just bunch of crappy managers.Just because people are in a role for 10-12 yrs, they get promoted, They dont look at their MBA/skill set, And those middle managers suck, They dont have vision what so ever, How can they? When CEO does not have vision, why would anyone have? Bunch of idiots claiming that they are good at WiMAX and other technologies, Truth is samsung beats us anyday even with WiMAX.