Tuesday, December 04, 2007

Motorola Should Be Broken Up

Following the launching of our "Plan B" campaign for Motorola on July 9th, we called on the company to enact several actions to restore this company to its rightful spot of industry leadership. One of our suggested changes was replacing Ed Zander as CEO.

I have nothing against Zander. I know people who speak well of him and his time at Sun. I'm sure the last year has been tough on him and his family. However, it's a good thing for Motorola that he is leaving as CEO. Following many interactions with Motorola employees over the last 4.5 months, it's clear that they had lost faith in him.

Unfortunately, most I've spoken to have lost faith in most of the SLT -- perhaps save for Tom Meredith in Finance and also Legal (for what that's worth). Greg Brown, incoming CEO, is not well-liked.

I was concerned when he was appointed to the Board in August -- another insider added to a board with too many people and long-standing members already. Now, it's clear that the board had already decided back in the summer that Zander was not the man for the job. They were lining up Brown, while continuing to give him a few months more of seasoning.

Motorola has tried hard in the last few days to portray Brown as ready for the job. Several investors have said he's not the right person for the job... he doesn't have the "cachet" that some possible outsiders would.

I always advise clients that insiders statistically have a greater likelihood of success than outsiders. Therefore, if you've got a qualified insider -- more often than not -- you're better off with that person.

I don't think that fits here though. Although we'll have to see how Brown responds in the next 60 days, I don't believe he's the right person for the job for the following reasons:

1. Most people inside the company with whom I've interacted are not too fond of him. If he's their leader, they're not ready yet to follow.

2. Although he has a relevant background working at AT&T and Ameritech in the past, his resume seems lacking for this job. Micromuse was a small company, relative to Motorola. CEO experience at a much smaller company doesn't count as relevant CEO experience for this position. Senior leadership at a much bigger company would have been more comforting to shareholders.

3. Brown is as responsible for the current state of Motorola as Zander or anyone else. He's been on the earnings calls for at least the last year, doing his best to show Wall Street that he "gets" the need for urgency. He's used tough talk cliches ("no excuses") -- moreso than Zander and Meredith -- since they first missed at the start of the year, but performance has only gotten worse, not better. His elevation is a likely sign that Q4 is not going well. Check back on that in the 3rd week of January when they report results.

4. At least someone, somewhere tried to draw a comparison between Brown and Mark Hurd. The point was: both aren't flashy, so Brown should be able to replicate Hurd's results at Motorola as a result. Hurd under-promises and over-delivers. Brown has, so far this year, over-promised and under-delivered. Also, Hurd took a $2 billion company in NCR when he took over as CEO in March 2003 and grew it to $6 billion. Micromuse was much smaller when Brown was CEO. Micromuse was a different animal than Motorola. Despite the fact that Brown's been there for a few years now, he'll be learning on the job as CEO for a while.

Given all this, I agree with Carl Icahn that Motorola needs to be broken up now. With Brown in charge, and with the current board, Motorola shareholders would be much better off getting some value from the parts of Motorola, rather than keeping with the whole. Brown can endear himself to all Motorola investors by proactively taking this issue on now -- rather than being forced into this position if he waits another year and the stock slides below $10.

Finally, let the record show that Motorola would have been better off as a company if shareholders had elected Icahn to the board back in May. Shareholders were promised by Zander and Brown a turnaround once new handset models hit the market at the end of June; that didn't happen. Shareholders were promised by Zander and Brown a return to profitability before the end of the year; that won't happen. If Icahn had been sitting around the board table for the last 6 months -- holding directors' and management's feet to the fire -- shareholders would have been better off.

Let's hope Brown aggressively takes action to start to benefit Motorola shareholders. That would differentiate himself from his predecessor.

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