The college basketball season ended in historic fashion recently with two iconic coaches reaching new pinnacles in their profession. Coach K at Duke won his fifth national championship moving him past legendary Kentucky coach Adolph Rupp into second place all-time. Meanwhile, on the women's side, Geno Auriemma led Connecticut to its 3rd consecutive title, and 10th overall under his reign.
The obvious comparisons of Coach K to Coach Wooden, who directed UCLA to 10 titles in 11 years, and Coach Auriemma to Coach Summit, who led Tennessee to 9 championships during her storied career, were frequently debated during the respective tournaments.
The accomplishments of any coach, or any leader, are naturally compared to the records previously set. Whether it is on the court or in the boardroom, the achievements of those who came before, set the standard by which the current leaders are measured. This dynamic always creates interesting debate... Could Wooden coach today's players with the same level of success. Could Coach Auriemma have equal success coaching men? The most frequent discussion, and perhaps the most interesting of all, revolves around what all these legendary coaches have in common.
Similar comparisons exist in corporate America as well.
An excellent example of this is GE.
Jeff Immelt at GE was hand-picked by his iconic predecessor Jack Welch. Immelt took command of GE in 2000, precisely at the start of the most challenging economic environment ever faced by the company. During the depths of the financial crisis in 2008, there was considerable doubt whether GE would even survive. Over the succeeding years, Immelt stubbornly clung to the game plan of balancing the industrial side of GE with the huge financial services component, despite repeated calls by analysts to jettison the financial businesses. Eventually, Immelt changed course, culminating in the most recent announcement that it was largely exiting its financial services operations. Whether this move will create significant shareholder value over time, remains to be seen. Now for the interesting questions...Should Immelt have made this decision earlier? Would GE's stock price be higher today if he had?
Meanwhile, fairly or unfairly, Immelt's legacy will undoubtedly be measured by how well the stock does, particularly against the stock's performance under Jack Welch. Under Welch's leadership, from 1981 to 2000, GE's stock price advanced over 2,000%, outpacing the S&P 500 which advanced about 1,800% during this powerful bull market. In contrast, during Immelt's tenure as CEO, GE stock has actually fallen about 60% since 2000, trailing by a wide margin the 40% gain in the S&P. How would Jack Welch have handled the financial crisis? Would he have been more aggressive making changes at GE than Immelt has been? Again, lots of interesting questions...
GE and a lot of corporate titans are struggling to determine the optimal size to compete successfully in today's era of slow economic growth and ever-increasing government regulation. Companies like GE, IBM, and Bank of America may actually be smaller companies in 5 years than they are today.Can they actually shrink and still grow the stock price? Seems counter intuitive, doesn't it?
The longer these companies struggle, and all three have underperformed the market by a wide margin in recent years, the more intense the debate will be whether they are too big to manage successfully. The down-sizing, or arguably right-sizing process, may very well emerge as the critical determinant of success across multiple industries and sectors.
Not surprisingly, interesting questions come to mind as these bellwethers reinvent themselves in this challenging economic environment. What attributes do the leaders of these large, complex, but very different companies, need to have in common that will help them succeed?
Back to a basketball story...
There is a great story about Bill Walton, one of UCLA's all-time best players telling his coach that he wanted to grow a beard, fully realizing it was against team policy. Coach Wooden explained that he respected Walton's right to express himself in that matter, and that he would miss him, as breaking this team rule would prohibit him from remaining part of the team. Walton promptly shaved. Even the free-spirited Walton knew what the team was all about, what the vision, values and expectations were as a UCLA Bruin basketball player.
Isn't a corporation governed by the same forces? Don't all the key team members need to understand and embrace the vision, values, and expectations?
I can't help but wonder whether the leaders of these various, struggling corporate behemoths have articulated the vision and values in a such a way that leads to wide spread buy-in across their respective organizations. I admit I'm highly sceptical.
Corporate earnings have been surprisingly positive thus far for the first quarter of 2015. While revenue growth may be lacklustre in most cases, companies across most sectors are finding ways to deliver reasonable earnings growth. Relentless cost cutting, acquisitions and divestitures, and share repurchases are all key drivers of earnings growth despite the overall sluggish economic environment. With this positive tone to earnings and the continued zero interest rate environment, stocks have rebounded nicely. What's not to like?
I suspect that beneath this seemingly good news all is not well in the executive offices of many industry-leading companies. The companies that will ultimately succeed in these challenging times will all be driven by a charismatic leader who can articulate the right vision and then drive coordinated, relentless pursuit of that vision at every level of the organization.
There is an African proverb – "If you want to go fast, go alone. If you want to go far, go together." But just where are we going?
© Willingdon Wealth Management
