This month’s Leadership Bonus goes out to Arthur T. Demoulas, CEO of New England based supermarket chain Market Basket. Mr. Demoulas, and most of his senior leadership team, were recently fired by the board of Market Basket. As reported by author @IlanMochari in Inc. magazine, this company has over 25,000 employees working in 71 stores who, upon learning of their CEO’s departure, gathered together, and along with customers demanded that Mr. Demoulas be reinstated as CEO. Current management is reviewing bids for the sale of the company ranging from $2.8 billion to $3.3 billion, including one from Mr. Demoulas himself.
Why did the employees, and customers turn out in favor of their ousted leader? Simple…they know, like, trust, and respect him. They do that because he listens to them, knows them, remembers their names and family members when he visits with them, and treats them with respect. He also pays a higher than average wage, well above the minimum for that region of the country. He also includes them in a profit sharing, or bonus pool, and when the financial crisis hit in 2008, he made a deposit in the employee account so they could have a bonus that year.
Mr. Mochari, who visited the Chelsea, Ma. store, goes on to say, “The secret to Demoulas’s success as a leader, it turns out, boils down to two things: Kindness in person, backed up by company-wide care for employees’ financial welfare, in the form of better-than-average pay and benefits and profit sharing.”
Mr. Demoulas, you sound like an authentic leader, and I hope your bid to take over the company succeeds.
Leadership Blunders for the month are awarded to Steve Ballmer, former CEO and former board member of Microsoft, and new owner of the NBA L.A. Clippers. GeekWire reported last week that Stanford University announced Mr. Ballmer will be teaching a class this fall semester, and another next year at USC’s Marshall School of Business. According to Business Insider, Mr. Ballmer will be working with faculty member Susan Athey, who has been a consultant to Microsoft since 2007. Together they will teach a course that “looks at lots of different perspectives on a CEO’s role on creating value in an organization.”
A course in creating value. Really?? Mr. Ballmer should be the last person to teach such a course. It is true that while at Microsoft, Mr. Ballmer had a long and (somewhat) productive run before he became CEO. And even during his 13 year stint as CEO, there were successes. Revenue growth under his direction grew 10% per year, from $23 billion in 2000 to $62.5 billion in 2010, and profits increased 7% per year.
But the tale of the value tape (market capitalization) reflects a different story. This story is not pretty, and reflects a record that will certainly be judged by history. Simply stated, since Mr. Ballmer assumed control of the company, Microsoft experienced a loss in market capitalization of close to $350 billion. This represents a breathtaking, staggering amount of evaporated and destroyed value.
Rarely does it ever happen that an early employee (Mr. Ballmer was #30) make it all the way to retirement running the company the way he did. MS has accomplished a great deal, paving the way for a whole new industry in spite of the efforts of Mr. Ballmer. He is well known for overpaying for under-performing assets. Under his guidance the company paid $6 billion for aQuantive in an effort to support a questionable digital advertising strategy, resulting in a total writedown. He battled rival Apple over the years, and scoffed at the early iPhone development. The Surface RT failure was directed by Mr. Ballmer, which resulted in another writedown, this time $900 million.
His recent acquisition of the L.A. Clippers is yet another prime example of poor judgement in determining the value of an asset. Mr. Ballmer negotiated a purchase price of $2 billion for an NBA basketball team earning $15 million. This isn’t the N.Y Nicks, valued at $1.4 billion, or the $1.35 valued L.A. Lakers. It isn’t the Miami Heat, or the Boston Celtics, S.A. Spurs or Chicago Bulls, all teams of higher value. The Forbes list of NBA team valuations reports $634 million as the average valuation for all NBA teams. The L.A. Clippers, prior to their acquisition, were valued at $575 million, well below the average NBA team on that list.
To me, the biggest indication of Mr. Ballmer’s failure as a CEO has little to do with financial metrics however, but everything to do with his leadership style, which drives culture. Culture is a reflection of values, beliefs, relationships, influence, and people. And culture trumps strategy every time. How a leader acts and relates with his/her people is critical. It gets noticed, and sets the cultural pace within the organization. This leader was hard on his people. I have no use for screamers, and Mr. Ballmer is well known for this trait. It’s unacceptable, doesn’t work, and should never have been tolerated. In his world, if you don’t like the way things are going, you bring your people in and yell at them. (For more on this topic, read Kurt Eichenwald’s excellent piece in the August ’12 issue of Vanity Fair titled Microsoft’s Lost Decade.)
The new CEO of Microsoft, Satya Nadella, has his work cut out. If he is smart about directing the 3 legged stool of strategy, structure, and culture, he may have a chance at recapturing some of the destroyed value and lost shares of many markets. All three legs on that MS stool need to be drastically changed, but culture is critical, and establishing the right culture will drive high value.
Microsoft has a toxic culture left behind by the former CEO, and since organizations follow their leaders, we can only point to the former CEO, Mr. Ballmer, who earned that distinction. On a positive note, since Mr. Nadella has assumed responsibility as CEO, the market cap has gained over $25 billion, so it does appear the MS ship is changing its ways, and investors are responding.