It’s full steam ahead for Motorola Inc.
Free, for the moment, from the shadow of billionaire and dissident shareholder Carl Icahn and his influence on Motorola Inc.’s direction, CEO Ed Zander hit the road last week to tout new, 3G handsets set for launch tomorrow.
As the story of the Titanic revealed, however, blithe assurances of smooth sailing sometimes hit unexpected obstacles.
As Zander moved from defender of the status quo at his company to chief salesman last week, he understandably sought to present tangible evidence that his company has answers to its recent woes.
But some observers were left with unanswered questions about the degree of clarity and candor forthcoming from the Schaumburg, Ill.-based handset vendor. Assuring investors and industry observers-including parts suppliers, customers and, indeed, employees-that one has a plan for threading iceberg-infested waters is not the same as sketching the plan itself.
Roadmap needed
“I would have expected Zander to say something at the shareholders’ meeting about strategy changes, how he intends to change course,” said Tero Kuittinen, senior analyst at Avian Securities L.L.C. “He hasn’t said how they’re going to address the low end, for example. He hasn’t said specifically how Motorola plans to reduce its dependence on the Razr platform. Out of concern for the shareholders, you could tell them the general strategy.”
The lack of a detailed, effectively communicated plan strikes another observer as symptomatic of larger issues.
Laura Rittenhouse, a former investment banker, principal at andBeyond Communications and author of “Tru$t: Do Business With People You Can Trust (2005),” has developed a statistical correlation between the clarity of CEO letters to shareholders and their company’s stock value. Rittenhouse has found that CEOs who write their own letters and effectively communicate with clarity and candor their company’s business and direction enjoy strong stock valuations.
“There’s a positive correlation between candor and stock price,” Rittenhouse said. “Candor goes up, stock price goes up.”
Clarity and candor obviously don’t cause a change in stock value, she said. These qualities simply reflect that the CEO has a clear sense of his or her company’s business and strategic direction and that sense translates to a well-run, top-performing company.
Unfortunately, Motorola has consistently ranked poorly in that regard, she said.
Culture clash
“The culture of Motorola has been a mess since (Chris) Galvin’s tenure,” she said. “Certainly it hasn’t improved under Zander.”
Rittenhouse recently attended both the Berkshire Hathaway shareholders meeting-starring its CEO, Warren Buffett, third-richest man in the world-and the Motorola meeting last Monday. She found a remarkable contrast.
“Zander spent 15-20 minutes with shareholders using prepared remarks and PowerPoint slides-all very scripted,” Rittenhouse said. “Buffett and his partner, Charlie Munger, got up before 20,000 people armed only with cans of Coca-Cola and boxes of Sees candies and answered questions, unscripted, for five-and-a-half hours.”
Rittenhouse characterized many of the questions asked by shareholders at the Berkshire Hathaway meeting as “help me understand the world”-in other words, the real world context for the company’s investments.
“At the Motorola meeting,” Rittenhouse said, “I didn’t get context. I got scanty details, a lot of generalities. We were told ‘things will get better in six to eight months,’ whatever. But I couldn’t understand how they were going to get better.”
She added: “It’s easy to pick on Motorola. The same can be said of the majority of corporations in America.”
In contrast, Nokia Corp.-a Finnish corporation-delivers a clear missive to shareholders, according to Rittenhouse.
“They give you a clearly written, comprehensive review of the business,” she said. “I read that and knew what was going on. I left with a sense of confidence. They talked about what was not going well and what they planned to do about it.”
There’s a “delusion” among business journalists reflected in their reliance on numbers, according to Rittenhouse.
“Why bother looking at language?” she asked, rhetorically. “We’ve got precise numbers we can trust. Remember: where do those numbers come from? From corporate culture, which reflects the norms and values of people in the corporation. Those values determine the judgments people in the corporation make on when and how to count the numbers. Accounting is the least precise practice in the business world. Numbers from a strong, healthy company that encourages people to speak up are numbers you can trust.”
In the absence of clarity and candor from Motorola, Kuittinen said he will look closely at the company’s new handsets for clues to its direction.
“It’ll be positive if the handsets aren’t too close to the current Razr models,” he said. “I’ll look for new design elements. Next week’s announcement is important because I think it will show how much change Motorola was achieving before it was forced to admit it had to change.”
Kuittinen will also look under the hood.
“What is the technology level of these phones? Nokia and Samsung have really upped the stakes. Motorola hasn’t really competed on features in several years, because they were design oriented. Next week we’ll find out what level of technology they’re mapping out for the second half of 2007.”
As for Icahn’s warning that Zander has six months to turn things around?
“Six months is a very cruel number,” Kuittinen concluded. “That’s too short to expect major changes. The Christmas portfolio, at this point, is locked in. I don’t know how anybody could expect significant changes in six to nine months in the mobile-phone business.”
