By Al Davis
Attorneys, by nature, tend to be some of the most patient people I know. Perhaps that comes with the deep understanding of the legal process involved in various types of business transactions, particularly those involving companies tackling a major restructuring initiative. Complex turnarounds are rarely simple and take time for the process to unfold.
Board members, on the other hand, often do not fit that personality profile. Many of them are successful business leaders in their own right, comfortable with their experience and ability to analyze a situation and take decisive action to resolve whatever challenges exist. In some cases, one could argue that they are too comfortable.
The problem with board members is their experiences, while similar, may not be the same ones the company faces today. Nor are the solutions that may have worked in their previous experiences produce the same outcomes. As a result, directors can overestimate their ability to correctly diagnose the situation and set proper strategy. In addition, they often tend to underestimate the time needed to turn the ship around.
Consequently, when delays or unanticipated developments occur, as they always do in complex restructurings, frustration can set in. It is often accompanied by something even more damaging—doubt about the strategic direction the company or its leader is taking.
It could be the disgruntled investor, analyst or shareholder who begins clamoring for greater profits. Perhaps it’s a private equity company that has a substantial investment and a timeline for exit that is not aligned with the company’s growth trajectory. Or it’s a report from an outside consultant, suggested by a board member who has his or her agenda, that flags a number of operational areas that are putting the company at risk.
A Universal Challenge
We often see this in struggling middle market companies, but where it is even more visible is in some of the world’s largest companies, as the recent developments at Intel show. In case you missed it, the board announced that it was replacing its CEO—again.
Pat Gelsinger, a 30-plus-year Intel engineering veteran who returned to the iconic chipmaker in 2021 after taking VM Ware to new heights, was forced out by the board. They felt his turnaround plan for Intel, which hinged on a bold strategy of building new U.S.-based foundries that would not only manufacture Intel chips but also those for companies such as Microsoft and Amazon, was not working.
The press release announcing the CEO change quotes the board chair in acknowledging the progress Intel made in building a world-class foundry, but said they had much more work to do and “are committed to restoring investor confidence.” Analysts hailed the decision, citing a litany of failures that included lost contracts, construction delays, and lack of innovation. All those observations may be true. They also happen to be part of virtually any restructuring journey.
Leaders Who Build Trust
I spent a number of years working at Intel, including time in which Pat Gelsinger was there. In fact, I was hired in a management-level position by Intel’s iconic CEO, Andy Grove, who I can imagine is turning in his grave in hearing the board chair talk about a leadership change being necessary to “restore investor confidence.”
At no time in my tenure at Intel did I EVER hear Andy or any other senior executive talk about a decision in relation to what investors—or any other outside entity—would think. And believe me, he was faced with many tough decisions in building Intel into the world-class company it would become.
There was one particularly rough patch when word came down from the executive offices that officers, directors, and managers were going to need to “tighten their belts,” and it was framed with an uncomfortable choice: Either take a pay cut or lay off staff. To a person, we opted to reduce our pay. That reflected the type of culture we had at that point in Intel’s evolution—and signaled what we thought about Andy.
He was always about doing the right thing for the company—even when it meant personal sacrifice. And if the right thing was going to take longer than some would have preferred, he did not flinch, waffle, or change course.
Spinning is Not Winning
In less than 30 years, there have now been seven different people that have followed Andy Grove in leading Intel. There will soon by an eighth, once the board completes its search for a permanent CEO.
If the definition of insanity is doing the same thing repeatedly and expecting a different outcome, it is fair to question those who are making those decisions. Eventually, they will get it right, but at what cost?
Al Davis serves as Principal at Revitalization Partners LLC, a corporate and board advisory firm that specializes in restructuring and receiverships. He is a Court Appointed General Receiver in the State of Washington as well as an interim CEO and advisor to middle market companies. He can be reached at adavis@revitalizationpartners.com or 206.903.1855.
