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2013-07-31 10:09:25
Jul 24th 2013, 20:09 by M.G. | SAN FRANCISCO
THE epic struggle between two billionaires over the future of Dell has gone to
another round. Michael Dell, the ailing computer-maker s founder and biggest
shareholder, has now been forced twice to postpone a vote on his proposal to
buy out the firm and take it off the stockmarket, for fear that the deal s
critics, led by Carl Icahn, a veteran shareholder activist, may have enough
support to scupper the plan.
On July 24th, having stopped the ballot as it was about to take place, Mr Dell
and Silver Lake, a private-equity firm that is backing him, said they would add
$150m to their offer of $24.4 billion. But in return they want a special
committee of Dell's independent directors to boost their chances of success by
changing the rules of the next vote, scheduled for August 2nd, so that any
abstentions would be ignored rather than counted as votes against the buy-out.
(Mr Dell cannot vote his own 15.6% stake.) As we went to press the committee
was considering the request. It is unclear if the extra cash will pull enough
doubters away from the Icahn camp.
All s swell that ends Dell?
If the buy-out eventually fails, a war for control of Dell s boardroom is
likely to ensue. Although much of the squabbling is over price, also at issue
is whether Mr Dell should remain at the helm of the firm he set up in 1984. Mr
Icahn has already stated publicly that he has a replacement in mind, as yet
unnamed. After this week s vote was delayed, he took a pot shot at Mr Dell,
tweeting: All would be swell at Dell if Michael and the board bid farewell .
But would it? Whether founders or professional managers parachuted into firms
are the best people to lead them over time is a hotly debated topic in many
industries. But nowhere is the discussion more lively than in the tech world,
where venture capitalists often back start-ups run by spotty adolescents and
where older businesses such as Dell frequently face dramatic shifts in
technologies and markets.
For years the conventional wisdom in Silicon Valley was that most founders
ought to be replaced at some point by grizzled veterans. But that outlook has
changed somewhat, as financiers have studied the industry s record and noticed
that many of the best technology companies have been run by their founders for
a long time. In America that list includes Oracle (run by Larry Ellison),
Amazon (Jeff Bezos) and Facebook (Mark Zuckerberg), as well as lesser-known
firms such as Nvidia (Jen-Hsun Huang), a chipmaker. There are notable examples
in Europe and Asia, too, where outfits such as Iliad (Xavier Niel), a French
telecoms company, and TSMC (Morris Chang), a Taiwanese semiconductor firm
profiled in our next story, have flourished with founders at the helm.
Some tech firms fortunes have faded after their founder s departure. Tim Cook
has failed to put a shine on Apple since taking over from Steve Jobs. On July
23rd Apple said it made a profit of $6.9 billion in its latest fiscal quarter,
a 22% drop compared with the same period of 2012. (Its shares nevertheless rose
as investors took some heart from news of record iPhone sales.) Steve Ballmer,
Bill Gates s successor as boss of Microsoft, is also failing to impress: on
July 19th the firm s shares tumbled more than 11% after it revealed a $900m
write-down related to its Surface tablet business and said revenue from its
core Windows software fell in its latest quarter.
Of course, founders running firms come a cropper too. Two former darlings of
Silicon Valley Groupon, an online-coupon business, and Zynga, a social-gaming
company have both removed founders from chief-executive roles this year after
disappointing financial results. And plenty of professional managers have
enjoyed success in techdom. Witness Eric Schmidt s tenure as the boss of Google
from 2001, where he worked closely with the firm s two founders, Larry Page and
Sergey Brin, before handing over to Mr Page in 2011; and LinkedIn s rise under
Jeff Weiner, who became boss of the social network after working at Yahoo. In
Google s case with Mr Schmidt, and Facebook s with Sheryl Sandberg, bringing in
a grown-up to work with youthful founders has proved a good compromise.
Some research also supports the case for bringing in professionals. In a paper
titled Rich versus King , Noam Wasserman of Harvard Business School studied
457 private tech firms between 2000 and 2002 and found that entrepreneurs who
relinquished the most control, either by vacating the boss s chair or loosening
their influence over the board, tended to maximise the value of their own
equity stakes. Kings who kept a tight grip on their firms did worse. The less
regal, the richer.
Other studies, however, have found that private tech firms run by founders tend
to outperform those run by imported bosses. Ben Horowitz of Andreessen
Horowitz, a venture capital firm that likes to back founder-CEOs, is convinced
the creators of companies make better long-term leaders of them because their
knowledge of the technology helps them spot imminent shifts in product cycles
that professional managers miss. He thinks it may be easier for founders than
incomers to convince staff to abandon cherished ways of doing things, when that
is necessary.
What does all this mean for Dell? Some sceptics note that Mr Dell s biggest
innovation was more to do with business processes than technology. The firm s
heyday saw it prosper thanks to a flexible, build to order system, a
hyper-efficient supply chain and a strategy of selling direct to companies. But
those advantages have eroded and since Mr Dell returned to the helm of Dell in
2007 (after standing down as chief executive in 2004) the firm has been
hammered by the epochal shift from PCs towards tablets and smartphones.
Mr Dell bears some blame for this. But since 2008 he has greatly expanded the
company s software and services business, spending $13 billion on deals. Craig
Stice of IHS, a research firm, reckons Dell has a really good chance of
minting money in these fast-growing areas. Mr Dell s authority as the firm s
founder should also help him force through painful decisions in its PC
business. Mr Wasserman acknowledges that Dell s boss has been one of those rare
cases of a founder who has been rich and regal , combining value maximisation
with tight control. Committing regicide at Dell now would not be smart.