So let’s say you own stock in a company. A very large company. They have multiple product lines, international markets, and a core brand that is attractive. They also have one very public operating division that is essentially the public face of that company. The company was at one time considered a blue chip, but competitors made changes when your company didn’t. It took years for the company’s flagship product line to be dragged into modernity, but finally with the help of some bold leadership, it did just that. A change of leadership at the helm of the division occurred once more, but by and large the success continued. But a few years ago, the shareholders felt like that division was underperforming. While they were succeeding by and large, they were not capitalizing on every market advantage given them and were actually showing diminishing returns over the last four financial quarters. The new leadership of this division, while capable, was uninspiring. The approach never changed. The M.O. was the same day in and day out and far too few fresh ideas were being created. The CEO asked the EVP to make some changes that he didn’t agree with, he refused, and he was let go.
Rather than hiring some proven leaders of similar organizations, the company decided to go out on a limb and hire an “up and comer”, someone whose ceiling was high, but whose accomplishments so far were more style and less substance. This person came in and was everything his predecessor was not. He was brash. He made public declarations of forthcoming dominance. He was bold. He had an in your face attitude that was exactly what your senior shareholders were craving. There’s just one problem. The slow growth or no growth that the company experienced has now become a full scale downturn. The supply chain is poorly managed. The marketing message is off target. The new leadership’s own hand-picked executive staff has done little to show they are capable of doing their job. Before this new leadership, this division was performing at the level of their competition with a few exceptions. The competition is now dominating the company whose stock you own and the success the company has in its smaller divisions cannot possibly cover the losses that it’s most important group will no doubt incur. This most important division’s market cap has tumbled, your fellow stockholders are demanding change, and the product’s place in the market is now something that is ridiculed by customers and rivals alike.
So one day, after a particularly dismal quarterly report, your CEO is on an analyst call and publicly declares that the leader of that division is going nowhere. That he’s not ready to change anything and that he’s confident results will change within the next fiscal year.
My question is this? What the hell do you think would happen to that stock when the bell rang the next morning? And knowing the answer to that question, why would the board of that company not knock down the door of the CEO’s office and demand that change occur now?
