Train Wreck

Bob Bailey, CEO of PMC-Sierra, at Semico Summit 2004: "Our industry is made up of geniuses that act collectively like idiots." I don't recall what Bob was referring to, but whatever it was, the audience appeared to agree with him.

Jerry Rogers, CEO of Cyrix, commenting on the company's sales team at an employee luncheon, c. 1996: "We've got more salesmen now than we've ever had before. We've got so many salesmen that I think they're out there bouncing into each other and getting lost. I don't think they know … Read more

This is part two in a series on founding CEOs. Part one, in which I did get a bit carried away with a rotting fruit metaphor, proposed that founding CEOs typically stick around longer than they should. It went on to discuss the role and effectiveness of boards of directors in this process.

This post attempts to provide a logical framework for the key conclusions reached in the earlier post. Check it out:

Life is full of obstacles. Sometimes they're external, like earthquakes, competition, or pain-in-the-ass neighbors. Oftentimes we create our own problems. We call that being our own worst enemy. In any case, everyone faces barriers that are challenging to overcome. Sometimes we succeed, more often we don't. That goes for CEOs and companies, too.

This concept isn't limited to human behavior. It happens to animals and plants, even to planets and galaxies. Disease, draught, global warming, and intergalactic collisions are examples. In life there are biological factors, to be sure, but if you go deeper still, you find that the underlying cause is physics - thermodynamics, to be specific. It's called entropy.

Entropy - known in the human world as "s--t happens" - is actually a truth that goes far beyond car accidents and getting caught cheating. It describes an ever-increasing randomness that creeps into everything and can wreak havoc on otherwise organized systems.

Now, let's apply that to CEOs and companies. Executives spend most of their time working to meet operating goals. Time is precious and not much of it is spent anticipating and assessing external and internal strategic threats - that's consultant speak for the s--t that inevitably happens to companies.

While understandable, this means that executives often-times fail to recognize strategic threats or are not able to overcome them in time, i.e. before something bad happens that impacts operating results. That goes for both external events - such as changes to the competitive landscape, and internal issues - like technology development challenges.

Sometimes this is a one shot deal. Fine. Other times the behavior appears to be more systemic. In other words, for whatever reason, the CEO's decision-making or ability to rise to the challenges of office appear to be consistently, or at least often, ineffective. It doesn't matter why, only that it indeed happens, in fact happens to all of us. The only difference is that we are not all in a position to impact jobs, 401Ks, and shareholder value. In any case, boards are supposed to oversee CEO effectiveness and step in when that appears to be compromised.… Read more

Last week, Opti Technologies announced a patent infringement lawsuit against a bevy of chip companies: Advanced Micro Devices, Atmel, Broadcom, Renesas Technology, Silicon Storage Technology, SMSC, STMicroelectronics and Via Technologies. At issue are two patents for "Compact ISA-Bus" technology.

Opti had recently sued Apple and AMD over three patents for "Predictive Snooping" technology used in some computer chips. And, in August of last year, Opti settled with Nvidia for $11 million plus up to $9 million more if nVidia continues to use Opti's technology in its products. The nVidia action included all five of the above-mentioned patents.

Silicon Valley faithful will remember Opti as a once-respected chip company that fell on hard times. Is the company's recent patent litigation rampage the death-throws of a desperate company or a promising new business model? Let's go through it.

At present, Opti has but one full-time employee, CEO Bernard Marren. And, according to the company's 1995 proxy statement, Marren gets a cut of everything he brings in to shareholders on a sliding scale that starts at 5 percent and ramps down to 1 percent. Mike Mazzoni, the company's part-time CFO, appears to have the same deal.

Do the math; it's not bad work if you can get it.

I had lunch with Marren a few weeks ago. The 71-year-old industry veteran seemed excited about Opti's prospects and he may have reason to be. Marren isn't new to executive management. He's a former founder and president of electronic distributor Western Micro Technology and the Semiconductor Industry Association (SIA). He sits on a number of boards, including Microtune, Infocus and Unipixel. Marren knows his way around the negotiating table.

For better or worse, patent infringement litigation is business as usual in the chip industry. If not for broad cross-license agreements, chip companies might spend more time suing each other than developing products. Nevertheless, some companies have carved out significant niches by developing and licensing technology. ARM, Qualcomm, Rambus, Tessera, even IBM and Texas Instruments, make a solid business of it. But, for the most part, these companies develop technology with that business model in mind. Believe me, they prefer to negotiate than to litigate.… Read more

The other day, an associate asked me, "Why don't investors diversify when virtually every investment professional on the planet says they should?"

"I haven't a clue," I said.

Those who know me are probably in shock right now. You see, I've got an answer for everything. Not that I always know what I'm talking about; I just act as if I do. I know, it's a gift.

My wife, who is much smarter than I am, actually knows about a lot of the stuff that I so callously pull out of my ass. It drives her crazy.

Maybe that's why I do it.

Anyway, I got to thinking, why stop there? I mean, why just diversify your investments? Life is risky business. Why not diversify everything? I mean, if you have just one job, the company might go under or you might get fired. Become a consultant, like me, and work for lots of companies. Problem solved.

Have a bunch of kids. If one turns out to be an a-hole or a druggy, just write him off. There's plenty more where he came from.

Cat got hit by a car? No problem, you've got three more to rub up against you and purr.

Instead of remodeling your home, get a second one, just in case the first one burns down or your wife kicks you out.

All your PCs run on Microsoft operating systems? You're just asking for trouble.… Read more

The Enron and WorldCom scandals set the bar for white collar crime pretty high. By comparison, other corporate misdeeds seem like small potatoes. Corporate criminals everywhere are crying out, "What does it take to get a little attention around here?"

Looting Tyco of hundreds of millions of dollars did the trick for former CEO Dennis Kozlowski and ex-CFO Mark Swartz. Or maybe it was the little things: a $2 million toga party for Kozlowski's wife, evasion of $1 million in sales tax, or a $30 million pied-?-terre in the city, whatever that is.

I'm sure investors were captivated by the $100 billion (that's billion, with a b) of Tyco's market cap that was wiped out in a matter of months.

It's hard to top newsmakers like that, but for my money, the Rigas family of Adelphia Communications pulled it off and then some.

Adelphia - which means "brothers" in Greek - used to be one of America's largest cable companies. John Rigas founded the company and served as CEO and chairman. John's number one son Tim was CFO, and Tim's brothers, Michael and James, were VPs. All four were board members, along with John?s son-in-law Peter Venetis. That gave the family five of the board's nine seats.

The Rigases also had 100% ownership of class B super-voting shares, which gave the family majority voting rights. That's how they maintained control of the board even after the company went public.

To say the board and voting configuration was dysfunctional is a gross understatement. That alone should have triggered big red flags for institutional investors. But nobody paid attention to red flags during the tech bubble.… Read more

Bill Gates is one in a million. Most founding CEOs eventually become a liability that can destroy shareholder value faster than you can say Bernie Ebbers. They're fine for a while, and then, without warning, they go bad on you. Why not just fire them? Good question, but it's not that simple. It almost never is.

For one thing, CEOs don't come with expiration dates stamped on their foreheads. They're kind of like coconuts. Just the other day I cracked one open and it was all moldy inside. On the outside it looked perfect. But coconuts are kind of hairy so it's hard to tell. This one must have had a tiny crack somewhere, so it rotted. Who knew?

Short of cracking their heads open with a hammer and chisel, how do you know if a founding CEO has gone bad? Well, it's up to the board of directors to make that determination. And therein lies the rub. Boards are notoriously squeamish about dumping what was once a nice, ripe executive in the corporate compost heap.

It's ironic, because hiring and firing the CEO is a board's primary function. Didn't know that? That's exactly my point. Boards are so ineffective at it that lots of folks are not even aware that it's their job.

Why is that, do you think? I don't know, but maybe some directors are rotten too. I'm just thinking out loud here, but you know what lots of ex-CEOs do? They become directors of other companies. Are you starting to see a pattern here?… Read more

The other day I was talking on my cell phone and tried to walk into Trader Joe's through the exit door. I looked up to find a row of registers blocking my way and a guy with a name tag looking at me funny.

"Hey man, why don't you get that thing out of your ear?" he said, not entirely without humor.

He had a point.

It's ironic. I make fun of people who drive around with these things glued to their ears. I imagine they can't stand a minute alone with themselves and their thoughts. Hungry for distraction, desperate for human contact, they talk, talk, talk.

I have a neighbor who I think had her cell phone surgically attached to her head. It has to be; it's always there. I heard that one of her kids was actually born that way. I'm thinking it's a new genetic mutation that will eventually propagate through the entire human race.… Read more

Steve Tobak has no business relations, investments or affiliations with subjects he covers. Exceptions are stated in individual posts.