Economist, author and blogger Steven Landsburg asked today on his blog, The Big Questions, why Hewlett-Packard’s stock dropped due to the unexpected departure of its CEO. He thought a $10 billion loss of value seemed big for the loss of even a CEO.
That reminded me of some wise advice I read about long ago from successful growth investor Philip Fisher. It took me awhile to find it, but I had posted on the subject a couple years ago. In this post, How to Run a Business, I quote from Philip Fisher’s book, Common Stocks and Uncommon Profits.
This passage came from a section of the book called Conservatives Investors Sleep Well (p. 188):
Here is an indication of the heart of the second dimension of a truly conservative investment: a corporate chief executive dedicated to long-range growth who has surrounded himself with and delegated considerable authority to an extremely competent team in charge of the various divisions and functions of the company. These people must be engaged not in an endless internal struggle for power but instead should be working together toward clearly outlined corporate goals. One of these goals, which is absolutely essential if an investment is to be a truly successful one, is that top management take the time to identify and train qualified and motivated juniors to succeed senior management whenever a replacement is necessary. In turn, at each level down through the chain of command, detailed attention should be paid to whether those at this level are doing the same thing for those one level below them.
Businesses I’ve been involved with tend to take a program or project approach to running the business. Whether it’s in their core value proposition (the business line putting most of the profit on the bottom line) or in developing or finding new value propositions, the exercise generally seems to be around what programs will best take advantage of some perceived trends.
For example, someone identifies a trend like the population is aging, then asks the question what products or services can our company offer that will be relevant to that trend?
From experience, I have not seen a great deal of value created from this approach. I think it misses a key ingredient.
Perhaps the person who spotted the trend is wrong. Perhaps the people who identified programs to leverage the trend are wrong. Maybe the people who are running the programs aren’t that good.
I think we can learn something from the wisdom of Philip Fisher. Maybe, long-range planning at a company should look a lot more like an organization chart and it should be answering questions like:
- Who do we have running our core value proposition (the business experiments that took off years ago)? Who’s ready to take over? What are we doing to get them ready?
- Who is developing our latest experiments that seem to have legs?
- Who do we have doing more experiments to find tomorrow’s value propositions?
It seems with each group of questions, you may want people with different sets of capabilities, talents, skill sets, past experiences, successes and temperaments.
Once these questions have been answered, the next logical questions would seem to be how much money do they need?
I posted my theory in the comments section of Landsburg’s blog. I suggested that perhaps investors were shocked that the Board of Directors of HP doesn’t seem to have a succession plan and this may be an indication that it simply isn’t running the business well. Maybe a CEO isn’t worth 10% of the market cap, but the decisions a Board makes can be.