Culture

Like father, like son?

Author Dave Mock looks at the all-in-the-family Qualcomm transition and takes the measure of Jacobs the Younger.

It seems not a week goes by now that the corporate landscape in America isn't being reshuffled. But in a period marked by turmoil, extreme corporate makeovers and outright scandal at some of America's biggest companies, a little predictability goes a long way.

Even within the walls of companies that take no part in megamergers, managing changes in the executive team requires a delicate touch. San Diego's wireless mainstay Qualcomm was facing such a dilemma with the pending retirement of its founder and CEO, Irwin Jacobs. Jacobs had been at the helm of the wireless technology giant since Day One. For almost 20 years he has guided the company, turning it from a little-known defense contractor into a feared, respected--and sometimes loathed--wireless IP powerhouse.

While the major concern of investors and the Qualcomm board was who would succeed Jacobs as CEO, evaluating just how and when he would pass the baton was a fragile matter as well. A committee within Qualcomm's board took nearly three years to evaluate and craft a succession plan, knowing full well that Jacobs' shoes could not be easily filled. Qualcomm's identity and that of its unassuming leader were intimately tied, unlike companies that sign on new executives for each phase of their existence.

The main question in the mind of investors was whether the CEO position would be kept in the family by passing the role to Jacobs' son Paul. Paul Jacobs had been with the company since 1990 and played an increasingly important role in developing key technologies and products. But even with the younger Jacobs' qualifications, investor appetite for corporate dynasties has waned in recent years, for good reason.

Qualcomm's identity and that of its unassuming leader were intimately tied, unlike companies that sign on new executives for each phase of their existence.
Academic research, such as a study by Wharton professor Raphael Amit and Harvard Business School professor Belen Villalong, outlined a "founder effect" in family-owned companies. After analyzing all Fortune 500 companies between 1994 and 2000, the paper determined that companies with founders' descendents in the CEO role retained significantly less value for shareholders. The ideal case was when a founder remained CEO and chairman, or hired a CEO while acting as chairman.

Investors still had a bad taste in their mouth from Motorola's fall from grace and ensuing struggle to regain its prominence in the wireless market. After slipping behind Nokia and losing share more recently to Samsung under the reign of Christopher Galvin (descendent of founder Paul Galvin), the company finally decided to remove family leadership and bring in outsider and former Sun Microsystems executive Ed Zander.

In the end, even against the backdrop of failures past, Qualcomm's board of directors stayed in the family and selected Paul Jacobs to succeed his father as chief executive this coming July. The reason had a lot to do with the culture at Qualcomm, which is unique and slightly eccentric when compared with peers. Bringing in a CEO from outside the company would risk disrupting a strong employee moral base, one that is rooted in technical achievement.

The reason had a lot to do with the culture at Qualcomm, which is unique and slightly eccentric when compared with peers.
What makes Qualcomm a rare company is the pedigree of the founders and the culture that has developed within. Qualcomm's business hinges on technical excellence, and it drives every aspect of company operations. Having come from the world of academia, Irwin Jacobs founded Qualcomm with a small group of highly skilled and visionary engineers. Paul Jacobs follows this lineage, with a Ph.D in engineering like his father.

One telling story exemplifies the nature of the organization: One year when the University of California school system significantly raised its student fee levels, many employees found that the fee reimbursement offered by the company no longer fully covered expenses. (Qualcomm has always been a big proponent of continuing education within its ranks.) The president of the engineering group petitioned to change the policy and raise the reimbursement rate for employees, but was rebuffed by the corporate human resources group as the policy was already quite generous in comparison to peers.

After an appeal to higher authority however, the HR group was instructed to ignore peers and accommodate the change. Few corporations I know of today have an engineering group with enough authority and weight to change corporate policy.

For a company strongly aligned along a passion for technology, Qualcomm is likely better off taking the high odds and staying within its technical team for leadership. Otherwise the entrance to the executive office might become a revolving door.