When Carly Fiorina of Hewlett-Packard, Bob Bishop of Silicon Graphics, Eric Schmidt of Novell, and Steve Jobs of Apple Computer joined their respective companies as CEOs, the stocks in these tech giants were languishing.
Under their tenure, the shares went up, in some cases climbing more than sevenfold like Apple, or posting more modest gains like HP's 30 percent rise. But today these executives find themselves back at square one--with most, if not all, of those gains evaporated and the share prices closer to where they stood when they started.
"CEOs are given too much credit when their stocks are high and too much blame when they're low," said Jon Holman, head of executive recruiting firm The Holman Group. "The CEO of a company has only so much influence on their share price. One is the quality of the company and the other is the condition of the markets."
But Holman and other executive recruiters note that the longer a CEO is with a company, the more accurate a stock price becomes in gauging the caliber of the executive.
"In the short term, the stock may be affected by the temporary euphoria surrounding a CEO hire or outside forces. Often when a CEO goes into a company, there may be things discovered that even the board wasn't aware of," said Thomas Neff, of executive search firm Spencer Stuart. "But if a CEO has been with a company for over a year, they own it. The markets are less forgiving about any bad news being attributed to the previous administration. It's now their responsibility and their accountability."
Stocks can rise because of a honeymoon period and the excitement of a new CEO and then fall with an industry downturn, analysts say.
Jeff Heil, head of the equity group for the Regents of the University of California, said the group bought into Apple when the computer maker was around $15 a share and right after Jobs was named interim CEO. Jobs was named acting CEO in September 1997 and took the permanent position last year.
"Before Jobs' arrival, Apple was underperforming (in) the computer industry group while other companies were doing well," Heil said. "It's still underperforming, but it's not as bad. There's been negative earnings revisions across the group."
Heil said the group initially wanted to build a position in Apple but halted such moves as the stock ran up to the mid-$70s last year. And although the price has come down sharply to around $19.50 today, the computer industry is operating in the doldrums.
"In six months we may try buying more," Heil said. The UC Regents have about a $70 million stake in Apple, which is one of the smaller holdings in its $55 billion portfolio.
Where credit is due
Richard Gardner, a Salomon Smith Barney analyst, said Jobs deserves credit for revitalizing the company, and the stock's decline is largely because of external issues such as the market's slump and a slowdown in the PC sector.
"When he came back, he put products in place that were very successful and did a spectacular job with marketing," Gardner said. "In general, I think Apple is a healthy company and suffering from macro issues in the economy."
CEO ups and
The shares of several tech companies posted sharp gains after new CEOs were hired, but in many cases the shares have returned to near where they started.
|CEO||Company||Hire announcement||Stock price||Price as of 1/18/01 split-adjusted|
|Steve Jobs||Apple||Sept. 16, 1997||$10.97||$18.69|
|Eric Schmidt||Novell||April 7, 1997||$10.13||$8.06|
|Carly Fiorina||Hewlett- Packard||July 19, 1999||$57.87||*$34.69|
|Bob Bishop||SGI||Aug. 23, 1999||$12.44||**$4.56|
* Excludes distribution of Agilent Technologies spinoff, roughly worth $15
a share, split-adjusted.
** Excludes distribution of MIPS Technologies spinoff, roughly worth $4 a share.
Source: CNET News.com research
"When Carly came onboard, we didn't buy more shares but were pleased with the selection. We felt she was the right person to lead the company since she was marketing-oriented," Heil said.
But as the stock began to run up from its split-adjusted level of nearly $58 to the mid-$70s, the UC Regents began to sell about a third of its stake.
"We started to sell because the stock ran up, and we wanted to take profits, and we were concerned they were getting into a consulting business and wanted to see them keep their focus," Heil said. The UC Regents currently hold about a $500 million stake in HP.
Ultimately, HP ended its plans to acquire PricewaterhouseCoopers' consulting operations.
"Carly had a nice run with the stock when she first joined. In part, it was the results she initially brought and also the honeymoon of a new CEO," Heil said. "It's since encountered some difficulties that seem more related to the industry than the company."
Last November, HP missed analysts' fourth-quarter earnings expectations by 10 cents, surprising Wall Street and sending its stock down about 14 percent. The company attributed the disappointing earnings to unfavorable currency rates, pressure on margins, and unexpected expenses. The stock closed Friday at $35.75.
John Jones, an analyst with Salomon Smith Barney, said the next two quarters will be pivotal for Fiorina. He noted that Fiorina will be attempting to grow the company's business in an environment that has not been as buoyant as what she has seen in the past 18 months.
Time is also of the essence for Novell's Schmidt.
Right place, right time
"Eric had smooth sailing during his first two years onboard, which wasn't necessarily due to his stewardship, but rather the company was in the right place at the right time. They benefited in 1998 and 1999 with the demand for pre-Y2K system upgrades," said Brian Bearish, president and portfolio manager of Cambiar Investors. Cambiar holds about a $42 million stake, representing a small portion of its $2.5 billion portfolio.
Wall Street is giving Schmidt a few quarters to prove his turnaround plans, said Davenport analyst Drake Johnstone. Schmidt joined Novell in April 1997, when its stock was trading around $10.
Schmidt is looking to transform the company into a back-end infrastructure software provider for the Internet from its longstanding position as an operating system maker. This has put the company in a squeeze as revenues from its legacy products drop off, and the new product mix has not offset the decline.
"Eric's grand vision is brilliant, but its implementation is uncertain," Bearish said.
For Schmidt's vision to work, Novell's customers need to have a large number of their consumers tap into Novell's e-business technology. But the catch-22 is that Novell's technology needs to be widely distributed before its customers' clients are likely to use it, Bearish said.
"Sometimes management teams are up against things that are bigger than they are," he said, noting that a sale of Novell may make sense if its turnaround plans falter.
Bearish noted, however, that the company is further ahead today than it was several years ago--even though the stock price has eroded.
Indeed, an eroded stock price is not necessarily a call to rid a company of its CEO. Take SGI's Bob Bishop, for example.
SGI, whose stock has gone from $12.44 to about $4.50, was the victim of what proved to be overly aggressive expansion plans into many different computer markets. Bishop was saddled with the task of pruning away these excesses and rebuilding the company's traditional business, high-end workstations and servers.
"I don't think the stock price reflects Bishop's role as a CEO," said Bart McMurry, a portfolio manager with ICC Capital Management, which holds a $12.3 million stake. "As a CEO, he's done a fine job outside of the stock price."
He noted that Bishop, who joined the company in August 1999, has put out new products while he continues to stop the company from "bleeding."
"We were increasing our stake last year," McMurry said. "When a stock gets that cheap, you do a breakup or takeover analysis, so it doesn't matter who's sitting in the chair."