CEOs Who Should Lose Their Jobs

Mystique of the Founder

Even after family businesses grow into huge multinationals, nostalgia for "the way things used to be" usually lingers. Often, as in the case of Motorola, the house mythology is maintained by passing the torch from generation to generation. Christopher Galvin is the third Galvin to run the company, which was founded as Galvin Manufacturing in 1928 by his grandfather, Paul. Chris's father, Robert, took over in 1959, and the company developed technologies in semiconductors, pagers, and the first cell phones, becoming one of the most successful outfits on the planet.

The gravy train began to slow just before Chris Galvin, known as a nice guy with a persuasive style, took over from a succession of nonfamily members in 1997. He immediately embarked on a radical restructuring plan to sell off assets and cut costs. None of it has worked. In the meantime, Motorola lost its leading global position in mobile phones, its semiconductor business lost its technological edge and began bleeding money, and prices for almost all of its main products went into worldwide decline. The only good news in Galvin's tenure has been the government sector, which continues to buy systems to improve homeland security.

But the stock, down 46% in five years, reflects the combined $6.7 billion in losses, including special charges, over the same period. "We feel like Motorola has been a perpetual restructuring story," says Bob Rezaee, head of equity research at McMorgan & Co., a subsidiary of New York Life that manages $20 billion in assets and sold off its entire 6.5 million-share position in Motorola this year. "The decisive decisions that should have been made years ago were never made." Sam Scott, chairman of Motorola's compensation and leadership committee, responds, "It is Chris Galvin's leadership that is the backbone of the cultural and performance transformation at this middle phase of Motorola's turnaround."

There's a natural inclination on the part of both a board and rank-and-file employees to give a family leader the benefit of the doubt, says Sydney Finkelstein, author of Why Smart Executives Fail and a professor of strategy and leadership at Dartmouth College's Tuck School of Business. "You're buying into the history and the ethos," he says. Mahoney of EGM Capital, whose fund used to own stock in Motorola, couldn't agree more. "Motorola reminds me in some ways of Detroit 25 years ago," he says. "They need to move out of Galvinville and try some time with a different way of thinking about the world."

Even more powerful than the heirs of founding families are founders who still lead their companies, such as Waltrip at SCI or Patrick Ryan at Aon. Building an organization from a gleam in the eye to a major public company is a phenomenal achievement. This "mystique of the founder" can mesmerize even a good board. "The imbalance of power [between a board of directors and an executive] is much greater with a founder," says Teslik of the Council of Institutional Investors. "[It's] not just a CEO."

But a passion for building a company often doesn't translate into a deftness in extricating it from a prolonged slump like Aon's. Ryan, who made his fortune with acquisitions of insurance brokerages, is by all accounts a charismatic man, with steely blue eyes and the presence of someone who is always in control. That feeling of control is no doubt enhanced because Ryan owns a whopping 8% of Aon's stock, and because his board is riddled with potential conflicts. Aon pays the law firm of one director and an investment bank run by another director for legal and financial services. It also pays two aircraft-leasing companies owned by Ryan and managed by his son (a board member until earlier this year) for aircraft usage. "It's the club," says one institutional investor. "He has a personal relationship with these people and they do with him."

Shareholders may feel it's time to clear out the clubhouse, though. "When they did all the acquisitions, they didn't consolidate them well," says Adam Klauber, managing director at Cochran Caronia, a research and investment-banking company for the insurance sector. "They put the Aon name on it but didn't necessarily operate as one company." In 2000, Ryan announced a major restructuring, taking $294 million in charges, but savings have yet to appear as margins still fall short of competitors'. Aon CFO David Bolger says the plan has been working very well in Europe and that the problems have occurred only in the U.S. retail business, where improvements are now beginning to show. The company also suffered a sad blow on September 11, when 175 Aon employees in the World Trade Center lost their lives, but investors say that the company's troubles came far earlier and have lasted far beyond the impact of that tragedy.

Certainly, Ryan has been trying -- the success or the failure of his company is his legacy -- but that doesn't mean new blood might not help. "Ryan was a strategic genius," says one money manager who owns Aon stock, "but now they need someone to operate [the company]. It's all about management credibility. It's been years and years and years." Bolger disagrees. "There's nobody better positioned to lead this company," he says. "Pat has built this up and has been not only the actual leader but the spiritual leader."