Monday, 23 September 2013

This is why business leaders are reviled

If you behave like this, you deserve to be cursed, reviled, and generally hated. Unfortunately many business leaders are exactly like this, which is why a business tycoon is considered by society as a figure to be loathed. The "this" I refer to is Stephen Elop, Chairman of Nokia being entitled to a $25m payout for the the sale of Nokia's handset business to Microsoft.

Nokia, as everybody knows, has been in dire straits for quite some time. In 2010, the Board fired its existing Finnish leaders and brought Stephen Elop, from Microsoft, as the CEO to "rescue" Nokia. Elop abandoned Nokia's operating system Symbian and tied its fortunes to Microsoft by adopting the Windows platform. It did not work and Nokia has continued to slide. During Mr Elop's tenure, Nokia's market capitalisation fell  by $ 14 bn - that's the amount Nokia's shareholders have lost. Finally Nokia has decided to sell its handest business to Microsoft for under $ 10 bn.

Elop's contract when he joined Nokia, had a change of control clause - that is if some company bought out Nokia, he would be entitled to a payout. This is not unusual in CEO contracts - for if the company is bought out, the first act of the new owners would be to sack the CEO. So the change of control clause and a payment is acceptable.

What is ridiculous is that Elop and Nokia are using this clause to justify the $ 25m payout to him. This is absurd. Elop came from Microsoft; within 1 year of his coming he tied Nokia's fortunes to Microsoft by adopting the Windows platform. Then he orchestrates the deal to sell the business to Microsoft; as part of this deal he returns to Microsoft and is now front runner to succeed the retiring Steve Ballmer as Chief Executive of Microsoft. For doing this he gets a payout of  $ 25 m in addition to the salary he has been drawing for the years he was in Nokia.

There is a huge uproar and even the Prime Minister of Finland has weighed in. No doubt, as the outrage spreads, Nokia will be forced to reconsider and Elop himself might be pressured by public opinion to forgo this payout.

Why do business leaders and companies do such stupid things. Elop is a very bright man by any account. But what he clearly lacks is grace and a sense of right and wrong. He is a rich man and does not "need" this $ 25 m. Wouldn't he have liked to have gone down as a saviour of Nokia - he found a home for its business which otherwise might simply have had to go into bankruptcy. Beyond a point is money so important, or would you like to leave a legacy, earn respect and go down in history as a "good man".

Instead Elop will be remembered as a greedy , money grabbing, no scruples carpetbagger. Whatever he does in Microsoft in the future will forever be tainted. Did not Elop, a career Microsoft veteran learn anything from Bill Gates,a stellar example of how to be rich ?

Why are business leaders like this ? Does greed overwhelm all virtues ?


Appu said...

The conspiracy theory is, it was a planned move to send Elop to Nokia, so he can facilitate the sale to MS ;) #LOL #Seriously! [Actually i think MS would have done well if it had just open sourced the Windows Mobile and Nokia would have done well if it had taken the Android!] I also remember reading somewhere it was a shot gun marriage for both of them. If MS did not buy Nokia, they would have filed bankruptcy and if MS had not saved Nokia the windows Mobile OS would have been dead!

Ramesh said...

@Zeno - Yes the marriage was a forced one for both of them. The conspiracy theory is not so wild - at the very least there was a serious conflict of interest for Elop.

Ravi Rajagopalan said...

@Ramesh: Something seems to happen when you reach these rarified levels - its almost as though normal rules do not apply. You know as well as I do that industry abounds in such behaviour.

When Lucent Technologies merged with Alcatel, the Management Committee of the company, consisting of executives who had led the company downhill from May 2000 until July 2006, destroying value in the process, invoked the "Change of Control" clause in their contracts and paid themselves $5m-$10m each. Everyone of them took jobs in the new company under the clear understanding that it was all a joke, and left after the obligatory year - this time with a huge exit package. One particular executive became the CTO for the Europe and SOuth region. He brought his girlfriend over, did not attend a single meeting or a day in the office, and left after a year with a nice payoff.

Its what you can get away with.

Sriram Khé said...

To quote from Casablanca, "I'm shocked, shocked to find that gambling is going on here" ;)

The Million Miler said...

I'm speechless. Wow, this is better than the best ponzi scheme!

Ramesh said...

@ Ravi - Yeah I know; I think power goes into your head and you start to believe that you are above God.

@Sriram - Touche . But even by Louis Renault's standards, this is an extreme form of gambling !

@Kiwi - Alas, so.

Reflections said...

Huh I thought Nokia was emerging out of the rut they were in with their new series of phones.

To answer your question..$25m is a lot of money;-).

Enjoyed reading the post and comments Ramesh:-)).

Ramesh said...

@Reflections - Oh yes, 25 m is a lot, but really does that justify such appalling behaviour ? Actually 25 m is not really much for Elop - the marginal utility of a million when you already have 10 is actually very low.

Anonymous said...

why are you so surprised ? greed breeds greed and those that 'have plenty of money' always want more !! sad really, but that just how it is for many.


Ramesh said...

@Trevor - Alas you are right, but very sad that this is so.

Vishal said...

Interestingly shocking conflict of interest! Wonder why?

Ramesh said...

@Vishal -Standards and values are highly diluted these days, alas.

marketing analysis se florida said...

The Finnish company should, in my opinion, can gain more if they stick to their original business framework.

Follow by Email

Blog Archive

Featured from the archives