It Can Happen to Great Companies and Great Countries
It was once the most valuable company in the world. The thing is the company didn't sell whale oil or make typewriters. No, Cisco ( CSCO ) makes the stuff that makes the Internet work. In other words, the company should be larger now than it ever was, and its share price trajectory should have mirrored hot names like Netflix ( NFLX ) or Apple ( APPL ). instead the stock is off 81% from its March 2000 high. What happened? I gave up on trying to understand the innards of the company a long time ago, but in a nutshell, the company put it in park with respect to imagination and urgency.
The story is a cautionary tale for all businesses, individuals and our government. When Cisco announced yesterday it was laying off 10,000 workers it wasn't about the macro economy, it was about failed leadership. John Chambers has run the company for 16 of its 26 years and he has taken what was once mighty and admired and has slowly made it an also-ran. Once famous for his cherry optimism as his stock plunged in the aftermath of the bursting of the Internet bubble, he has since taken a more cautious approach to press conferences and company guidance. It also seems he got locked into a more risk-averse manner for running the business.
I see serious parallels between Cisco and the United States. Just as a great company can flounder aimlessly until it's no longer great, a nation, even the best in the history of mankind, can do the same. In May, Cisco said it would lay off 4% or 4,000 of its 73,000 workers in order to save $1.0 billion, a move that would have been a major leap from its previous record round of 2,000 layoffs in 2002. Sure, the move is probably warranted now, but it's the consequence of failed management. At some point, if things don't change dramatically, the U.S. will have to face the music and it's going to be worse than the direst of predictions.
Cisco's valuation is off $400 billion and it has made belittled and tepid moves like the failed Flip camera that only underscores a disconnection with greatness and the ineptitude of management. Just as the board and shareholders became so enamored with John Chambers, it seems voters can be fooled or seduced into sticking with leadership that is clearly failing. There are analysts out there saying Cisco can turn it around, Apple turned it around, after all. It is true Steve Jobs came back to save his company by engineering the mother of all makeovers, which included altering his own beliefs to a degree.
Of course, Jerry Yang didn't save Yahoo ( YHOO ) and his ego didn't allow shareholders to take a deal that would have made them richer and the company more competitive. Now, we are watching other would-be saviors, Michael Dell and Larry Page, back at the helms of Dell ( DELL ) and Google (GOOG). But, let's be clear, these guys are founders of these companies, not hired guns. I think they bring a level of passion that can't be matched by an outsider, but they have baggage, too. Yang's ego was too big, and the same could be said for Steve Ballmer at Microsoft (MSFT). The right mix is someone who has true love for the company but is smart enough to check the ego at the door.
The stakes are obviously much higher for our nation than shareholders of publicly traded companies. Yet, I look at Cisco's chart and think the U.S. fits on there somewhere. I just don't know where. Maybe our peak was the 1950s and then the 1980s rebound under Ronald Reagan. The thing is that we still control our own destiny.
In fact, it's the ability to make Americans believe they still control their own destiny that will be the key to our future. Cisco has held onto a losing hand too long and its shareholders are paying the price.
Speaking of Leadership
I think the rhetoric over the debt ceiling went from ridiculous to dangerous. Harry Reid came straight out and said there would be a crash if the debt ceiling wasn't raised, and President Obama said he couldn't guarantee that Social Security checks would go out. Mitch McConnell laid out a plan that was so confusing as to almost be laughable, but we aren't laughing. Many are crying, and some are quaking, because this is the position politicians put us in all the time to get their way. We've come away from presidential pep talks on real threats to a point where the goal is to get us all to run for the hills.
I have to say the market is very jittery about all of this. The stock market loves tranquility, not the tough talk on scores of senior citizens, canes and walkers in hand, bombarding the streets of America demanding their Social Security checks on August 3.
See also S&P Debt Downgrade: Could This Spark a Major Relief Rally? on seekingalpha.com