The Return of Scott McNealy?
Posted by: Peter Burrows on April 06, 2009
I’ve wondered more than a few times in recent months how former Sun CEO and current chairman Scott McNealy has managed to stay so quiet since handing the reins to Jonathan Schwartz a few years back. A list of speaking engagements on his blog shows he last keynoted last May. After all, McNealy can’t get much better at golf. It’s not like him to stay so silent. And I must say, having covered the computer business for twenty years, it hasn’t felt right to me, either. Or as entertaining.
Now, there’s a chance “Scooter” may again take center stage. If reports from last night are true, McNealy led the faction that rejected IBM’s bid based on a slightly lower price and some terms and conditions these directors found worrisome. Here’s an interesting post from Miko Matsumura, an executive for Software AG, on the topic. He figures that if IBM doesn’t buy Sun, Schwartz will soon be replaced by McNealy as CEO.
I e-mailed McNealy, but he would not comment on “rumors, no matter how accurate or silly.” But if accurate, the plot of this soap opera will certainly thicken.
I’ve always been a fan of McNealy, given the passion and loyalty he engenders from employees, the corps of great executives who cite him as mentor (he counts more than 150 that went on to be CEO outside of Sun), and his hard-headed refusal to let Wall Street number-crunchers unduly influence his long-term strategy and commitment to R&D. And vision-wise, the guy was as spot-on as anyone. He was talking about a future in which a relatively small number of “big friggin webtone switches” would do much of the world’s computing. That’s exactly what’s happening today, via the huge data centers of Google, Microsoft and others.
But if McNealy does want to pull a Michael Dell and return as CEO, Sun will also have a huge boardroom controversy to deal with along with its many other problems. While Sun’s board was criticized for years as a rubber-stamp for McNealy, many directors were glad to see him go when he stepped down in 2006. Since then, Schwartz—his hand-picked successor, and a loyal protege himself—has moved decisively to do things McNealy refused to do, particularly to cut costs and jobs in response to falling sales and margins.
Indeed, many of my sources would have preferred McNealy had left the board altogether. Conventional corporate governance wisdom says that it’s impossible for a successor—particularly a hand-picked one—to have full authority with such a powerful personage in the wings.
McNealy professed to be highly sensitive on this score, in this 2007 story I did on Schwartz. He told me that “I didn’t want to leave the company entirely, but I was absolutely willing to leave. I said if you want me to go, I’ll go.” Here’s more on the topic from a companion piece that ran at the time:
By late 2005, Schwartz was anxious to make the jump to the corner office. McNealy says he delayed to let Sun’s business and product line improve to ensure a smooth transition. “He wasn’t sure whether I was trying to lead him on,” recalls McNealy. “I told him, ‘Relax, you’re extremely hirable.’”
When the transition came in April, 2006, Schwartz insisted that McNealy not only stay away from staff meetings, but that he stay out of annual leadership meetings of top managers and that he not have a formal role in setting strategy. “As difficult as it was for Scott, he pretty much threw me the keys and said call me when you need me,” Schwartz says. “And I know that had to be really, really painful for him.”
Also problematic for Schwartz was McNealy’s penchant for headline-grabbing barbs against Sun’s competitors. In his first week as CEO, Schwartz called Hewlett-Packard (HPQ) CEO Mark Hurd, IBM (IBM) CEO Sam Palmisano, Dell (DELL) Chairman Michael Dell, and others to offer an olive branch and explore ways to work together. On occasion, Schwartz also read McNealy the riot act for bad-mouthing a company with which Sun was negotiating, sources say. “I reverted once in a while to my core DNA, but he hauls me aside and tells me when I’m not being helpful,” McNealy says. “Even if he’s wrong, he’s right—because he’s the boss.”