Tech

A History of Adult Supervision in Silicon Valley

The tech world has long flirted with the idea that young companies need to hire experienced CEOs from the outside.

"Parental supervision" in 2006.

Photograph: Justin Sullivan/Getty Images

If Jeff Immelt, the 61-year-old just-retired chief executive officer of the world's leading industrial corporation, 1 really does end up taking the reins of the world's most controversial and valuable tech "unicorn," it will be a first. No one quite that prominent and experienced from the world outside of Silicon Valley has ever been brought in to run one of its companies.

Still, Immelt's potential move to Uber Technologies Inc. does evoke echoes of some past attempts to bring "adult supervision" to bear in the world of tech. Since the days of Bill and Dave at Hewlett-Packard, company founders and their homegrown successors have been dominant in Silicon Valley. But a few big exceptions stand out.

The closest parallel to Immelt at Uber would probably be the 2001 appointment of Terry Semel, a 58-year-old who had been co-chief of the Warner Brothers movie studio for two decades, as CEO of Yahoo! Inc. The leading company of the late-1990s dot-com boom, Yahoo was struggling amid the dot-com bust when Semel took over, and its revenue and earnings recovered nicely during his time there. But with Yahoo now a not-all-that-major division of Verizon Communications Inc., he's remembered mainly for opportunities missed. Business Insider's Henry Blodget compiled a list of them not long after Semel's departure in 2008. The top two were (1) paving the way for Google's rise by effectively abandoning search, and (2) failing to buy Google when he had the chance in 2002.

Google, which has since morphed into parent company Alphabet Inc., was of course the site of a much more successful experiment in adult supervision. In fact, it was Google co-founders Sergey Brin and Larry Page who popularized the concept in a 2001 interview with Charlie Rose. When Rose asked the pair, then still in their 20s, why they had brought in 46-year-old Sun Microsystems and Novell Networks veteran Eric Schmidt as CEO earlier that year, Brin responded, "Parental supervision, to be honest."

Rose turned to Page: "Do you agree with that, Larry? You guys need adult supervision?"

"I don't know if I'd say 'need,' but it's really nice to have," Page replied.

When Schmidt handed the CEO job over to Page a decade later (he's still executive chairman of Alphabet), he announced it like this:

Schmidt was a pretty unique sort of adult supervisor -- a Silicon Valley software engineer hired as a chief-executive/adviser/chaperone by two guys who retained majority voting control of the corporation they had founded. He was the day-to-day boss for 10 years, but Brin and Page were and are effectively still his boss.

This was probably the sort of arrangement that 28-year-old Apple Inc. co-founder Steve Jobs had in mind when he lured 44-year-old PepsiCo Inc. president John Sculley to the company in 1983. But Jobs didn't own anything close to a controlling stake in Apple, and when he and CEO Sculley fell out several years later it was Sculley that prevailed. Given all the amazing things that happened after Jobs's return to Apple in 1997, it's easy to conclude now that the Sculley hire was a big mistake. But he ran the company for 10 mostly successful years, he was far from the only person to have had trouble getting along with Jobs, and the relentless assaults on Apple's business launched by Microsoft in the early 1990s would have been hard for any CEO to parry.

It was in the 1990s that Silicon Valley came the closest to embracing the idea that outside experience and expertise were valuable traits in a CEO. At perhaps the decade's greatest success story, Cisco Systems Inc., the venture capitalist who bailed out the company in the late 1980s had cast its founders aside and put older outsiders John Morgridge and then John Chambers in charge. Carol Bartz also had a quite impressive 14-year run at Autodesk after being brought in from outside as CEO in 1992. 2 And by the mid-1990s VCs were frequently insisting that the wet-behind-the-ears founders of internet startups cede the CEO job to an experienced if not necessarily famous business executive: Jim Barksdale at Netscape Communications, Tim Koogle at Yahoo, Meg Whitman at eBay Inc., George Bell at Excite. Some of those executives did creditable enough jobs, but overall the bitter aftertaste of the dot-com bust -- and the success of founder-dominated Amazon.com Inc., Facebook Inc. and Google, plus the resurgence of Apple under Jobs -- seems to have shifted the tech startup ecosystem's default back to keeping founders in the saddle.

Academic research suggests that this is usually the right approach. Corporations where the founders still play a major role consistently out-invest, out-innovate and out-perform those where they don't, and those with CEOs promoted from within generate higher investor returns than those that put outsiders in charge. U.S. corporations in general and tech companies in particular seem to be taking this evidence to heart, according to PricewaterhouseCoopers Strategy&'s 3 annual CEO Success studies, with outside hires on the decline over the past decade:

Outsiders Are on the Outs

Percentage of new U.S. CEOs hired from outside the company*

Source: PricewaterhouseCoopers Strategy&

*Among U.S. corporations in the global top 2,500 by market cap

Still, sometimes there isn't a choice. At Uber, co-founder and CEO Travis Kalanick and several key lieutenants were forced out amidst growing controversy over alleged sexual harassment and other misdeeds at the company. Whoever gets the CEO job will be engaged in big-time crisis management as well as adult supervision. It's such a unique and fraught situation, in fact, that I doubt Silicon Valley's past experience with outside CEOs, or the broader data on outsider-versus-insider performance, can tell us a whole lot about the odds of success of Immelt or whoever else takes over.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. General Electric Co. has the biggest market capitalization of any industrial company. That's not counting Samsung Electronics Co., which, while it has been a direct GE competitor in home appliances in the recent past (GE's appliance division now belongs Haier Group), seems better classified as a tech company. 

  2. None of these people was an outsider to the tech industry, and Bartz and Chambers weren't much older than the founders of Autodesk and Cisco, respectively. But all three had built substantial careers elsewhere before being parachuted in at the two companies. Also, for whatever it's worth, Bartz is now the lead independent director at Cisco and was CEO of Yahoo from 2009 to 2011.

  3. It's such a weird name that I always feel obliged to explain it: Strategy& is the former Booz & Company, a management consulting firm that was spun off from Booz Allen Hamilton in 2008 when the latter opted to focus on government consulting, and was required to change its name when PwC bought it in 2014. It got the name Strategy& from its (excellent) in-house magazine, Strategy & Business.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Tracy Walsh at twalsh67@bloomberg.net

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