THE WALL STREET
Is Paying Off for Dell
year later, we’re able to focus on customers and the long term,
rather than activist investors.
Nov. 24, 2014 6:47
partners at Silver Lake Management and I successfully took Dell
private a year ago in the largest corporate privatization in history.
I’d say we got it right. Privatization has unleashed the passion of
our team members who have the freedom to focus first on innovating for
customers in a way that was not always possible when striving to meet
the quarterly demands of Wall Street.
To be clear, public markets can and do
play an integral role. In Dell’s formative years, public markets
provided capital enabling us to grow and thrive, as is the case for
many companies. The problem is when customer and shareholder interests
diverge. At Dell, we faced a confluence of factors in making the
decision to end a 25-year run as a publicly traded company. These
factors included the big opportunities ahead, the required pace of
innovation and investment, and an affliction of short-term thinking
that drove a wedge between our customer and investor priorities.
I have had the privilege of a front-row
seat during an extraordinary era of technological advances. It is no
coincidence that from 1985 to 2005, while the personal computer and
industry-standard server proliferated as the universal model for
accessible computing power, world poverty was cut in half. When I look
at innovation today, I know we have barely scratched the surface of
that potential. The forces of cloud computing, big data and mobility
are transforming millions of lives and businesses world-wide.
The technology revolution is gradually
reinventing economies and society itself. To keep innovation coming,
though, requires companies take big risks. It also requires vision and
commitment. The single most important thing a company can do is invest
and innovate to help customers succeed. Theoretically, this should
also be good for shareholders. You do what’s best for customers, you
grow and generate returns, and a stable base of long-term shareholders
benefits from success.
Apparently, I’m not alone in this view.
In a recently reported survey of more than 1,000 board members by
McKinsey & Co. and the Canada Pension Plan Investment Board, 86%
declared that using a longer time horizon to make business decisions
would positively affect corporate performance in a number of ways,
including strengthening financial returns and increasing innovation.
Yet we find ourselves in a world
increasingly afflicted with myopia—governments that can’t see beyond
the next election, an education system that can’t see beyond the next
round of standardized tests, and public financial markets that can’t
see beyond the next trade. This was what Dell faced as a public
company. Shareholders increasingly demanded short-term results to
drive returns; innovation and investment too often suffered as a
result. Shareholder and customer interests decoupled.
Perhaps nowhere is this divergence more
obvious than in the case of certain activist investors. What they look
for is arbitrage—a way to wring out shareholder value in the near
term. They take a sizable position, demand influence on the board and
agitate for a set of actions. To quote Bill George and Jay W. Lorsch
from a recent article in the Harvard Business Review, “Because the
activists usually cash out their holdings shortly after their demands
are accepted or rejected,” the “risk is significant that their
initiatives can weaken a company’s competitive position.”
Look at what is happening in technology.
Major players like
Hewlett-Packard are selling off
and splitting up—huge disruption at a time when long-term innovation
and customer focus have never been more critical. Such moves may boost
share values in the short term, but too often at the expense of real
As a private company, Dell now has the
freedom to take a long-term view. No more pulling R&D and growth
investments to make in-quarter numbers. No more having a small group
of vocal investors hijack the public perception of our strategy while
we’re fully focused on building for the future. No more trade-offs
between what’s best for a short-term return and what’s best for the
long-term success of our customers. For example, in the past year we
have made investments of several hundred million dollars in areas with
significant time horizons, such as cloud and analytics, that might not
have been feasible in today’s environment for public companies.
Every company in every industry is
facing the same pressures and opportunities to compete in the digital
age and the data economy. We need to find ways to get out of the
destructive cycle of nearsighted decision-making and focus on a future
that is far beyond the next quarter or fiscal year or election. In
this fast-paced, uncertain time, one thing is certain: If we aren’t
the ones inventing the future, someone else will be.
Mr. Dell is the founder, CEO and
chairman of Dell Inc.