Luck vs. Skill: The Whitman Example

I knew folks at eBay while it was going through the steep part of the hockey stock — which is SiliconValley-ese for growing like all get out, the imagery being based on the shape of a graph of the revenues (and hopefully profits) of a company experiencing hyper-growth, with dollars (preferably big dollars) on the left axis and time (preferably short amounts of time) on the bottom axis:


I was at E*TRADE during the steep part of its hockey stick. It was a blast and a half to be there when it was growing that fast — and so much more fun than what the last five years have been like for most folks. But it can also be the worst of times because growing that fast can make the company’s culture quite chaotic, resource-grabby and shark-like.

My impression of eBay back then was that it was the first truly irresistible Internet business. People who liked to shop for used goods couldn’t get enough of it — and there are a lot of those types of folks (look at all the thrift shops we all support) — so eBay’s business took off like a rocket ship and kept at it for years and years and years.

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So how hard was it to steer that rocket ship? Ho much skill did it take?

Meg Whitman was at the helm most of that time, and the conventional wisdom back then was that she was brilliant — Proctor & Gamble marketing genes let loose in the new Internet body.

Whitman left eBay in 2007 and, since then, she hasn’t looked all that brilliant.

In 2010 she ran a campaign to become governor of California against Jerry Brown and to replace Arnold Schwarzenegger. After initially looking like a contender, and after spending tens of millions of her own dollars (uhm, on looking it up . . . make that perhaps as much as $160 million of her own dollars . . . ), the race wasn’t even close: Whitman lost 54% to 41%, by 13 percentage points.

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I don’t follow stocks or business as much as I used to — it used to be one of the main things I did. But that was then and this is now.

Today, however, I did have occasion to look up how the company Meg Whitman has been involved in for the past nearly two years has been doing. That company — the once-venerable and now consistently-Keystone-Cop’y Hewlett Packard — has an accounting scandal on its hands; it goes by the cool-tech name of Autonomy. And to my mostly-untrained ears, it sounds to me like HP has not handled the whole thing very well (not to mention that they paid more than $10 billion to acquire this company based in the UK called Autonomy, which is a lot of money to pay for anything, but a truly wicked amount of money to pay for an accounting scandal).

Here’s what the share price of HP stock has done since Meg Whitman got onto its board of directors in January of 2010 and then, nearly a year ago, took over the joint:



Not good, eh? Why, if you just look at the blue line from September 2011 and on, it kinda looks like a flipped-over hockey stock, doesn’t it?

Especially when you consider that the American stock market as a whole during that time went up about 20%, this chart isn’t generating any warm, appreciative feelings among HP shareholders. Relative to the background hum of the market, HP, with Whitman’s board involvement and then under her leadership, has performed to the tune of a negative 75% (here’s the arithmetic: if you had put $100 into the market as a whole back then you’d have about $120 today, but if you had instead put that $100 into HP shares, you’d have about $30 today, so you’d be $90 worse off, and $90 is 75% of $120).

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In economics, both macro and micro, there are no controlled experiments. We live in but one time-line, and to do a controlled economics experiment, we would need to have two or more. True, you can sometimes find analogs and the like, but you can never run a nice clean experiment comparing what would have happened if, say, Obama’s stimulus package had been twice as big as it was. It’s just one of those no-can-do things.

And then there’s also that correlation is not causation thing.

So we cannot do a double-blind, beautifully designed experiment comparing eBay with Whitman from March 1998 through November 2007 against a control group of eBay sans Whitman from March 1998 through November 2007. Nor can we do that for her still ongoing, and far less happy, HP tenure.

So we can’t know, with any certainty, whether Meg Whitman is a great CEO or a terrible CEO or something in between.

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But we can say this: it was probably a whole lot easier steering a company like eBay, which was taking off like a rocket ship and whose sheer growth could mask many foibles (eBay’s failure under Whitman to purchase PayPal earlier than it did is one that comes to mind . . . ) than it is to steer a company like HP, which is sinking like a stone and, unmasked, parading its many scars for all to see. Maybe her star-CEO status, derived from Rocketship U.S.S. eBay, was more than a tad overdone then?

And we can also say this: she was at least adequately skilled on the relatively easy CEO job, while thus far she has shown herself to be something short of a miracle worker on the exceedingly difficult CEO job. And clearly she was not terrifically skilled as a politician.

So how about luck? Was she lucky on eBay?

For sure luck played a role — it always does.

But drilling down, what can be said about luck’s role in Whitman at eBay? There she steered a rocket ship. Steering anything takes some skill; having that which you’re steering, though, be a rocket ship that just wants to stay a rocket ship for years on end takes a good deal of luck and sweet fortune (no pun intended), as well as some right-place/right-timing it, for which she deserves credit.

And you also have to give her credit for having the gumption to take on the HP beast, which has been in a world of pain, in some ways, seemingly ever since Messrs. H and P stepped down. There’s that story about how that Q got onto their ticker symbol . . .

But when you combine the not-good-at-all political outing with the very not great results so far at HP, you have to wonder whether eBay is Whitman’s outlier storyline and, the others, the fat part of the curve.

Of course, Michael Dell ain’t doin’ so great either, Ted Waitt now appearing to have had, in some ways at least, the better product . . .

About a thousand words (roughly a ten-minute read sans linked-to content)


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