India’s largest bank by value, HDFC Bank will see its only CEO till date and an iconic one at that, Mr Aditya Puri, retire in two months’ time after helping build the bank from scratch over 26 years. The retirement has triggered a lot of talk about how HDFC Bank will not be the same again after him. Nine years ago, an equally iconic company Apple went through a leadership change accompanied by similar pronouncements about how this could be the end. Since then, Apple’s market value has quintupled and is in touching distance of $2T in mkt cap, the first ever to do so, after having returned close to half a trillion to shareholders through buybacks, under Tim Cook, the successor to Steve Jobs. And indeed, Apple is not what it is anymore as it was under Steve Jobs. This piece in the WSJ talks about an aspect we at Marcellus have spent the past several months comprehending and trying to incorporate in our investment framework – succession planning. The piece talks about how Cook didn’t bother mimicking Jobs and played to his strengths to create even greater value from the same business.
“..From when he took over in 2011, Mr. Cook followed the advice of his predecessor: Don’t ask what I would do. Do what’s right.
…“I knew what I needed to do was not to mimic him,…I would fail miserably at that, and I think this is largely the case for many people who take a baton from someone larger than life. You have to chart your own course. You have to be the best version of yourself.”
Cook didn’t even share the same passion as Jobs on product design or innovation:
“…In late 2012, Mr. Cook was absent when Apple’s senior leadership gathered at the St. Regis hotel in San Francisco to review an early prototype of the Apple Watch, its first new product after Mr. Jobs, according to people in attendance. Such an absence from a new product discussion would have been unthinkable for Mr. Jobs, associates say…. [Cook] seldom visited Apple’s design studio, a place Mr. Jobs visited almost daily.”
Cook’s COO background instead meant that he left that to people better placed and focused on business detail and efficiency, something his predecessor may have lacked.
“…He continued waking up each morning before 4 a.m. and reviewing global sales data. He maintained his Friday meeting with operations and finance staff, which team members called “date night with Tim” because they stretched hours into the evening.
…Though current and former employees say Mr. Cook has created a more relaxed workplace than Mr. Jobs, he has been similarly demanding and detail oriented. He once got irritated that the company mistakenly shipped 25 computers to South Korea instead of Japan, said a former colleague, adding that it seemed like a minor misstep for a company shipping nearly 200 million iPhones annually. “We’re losing our commitment to excellence,” Mr. Cook said, this person recalls.”
Cook is also charting a different course on its product strategy:
“Apple, under Mr. Cook, has joined but not defined the reinvention of the smart home, television and automobile industries. And yet, the company has thrived.
…Instead of new stand-alone devices, Mr. Cook has found success building products around the iPhone, with a watch, headphones and music- and TV-subscription services. The products disrupted markets, with the watch out-selling the entire Swiss watch industry in unit sales and AirPods accounting for nearly half of all headphones sold world-wide at the end of 2019, according to Counterpoint Research.”
Cook also brought in a more pragmatic approach to capital allocation given the amount of cash that Apple keeps throwing:
“Wall Street investors including Carl Icahn wanted Apple to return capital to investors. In 2013, Mr. Cook surprised advisers by agreeing to meet Mr. Icahn for dinner at the corporate raider’s New York City apartment.
Mr. Jobs hadn’t believed in returning cash to shareholders, believing it was better to reinvest Apple’s money in building products. Mr. Cook was less dogmatic. He sat with Mr. Icahn during a three-hour meal, which culminated with sugar cookies shaped like Apple’s corporate logo.
“I got the feeling that he wouldn’t mind me being there,” pressuring Apple to return more cash to shareholders, said Mr. Icahn, an avid poker player.
The company later added $30 billion in buybacks, a sum that rose annually to total $360.7 billion in repurchases over eight years. The capital returns helped attract other investors, including Warren Buffett’s Berkshire Hathaway Inc.”
HDFC Bank doesn’t need to be the same under the new CEO, yet can create value. Will it?
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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