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Corporate Turnarounds and the Minefields of Status Quo

6/19/2007 --

Alumnus Jerry York cites his own informal case studies of major corporations, offering valuable lessons to all businesses.

ANN ARBOR, Mich.—Comparing Apples to Chryslers is not so far-fetched in terms of business strategy.

Businessman and financial analyst extraordinaire Jerry York, MBA '66, shared case studies from his own vast experience in the financial world before a rapt audience at the Mitsui Life Symposium earlier this month. He included his insights on the tumultuous rides of several iconic companies for whom he's worked.

"You have to have the right mindset and remember that a steady state is an accident waiting to happen. It is a jungle out there, competitively," York said. "You have to continue to improve and morph your business all the time. It's like being on a treadmill but you can't slow down."

York's experience includes stints with not only Apple and Chrysler, but IBM, Tyco International, General Motors, Ford Motor Co. and more. He is currently CEO of Harwinton Capital Corp., a private investment company he founded in 2000. Harwinton Capital's principal investments are in technology, biotechnology, entertainment and real estate.

The annual Mitsui Life academic symposium's keynote address and dinner was held against the stunning green backdrop of the Matthaei Botanical Gardens. York’s talk, "Corporate Turnarounds and Value Creation," capped off day one of the symposium.

Tales of Restructuring

Complete with personal anecdotes and recollections of his time as a board member and/or executive with these major corporations, York boiled each company's situation down and analyzed what went wrong, and how the turnaround was achieved.

"IBM continues to do what it has to do," York said. "It couldn't compete with the Dells and Hewlett Packards and as a result its margins declined. But they did the right things and Lou Gertsner transformed IBM into a service company. It may undergo another transformation soon."

York told the audience that Tyco's single-legged strategy as an acquisition machine helped land the company in peril.

"Then the focus shifted to organic growth and operational excellence. The decision was made that the best way to maximize shareholder value was to break up the company," said York, noting that separation of the $40 billion company into three pieces allows each new company to better focus.

Chrysler's business model was too slow and costly in the 1990s, York said. Major changes in product development and reductions in administrative costs also hurt, and its passenger car segment could not keep up with Ford and the Japanese, he added.

The turnaround, when completed, resulted in a 1993 share price of $45 (up from $9 in 1990) and a sale to Daimler-Benz in 1998 for $35 billion. Today, York said the two reasons the Asian automakers are beating Chrysler has to do with quality and the rate at which new, fresh designs hit the market.

Apple's downfall of the mid-1990s was due to a lack of strategy and serious distribution issues, according to York.

"Steve Jobs would say that Apple was a software company that made a little hardware. I believe the Newton was simply ahead of its time," he said.

Apple pulled out of the slump with award-winning designs and a substantially improved Mac operating system, he said. Its entree into the music business (iPod, iTunes) has transformed the music industry in total. Next on the horizon is the iPhone, which York calls "a proverbial game changer."

The Changing Role of "The Board"

York, when asked about the role a corporation's board of directors plays, said that all too often the board is focused simply on compliance issues and not enough on the business.

"I think it is crucial that the board pay close attention to what's happening with customer satisfaction," he said. "Also, the rate of innovation of the company should be of vital concern to a board.

"The size of the board of directors is important. Fifteen to 20 years ago, boards ranged from 18 to 22 people and thus were ineffective. Today, nine to 12 is the average number and that has helped the effectiveness of boards."

Executive Salaries Raise York's Ire

"I'm outraged at executive compensation in this country. I'm hearing from professors and students around the nation that they are losing confidence in the capitalistic system. Salaries must be seen as being reasonably fair across the board," said York, who called on the individual boards to push back and fight for change in this arena.

York's Experience

The Michigan-born York was trained as an engineer and worked for General Motors and Ford in the 1960s before landing at Chrysler, where he was eventually named chief financial officer. Later, he helped spearhead a turnaround at IBM, also as CFO. From 1995 to 1999, he was vice chairman and a chief aide to Kirk Kerkorian at Tracinda Corp. From 2000 to 2003, he was CEO of Micro Warehouse Inc., a multinational reseller of computer hardware, software and peripheral products. In addition to his Michigan MBA, York has a bachelor's degree from West Point and a master's from MIT.

The Symposium

The Mitsui Life Financial Research Center was established in 1990 by the Mitsui Mutual Life Insurance Co. to encourage academic research in finance. Although the Center's initial focus was on Asia and the Pacific Rim nations, as financial markets became more globalized, the focus has become more generalized. The center also hosts visiting scholars and researchers from Asia, serving as an academic bridge between the United States and Asia. The center's activities are supported by the Mitsui Life Insurance Co. and the Ross School of Business.

Written by Nancy Davis



For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847
E-mail: bernied@umich.edu