Interesting to hear Frans van Houten, NXP's CEO, say that he remains content with the private equity ownership of NXP, which was bought in 2006 by a consortium headed up by Wall Street buy-out company, Kohlberg Kravis and Roberts.
"We're still happy with private equity ownership", says van Houten, "when we were owned by Philips we couldn't invest, and couldn't behave like a semiconductor company. Since the spin-out we have been consistent in our strategy in cleaning up our portfolio act."
An example of the portfolio cleaning-up was the disposal of NXP's wireless operations to STMicroelectronics and Sony-Ericsson Mobile Platforms in return for $1.55 billion.
Asked if any of NXP's strategy was driven by the private equity owners, van Houten replied: "I'd like to think the strategy is driven by the management team. I am pleased with the support our investors are giving us."
Of course one reaction to van Houten's protestations of satisfaction with his owners is: 'Well he would say that wouldn't he?' After all he's probably on a good pay and incentive package and doesn't want to upset his paymasters.
But the pay and incentive packages paid by private equity companies might be a more insidious influence than managers realize.
I have known every CEO of Philips Semiconductors/NXP for the last 25 years. If I'd asked any of them what they were trying to do with the company, I believe that every one of them would have replied: 'Leave it in better shape than I found it.'
If I had asked them if they were in it to make as much money for themselves as they possibly could, they'd have been outraged.
But that is often the assumption underlying the compensation packages offered by private equity owners to the managers of the companies they buy. It's: 'Hit these numbers and you'll get $X' (a figure with a lot of 0s in it).
This approach may work fine in a company making biscuits, but if you're in a company which relies on the intellect and creativity of its people to produce science-based products, it's totally de-motivating for employees to see the company being run just to meet short-term financial targets.
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Comments (7)
The Bosses are happy and the employees are outraged...I would say.
Posted by philewar | September 17, 2008 3:46 PM
Posted on September 17, 2008 15:46
David is right on with his comment. If you are the least bit spectical talk to someone from PA Semi!
Posted by Edward L. Lepkowski | September 20, 2008 1:17 PM
Posted on September 20, 2008 13:17
Van Houten is happy and so are his paymasters. They would have ditched him a long time ago if they were not happy.
Van Houten and his cronies are much to blame for the sorry state the company is in. However, in all fairness, there were a lot of things wrong at that company before the Wall Street guys came in.
I do not buy all the stories about dollars and Euros. Bottom line is that the company just does not have enough products that can credibly compete in the market place. That, combined with a self defeating management culture is what has brought the company down.
What has happened to the old Philips Semiconductors is a sad, sad story. Not an experience to be repeated...
Posted by Oswald Fulcanelli | September 22, 2008 6:36 AM
Posted on September 22, 2008 06:36
Dave,
Spot on, I would say.
The current NXP executives have access to a VIP parking lot behind the Eindhoven headquarters building while the "common employee" garage is a 3-minutes walk. Not a particularly good fit with Dutch values, but I'm confident the official reasoning will include references to busy management schedules.
From the 2006 Philips Supervisory report:
"The Supervisory Board has awarded a selected number of key employees a special payment related to the sale of a majority stake in the Semiconductors division. Such payment has also been granted to certain members of the Board of Management in light of the achievements
that have been realized in this transaction. The amounts concerned are EUR 400,000 for Mr Van Houten, EUR 350,000 for Mr Kleisterlee and EUR 300,000 for Mr Sivignon."
Congratulations, gentlemen. An outstanding achievement !
Posted by Martin | September 26, 2008 10:50 PM
Posted on September 26, 2008 22:50
If KKR is only interested in slicing the company off, why hire a new CEO. Better to keep the old man who knows well every single part of the body to cut off. Van Houten is not smart enough to do both jobs, namely to satisfy his owner and his employees, all together at the same time, not to mention if he really cares at all.
Posted by Sam | September 30, 2008 1:46 PM
Posted on September 30, 2008 13:46
Once again, I am reminded of my experiences interviewing for a job in the UK in 1965. At Pye Radio, I had a nice lunch in an executive lounge, where it was mentioned that I would not be eligible to eat if I joined them, while at TI's UK division, there was one lunch room, where everyone ate, executives to toilet cleaners. My TI employee stocks (from my later years in the US operation) are of some economic value.
Posted by Peter B | October 16, 2008 11:14 PM
Posted on October 16, 2008 23:14
Yes I remember British Aerospace (as it then was) at Filton where there were about five different grades of canteen from the directors down to scum-class. Guaranteed to create a them-and-us mentality. I guess it was the Silicon Valley effect which finally made the UK high-tech industry realise that class-distinctions aren't a very sensible basis for running science-based companies.
Posted by David Manners | October 17, 2008 9:38 AM
Posted on October 17, 2008 09:38