Harsh Medicine for David Pottruck
The latest issue of Fast Company features David Pottruck, the ex-CEO of Charles Schwab who was fired on July 19, 2004. It’s a very sympathetic cover story. Though it acknowledges that it’s hard to feel too much compassion for someone who’s worth half a billion dollars, the article is markedly compassionate, focusing on his post-firing feelings of shock, hurt, self-doubt, embarrassment, denial, anger, and his path towards personal growth.
Pottruck comes across as a decent human being, and I appreciate the fact that he doesn’t deny his responsibilities for his company’s downward spiral the way so many CEO’s do these days. Yet is this acknowledgment sufficient for us to gloss over some very real and disastrous decisions that he made while co-CEO and CEO?
Well, you be the judge. Once a pioneering dominator in the world of discount brokerage, Schwab in the 1990’s saw its services being imitated by competitors as diverse as Morgan Stanley Dean Witter, Merrill Lynch, Citigroup and others.
How did the company—led by Pottruck and Charles Schwab himself--respond to these competitive challenges? Hint: not by sharpening, innovating and extending the company’s performance in discount brokerage so as to perpetuate its dominance. Instead, in the early 2000’s Pottruck and Schwab engineered a series of acquisitions like U.S. Trust (high-end wealth management), Soundview Technologies (research and analysis), and CyberTrader (digital trading). At that point, Schwab the company declared itself a “full-services” financial supermarket.
Sounds wonderful, but now the company had a diffuse strategy, a highly complex organizational structure, and—as it turns out-- an inability to fully integrate the cultures and missions of the acquired firms into one cohesive direction. Accordingly, Schwab couldn’t dominate in any sector. It got battered on the low end by the Ameritrade’s, on the high end by the Fidelity’s, and on the middle end by the Merrill Lynch’s. It was not only no longer dominant, it was no longer even distinct. How was it different from Morgan Stanley or Citi or Merrill or Fidelity? Who knew? Its brand and reputation suffered, its skill sets were overwhelmed, and even its top line remained flat from 2000-2003. Unsurprisingly, its stock price plunged even as the market rebounded from its 2000 low. Things went from bleak to bleaker during Pottruck's reign as CEO on his own. In explaining the mess, a Motley Fool investment website commentary was right on target:
“There is a certain truism about basic competitive strategy: There should be only one. It is nearly a sure sign of failure when a company that has spent its entire existence as a low-cost provider suddenly tries to become that and a provider of differentiated products. Schwab was essentially trying to service two different kinds of customers at various pricing tiers (three, if you count the company's hundred-billion-dollar mutual fund business).”
I agree. So let’s be frank. Pottruck failed. Completely. As a result, lots of people got hurt and an entire company was seriously weakened. Nobody is asking Pottruck to commit seppuku. Nobody is asking him to go down with his ship while saluting. He can keep his millions and enjoy his new ventures. I wish him well. But please, in the wake of catastrophes in New Orleans and the rest of the world, let’s not bleed too much sympathy for his wounded feelings and need for redemption.
Pottruck comes across as a decent human being, and I appreciate the fact that he doesn’t deny his responsibilities for his company’s downward spiral the way so many CEO’s do these days. Yet is this acknowledgment sufficient for us to gloss over some very real and disastrous decisions that he made while co-CEO and CEO?
Well, you be the judge. Once a pioneering dominator in the world of discount brokerage, Schwab in the 1990’s saw its services being imitated by competitors as diverse as Morgan Stanley Dean Witter, Merrill Lynch, Citigroup and others.
How did the company—led by Pottruck and Charles Schwab himself--respond to these competitive challenges? Hint: not by sharpening, innovating and extending the company’s performance in discount brokerage so as to perpetuate its dominance. Instead, in the early 2000’s Pottruck and Schwab engineered a series of acquisitions like U.S. Trust (high-end wealth management), Soundview Technologies (research and analysis), and CyberTrader (digital trading). At that point, Schwab the company declared itself a “full-services” financial supermarket.
Sounds wonderful, but now the company had a diffuse strategy, a highly complex organizational structure, and—as it turns out-- an inability to fully integrate the cultures and missions of the acquired firms into one cohesive direction. Accordingly, Schwab couldn’t dominate in any sector. It got battered on the low end by the Ameritrade’s, on the high end by the Fidelity’s, and on the middle end by the Merrill Lynch’s. It was not only no longer dominant, it was no longer even distinct. How was it different from Morgan Stanley or Citi or Merrill or Fidelity? Who knew? Its brand and reputation suffered, its skill sets were overwhelmed, and even its top line remained flat from 2000-2003. Unsurprisingly, its stock price plunged even as the market rebounded from its 2000 low. Things went from bleak to bleaker during Pottruck's reign as CEO on his own. In explaining the mess, a Motley Fool investment website commentary was right on target:
“There is a certain truism about basic competitive strategy: There should be only one. It is nearly a sure sign of failure when a company that has spent its entire existence as a low-cost provider suddenly tries to become that and a provider of differentiated products. Schwab was essentially trying to service two different kinds of customers at various pricing tiers (three, if you count the company's hundred-billion-dollar mutual fund business).”
I agree. So let’s be frank. Pottruck failed. Completely. As a result, lots of people got hurt and an entire company was seriously weakened. Nobody is asking Pottruck to commit seppuku. Nobody is asking him to go down with his ship while saluting. He can keep his millions and enjoy his new ventures. I wish him well. But please, in the wake of catastrophes in New Orleans and the rest of the world, let’s not bleed too much sympathy for his wounded feelings and need for redemption.
posted by Oren Harari at 7:45 PM
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