After 37 years in charge, Larry Ellison finally stepped down as Oracle’s CEO on Thursday. Except that he’s not really stepping down. The 70-year-old will stay on as the software giant’s executive chairman and also its chief technology officer — the latter title a formalization of a role he was already playing. And the new co-CEOs, Safra Catz and Mark Hurd, will continue to do the same things they did as co-presidents, the only difference being that they will now report to the board instead of just to Ellison. But Ellison is of course chairman of that board (long-time chairman Jeff Henley will stay on as vice chairman).
Basically, not much has changed at Oracle, except that the company’s governance structure has gotten more complicated. For this it will probably be subjected to criticism from watchdogs like ISS, Glass Lewis, and GMI Ratings. That won’t be anything new for Oracle, which has gotten used to being labeled a governance disaster.
Two years ago, for example, GMI Ratings gave the company a governance score of 9, “indicating higher accounting and governance risk than 91% of companies,” and an ESG (environmental, social, governance) grade of F. (I’ve asked GMI for up-to-date ratings, but haven’t gotten them yet.) Last fall, both ISS and Glass Lewis recommended that shareholders not only vote no on Oracle’s executive pay plan — which as has become customary showered Ellison with millions of new options to buy Oracle shares despite the fact that he already owns 25% of the company — but also reject the slate of directors nominated by the company. Shareholders did in fact say no on Ellison’s pay, with 57% voting against and Ellison himself accounting for most of the yes votes, but they didn’t throw out the directors.
Why not? Maybe, just maybe, because Oracle’s stock price has been rising for a decade, significantly outperforming the Nasdaq composite index and other tech giants over that stretch. On top of that, the company has a nice dividend payout, for a tech stock, of 1.2%. And while I’m certainly not the person to argue that short- or even medium-term shareholder returns are a perfect measure of corporate performance, I do think that what your stock does over 28 years has some meaning. And of the remarkable tech IPO class of 1986, which included Adobe, EMC, Microsoft, and Sun Microsystems, Oracle has been the best performer.
So, basically, Oracle is a horribly governed company, but it seems to be pretty well run. Which inevitably raises some questions about the true value of the standards and practices that go under the label of good governance. There are some who think all this stuff amounts to what Yale Law School’s Roberta Romano once called “quack governance” — a bunch of ideas peddled by “corporate governance entrepreneurs” (Romano’s phrase again) that don’t actually improve corporate performance. I wouldn’t go that far; I’m perfectly willing to believe that over the years the likes of ISS, Glass Lewis, and GMI have honed and improved their recommendations on the basis of real evidence on what drives performance and risk. But while corporations might on average be better off abiding by their governance recommendations, I actually think we should want some diversity in how companies are run. One size does not fit all.
Oracle, despite being a giant organization with 122,000 employees and a market value of $177 billion, remains very much the idiosyncratic creation of one man, Ellison. In that it’s pretty similar to the company co-founded and long run by Ellison’s best friend, the late Steve Jobs. Apple has also caught flak for shareholder-unfriendly governance practices and multiple other misdeeds. Jobs’s imperious behavior was often excused as the flipside of creative genius, and that’s one way to look at Ellison too.
Oracle’s products don’t inspire the sort of loving awe that even now greets Apple’s latest creations, but there is something about how Ellison runs his company that seems to work. Oracle attracts driven, talented people (some of whom head off to start their own very successful companies), it’s been pretty stable at and near the top for years, and it makes tons of money. It’s also worth noting that the company now has a female co-CEO and long had an African-American co-president (Charles Phillips, now the CEO of Infor) — not exactly customary in Silicon Valley. Yes, Oracle has been a laggard in the switch to cloud computing, it doesn’t seem like the most pleasant place in the world to work, and its CEO-turned-executive-chairman presumably won’t be around forever. But it may be that Ellison’s seemingly ridiculous pay packages are keeping him involved and motivated (presumably by the chance to move up from No. 5 on the Forbes billionaires list), while his unconventional hiring practices (such as bringing in Hurd after he was ousted from HP amid a sexual-harassment scandal and plunking him in power-sharing arrangement with Catz that few thought would work) are actually helping the company prepare for the future.
It may be. I truly don’t know whether the optimistic or pessimistic view of Oracle is correct, and I feel really uncomfortable making even a sideways endorsement of those massive options grants Ellison gets. But it’s hard to get around the reality that, so far, the company’s frequent disdain of good-governance practices has gone hand in hand with spectacular, sustained success. It could be that Larry Ellison knows a few things that the governance watchdogs don’t.
About the Author
Justin Fox is Executive Editor, New York, of the Harvard Business Review Group and author of The Myth of the Rational Market.
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