A TALK with SCOTT Mcnealy Sun's Chief on the Post-Enron Economy, HP, and More
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Information Technology COMPUTING A TALK WITH SCOTT McNEALY Sun's chief on the post-Enron economy, HP, and more cott G. McNealy co-founded Sun would go into the automobile industry? Microsystems Inc., in 1982 at age My first job out of college was in a S 27. He luis since built an $18 bil- UAW shop in Centralia. 111. I was in the lion computer giatit, amassed afortune, parts-supply industry. But I didn't know and become one of the industry's most what I was going tu be when I grew vocal critic.t of rival Microsoft Corp. up. I just liked manufactui'ing because BusinessWeek Editor-in-Chief Stephen you could make something. B. Shepard spoke with McNealy on Mar IJf as part of the magazine's Cap- Where did the interest in technology tains of hidustry series at Manhattan's come from? 92nd Street Y. Here are excerpts: I was working in the VMC. tank ptant in San Jose, Calif., but I quit and went Your father was vice-chairman of Ameri- to work for a computer company. Onyx can Motors. And you grew up in Detroit. Systems. It was the first company to Were you a car buff as a kid? put Unix (jn a microprtKessor. And what I liked cars. I could tell just by look- the heck, they gave me 5,000 shares of ing at the side taillights what model, stock. I'd never had stock before. Ten what year, what make. I knew every months later, we started Sun. things. We're doing Sun Sigma, or Six car on the road. Sigma. I really cranked it uj) big-time. You went on GE's board a I've really worked hard on succes- It occurs to me the name of CAPTAINS couple years ago. How did sion planning. I have a depth chart on your kids—Maverick, Dakota, that happen? every one of my executives that goes Colt, and Scout—are the names _-,„ „ It just so happened that down at least three or four folks on all of cars. Was that an accident? IMDUSTRY Golf Digest searched all these the top 150 executives. We've got about That's not an accident. If private handicap records of all 50 executive moves planned out for this one was a girl, it was going to be Mus- the CEOs, and they had me ranked as year where we know we're going to tang Sally. No. 1 and [foi-mer General Electric Co. move people sideways, moving people Chairman] .Jack Welch as No. 2. They up, people down, people out. We've al- There's still time. were an interesting customer. And I ready laid it out and have a pretty good No, we're done. No more Free Willy. have been a Jack gi'oupie, professionally. strategy. And we're starting our own So I really wanted to meet him. I saw Leadership Institute, kind of like their How did you and your wife decide on this was a great opfwrtunity and I wrote Crotonville [N. Y.I Jack Welch program. these names? him a note, and I said, "Jack, we're No. 1 They're all vehicles, they're all Native and No. 2. Let's settle it tnano a mano. You name the place, the time. I'll be Let's talk about the mood in Silicon Val- American-kind of connotations, and they ley. Does the tech slump feel anywhere all mean something. Maverick has an there. Bring your best game." I knew Jack would bite. It was like chumming. near over to you? obvious connotation. Dakota is a Native There are still a lot of bright people American word for "friend." Colt is working on a lot of bright ideas. The "little horse." Obviously. Scout is run- He put you on the board for your golf? money actually isn't free and easy like it ning around checking everything out. He needs somebody to play with. used to be, which is a good thing. We So it's kind of got started on $285,000. We went prof- fun. They've all What has been your experience on the itable in our fii-st yean That's a good got boiing middle GE board? thing. [Sun C^hief Scientist] Bill Joy likes names: Scott, It has been huge. In fact my staff to say there's never been a successfiil Barry, William, always looks at me and says, "AH right, well-funded startup. If you have too Paul.* what do we have to do nowV" every much money, you're not going to find a time I come back fi-om a boai-d meeting. new and different and more efficient and Did you think you There are some really outstanding effective way. You're just going to try FREE TRADER Í k If you don't have failures, you don't 66 BusinessWeek / April 1, 2002 In general, the system is working. ssWeek Enron is Darwinian toast. It's gone. The sy.stem works. You are a crook, your company is gone. Andersen is fac- ing the Darwinian music big-time also. They can't even sell the thing right now. If (former Enron CEO Jeff] SldlUng or anybody else broke the law, they should be wearing stripes. So how many new rules do you need? I think Enron says, "Hey, if you're go- ing to invest in a company that's going like crazy, maybe it's too good to be true. Maybe you ought to read the in- come statement, the balance sheet, and the footnotes." How many Enron in- vestors actually read the fuotnotes? If they had, they wouldn't have been able to understand them. Why invest in something you can't understand? Ultimately, we've got to take person- al responsibility. It isn't the govern- ment's responsibility in a market econo- my to protect me from wins and losses in the market. Every time there is a failure in the market economy, the gov- ernment wants to step in and protect us from failure, to get votes. But if you don't have failures, you don't have win- ners. If you don't have winners, you don't have a market economy. It's what and overpower the cuiTent expenses, which is really makes America great. players with the same strat- CENTERSTAGE hard with 39,000 employees. egy. You can't won a sailboat McNealy, whose That assumes I pay no tax- What's the outlook at Sun for the rest of race if you're behind by es, which is very haixi. And the year? tacking behind the boat in kids have cars' that assumes you pay no I think OUI- chief enemy is still the front of you. You've got to names, shares a taxes on your dividends, chief financial officer, not Microsoft or go out and find different wa- which is kind of illegal. And IBM. Tech investments are alw^ays dis- ter and find better au'. light moment that assumes with zero R&D cretionary in the short run, optional in for the next 10 years, I can the midrange, and mandatory in the with Shepard maintain the current rev- long term. When wiU they come out of Sun's stock hit a high of $64. enue run rate. Now, having done that, it? Nobody can predict. But at some Did you think what tech stocks were doing would any of you like to buy my stock point, if you're going to be competitive, two years ago was too good to be true? at $64? Do you realize how ridiculous people are going to have to buy. De- When I married my wife seven years those basic assumptions are? You don't fense is going to have to buy more com- ago, Sun's stock was at an equivalent of need any transparency. You don't need puters. Airlines are going to have to. about a buck. It's about $9.50 now— any footnotes. What were you The INS is going to have to. $9.50 from $1 over seven years. She thinks she's a pretty good CEO wife. What were you thinking? How would you describe the strategy for She married well. I was thinking it was at $64, what do Sun over the longer term? No, she trained me well, and the I do? I'm here to represent the share- The strategy is: The network is the stock made a nice move since we got holders. Do I stand up and say, "Sell"? computer. We believe that you shouldn't married. But two years ago we were I'd get sued if I said that. Do I stand do computing on your local Pc. You selling at 10 times revenues when we up and say, "Buy"? Then they say should do it out over the network on a were at $t>4. At 10 times revenues, to you're [Enron Chairman] Ken Lay. So very powerful network server. And you give you a 10-year payback, I have to you just sit there and go, "I'm going shouldn't have any information or data pay you 100% of revenues for 10 to be a bum for the next two years. local to your i\\ Why? Because it could straight years in dividends. That as- I'm just going to keep my mouth shut, blow up. You could drop it. It could get sumes I can get that by my sharehold- and I'm not going to predict anything." stolen.