Silicon Insider: Death by Culture

It is always sad to see a great company die.

Thousands of companies disappear every day, of course. But great companies are different. Even in their dying falls, they still carry with them all of myths and legends, the immense promise, and the glory of the days when they were at the top of the world. The end is often ugly, but they still carry the dim glow of what was.

The latest such company to face oblivion, it is rumored, is Silicon Graphics Inc. In the last few years it has gone through a succession of CEOs, much of the employee ranks have bled away, and the stock price has shrunk to pocket change.

If SGI goes under, there will be the usual press post-mortems. The decline will be blamed on poor management, or failed products or superior competitition.

All of that will be true, of course, but it always is. The real reason will remain unsaid: that the company’s culture went toxic and died.

Corporate Culture Can Save …

After 20 years covering Silicon Valley, I’m convinced that very few companies, especially superstars like SGI was, ever get into trouble by screwing up. As long as the culture, that complex combination of corporate myth, morale and enthusiasm, is strong and vital, a healthy company can recover from almost any setback.

In the mid-70s Intel was under withering attack from Motorola, but regrouped, fought back by revolutionizing high-tech marketing, and went on to become the most valuable company on Earth.

By sheer will, Steve Jobs took a shell-shocked Apple and made it fight back against Big Blue with the Macintosh … then did it again 15 years later with the iMac.

In what, to my mind, is the greatest management story of the century, the aged and retired David Packard and Bill Hewlett returned to a moribund Hewlett-Packard, re-energized the legendary HP Way and restored the company to its lost glory.

… Or Corporate Culture Can Kill

For every story of a company saved by its culture, there are a hundred dead companies killed by poisonous or dead corporate culture.

In the 1970s, Texas Instruments became obsessed with gaining market share at any cost — including the happiness of its workers. A decade later it was a shell, living off its patents and its sue-happy legal department.

Apple under John Sculley assembled as much talent as American business has ever seen — yet couldn’t get a new product out to save its life. With no common hero or enemy (Jobs was both), the company collapsed into a hundred warring camps.

By the same token, DEC grew old and predictable and lost its spark — so that even a magnificent new microprocessor chip couldn’t save it. Ditto for its new owner — cold, austere Compaq, which came to look like an out-take from Gattica. At Wang, the son of the company’s founder looked so illegitimate in the old man’s job that the company committed corporate suicide.

The worst case may have been Atari. Under Nolan Bushnell it was crazy, fun and the coolest company on Earth. Under Time-Warner it became venal, schizophrenic and greedy. The inevitable result: one of the greatest corporate meltdowns of all time.

A Lost Company

And that brings us to Silicon Graphics. How do I know the problem lies with its corporate culture? Because I wrote the story.

About five years ago, Fortune magazine asked me to write a piece on SGI. The assumption was that the article, like every other before it about this high flyer, would be upbeat and optimistic. After all, SGI had been a streaking comet across high tech for several years. It was the darling of Hollywood for its graphics workstations. And everyone in Silicon Valley wanted to work there.

But the company I saw from the inside told a different story. SGI was lost. Its divisions were warring, its products were coming out late and missing promised features, and most of all, in private conversations with employees I heard frustration and a desire to move on.

When I went to interview the CEO, he never even showed up, and an embarrassed chairman had to vamp with me for two hours.

I couldn’t believe it myself. Here was the hottest company in town, a raft of new products just introduced, strong financials and the toast of the industry. But my reporter’s sixth sense told me that the place was in for a fall. A big one.

So that’s what I wrote. The resulting story provoked a huge outcry, particularly from the absent CEO. But I was right.

The Sour Smell of Failure

I don’t claim to be a genius, and I’ve missed more than my share of such analyses, but the taint at SGI was unmistakable. A toxic corporate culture has a distinct smell to it.

That’s why, if you really want to know about company — for employment or investment — don’t just read about it, go look. Walk around the parking lot, eat at a nearby diner, find an excuse to get inside. Look for the signs: a CEO who is busy with too many charities or politics, key players who have recently left (ignore the stated reasons), products that are suddenly a little late or underpowered, the falling market share disguised by rising sales.

Most of all, stand in the lobby and smell the air. Feel its vibrations. You’ll know.

As for Silicon Graphics? Well, great companies never completely disappear. There is always a technology or an engineering team or a product line that lives almost forever. Even Fairchild endured for a decade as the name on a lab building at National Semiconductor … then revivified as a company in Maine, and most recently announced its return to Silicon Valley.

SGI may someday come back too. But I guarantee that if it does it will have a new, and healthy, corporate culture.

Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail or through an ongoing bulletin board.