Dell’s new talent misses on earnings

August 28, 2008, 8:19 PM UTC

Dell reported a surprise 17% profit decline Thursday, and its shares fell 9% in after-hours trading. After three years of pain for investors, the stock had risen 40% since April. But the disappointing announcement – second-quarter net income of $616 million, or 31 cents a share, vs. net income of $746 million, or 33 cents a share in the same quarter a year ago – is a sign that CEO Michael Dell’s recovery plan isn’t working as well as expected.

Dell, who started the company in 1984 in his college dorm room, did the opposite of what many returning founders do when they swoop in and retake the reins of a business. Instead of bringing back the old guard who built Dell, he hired a bunch of newcomers.

Since Michael, 43, replaced CEO Kevin Rollins in early 2007, he has hired a long list of outsiders. Ron Garriques, president of Dell’s global consumer group, previously ran the mobile devices division at Motorola . Steve Schuckenbrock, Dell’s president of global services and chief information officer, came from EDS, where he was co-COO and EVP of global sales and services. Mike Cannon, president of Dell’s global operations, was CEO of Solectron. In June, Brian Gladden became Dell’s new chief financial officer, moving from SABIC Innovative Plastics, which is General Electric’s former plastics division. Also, chief marketing officer Mark Jarvis joined Dell last year after 14 years at Oracle (ORCL).

Dell’s talent doesn’t come cheap. Ad Age recently did an analysis of CMO compensation and found that Jarvis earned more than any other chief marketing officer last year: $15.4 million in salary, bonus, and stock awards. Sweet!

Is all that new talent worth the price? Investors had thought it was. But now, maybe not. I had lunch recently with a headhunter who has worked for Dell and knows the company. Brian Reinken, U.S. boss of search firm Egon Zehnder International, lives in Dallas — Dell country. He wouldn’t talk about Dell or any particular executive placement, but he noted that Michael Dell realizes that the company he’s rebuilding needs to think differently. And the different thinking extends to selling PCs in retail outlets and hiring outsiders at the top level.

The simple lesson here may be that iconic leaders don’t necessarily bring back the magic at iconic companies. Over lunch, we also talked about Starbucks . Since Howard Schultz, who fired CEO Jim Donald last January, reinstalled himself as chief, he has recruited three key execs from Starbucks’ glory days: chief creative officer Harry Roberts, global development president Arthur Rubinfeld, and Wanda Herndon, interim PR boss. Schultz just snagged Herndon’s replacement, Vivek Varma, from Microsoft . He also hired a new chief information officer, Stephen Gillett, formerly CIO of Corbis, the stock photography company owned by Bill Gates.

Starbucks stock is down 42% in the past year. Maybe Howard Schultz and Michael Dell could learn a few great lessons from Steve Jobs at Apple ?