Chairman Roger Johnson’s High-Stakes Bid to Revive Western Digital : Technology: He built the company into a billion-dollar enterprise. But mistakes and the recession led to red ink--and shareholder griping.
The question from the audience would have made many chief executives cringe.
“Are you the right man to be leading this company in the 1990s?” a Western Digital investor asked at a crowded annual shareholder’s meeting last December.
But Roger W. Johnson, chairman of Orange County’s biggest high-technology company, didn’t blink.
“The real question is, ‘Does this management team have the flexibility to deal with the (difficult economic) times,’ ” responded Johnson, dressed in his customary dark suit. “I think so.”
Johnson would acknowledge later that he had often posed the same question to himself. In years past, his customary response would have been deadpan humor. Perhaps sensing the seriousness of the situation, however, he played it straight.
There wasn’t much to joke about. A few months ago, Johnson’s company appeared to be careening toward possible bankruptcy. Irvine-based Western Digital, which makes parts used in personal computers, has lost a whopping $172 million the past 15 months. It has had to sell properties to raise cash, shut some factories and lay off 1,500 people. Shareholders have watched Western Digital’s stock plunge from a high of $32 in May, 1987, to about $3.50 recently.
Some angry shareholders have sued Western Digital and Johnson, accusing the company of issuing overly optimistic profit forecasts during 1990 and failing to disclose adverse news in a timely fashion. The company denies the charges.
Investors, competitors and co-workers are watching how the 57-year-old Johnson copes with the crisis. If profit doesn’t improve soon, some analysts say, Johnson and the company could be in deep trouble.
But others say that if anyone can revive Western Digital, Johnson can. After all, he rescued the company before. When he joined as chief operating officer in 1982, Western Digital had barely $25 million in sales and was languishing after having gone bankrupt four years earlier.
Under Johnson’s guidance, sales topped $1 billion by 1990. Supporters say Johnson saw the potential of the personal computer, betting that Western Digital could prosper by supplying tiny components, such as computer chips, to companies that built PCs.
Beyond creating a billion-dollar company, Johnson helped put Orange County on the map as a technology center, a smaller version of Silicon Valley.
But a few critics say Johnson’s ego grew along with the company’s sales. They say he overspent on a big expansion without setting aside enough cash to pay debts or tide the company over in a slow economy. He set up factories worldwide, spent $119 million on a showcase semiconductor plant in the high-rent Irvine Spectrum business park and moved the corporate headquarters to a pristine 15-story office tower nearby.
When the recession hit in late 1990, the company was caught with $160 million in debt, an aging product line and the continuing effects of a computer industry slump. Johnson announced a management shake-up, an internal restructuring and a severe cost-cutting program.
The company was caught off-guard when demand for older products used in computer disk drives slowed before it could get new products to market. The decline was so steep that Johnson had to close three plants, including one in Irvine. As losses mounted, Western Digital renegotiated its bank debt to stave off a bankruptcy filing. Customers grew jittery, and Johnson found himself doing daily damage control.
“Wrenching. Difficult is too soft a term,” Johnson said of the past year. “There isn’t anything we planned to do that we didn’t have to change.”
To be sure, Western Digital isn’t the only company in the disk drive industry to falter in the recession. In the past quarter, four of the top six manufacturers--including Seagate Technology of Scotts Valley--have reported heavy losses.
“They got caught in a product transition and in industry dynamics they could not keep up with,” said James W. Reynolds, an analyst at Wedbush Morgan Securities in Los Angeles. “I don’t think management is to blame. I don’t think Superman could turn them around.”
Johnson’s current strategy is three-fold: sell to large customers such as IBM, steer clear of industry price wars and develop interrelated semiconductor technologies that will keep Western Digital at the forefront of innovation.
“We turned around the company in the early 1980s by focusing on things we did well and expanding our sales force worldwide,” he said. “Now we’re doing something similar today, looking at what we do best and cutting out anything that isn’t in our mainstream focus.”
Johnson, who earns $538,492, said he plans to relinquish one of his three titles--either president, chief executive or chairman--in 1992. “I really should not do that for too much longer because I think we need to have a strong president and chief operating officer,” he said.
The son of an AFL-CIO union activist from Hartford, Conn., Johnson was born in 1934 during the Great Depression. He had a job by age 10 and walked union picket lines with his father.
“From that, I got respect for people on the floor being smarter than management,” he recalled.
But Johnson can be a tough boss. Recently, he has become tougher on senior managers who he thinks aren’t performing as they should, company sources said. A number of top managers have left the past year, including three chief financial officers.
Johnson encourages debate among managers in discussions that, these days, often focus on how to divvy up the company’s thinning resources. “You’re never shot for voicing your own opinion here,” said Kathryn A. Braun, executive vice president, who joined nine years ago. “We tend to get excited and yell at each other a lot. Above all, I think Roger wants us to be flexible and not fall in love with our own ideas so that we can’t adapt.”
When Vice Chairman George L. Bragg joined Western Digital’s board a year ago, he was surprised by the unconventional decorum around the boardroom table. “The executives will interrupt each other and tell Roger he doesn’t know what he is doing. Most CEOs wouldn’t tolerate behavior that borders on the disrespectful. But Roger listens, then he makes the decision.”
The Johnsons reside in a Mediterranean-style home that sits atop a cliff in Laguna Beach. In a recent interview in their living room, Janice Johnson said she’s noticed some changes in her husband during the past year or so.
“Humor makes him go,” Janice said. “But he has become very intense, and he’s up a lot late at night. He never lets people know how concerned he is. But he tells me everything.”
The Johnsons have cut back on their social schedule, reserving the evenings for themselves most of the time. To help cope with stress, Johnson works out in an exercise room in his home several times a week or plays golf with his wife.
He also dabbles in his hobbies: politics and the arts. After moving to Orange County a decade ago, Johnson became a kind of a high-tech ambassador to the local fine arts community. He has been a key fund-raiser for the Orange County Performing Arts Center since joining the board in 1986.
Passionate about the arts, Johnson made bets with Kathryn G. Thompson, a prominent real estate developer and close friend, on who would raise the most money. “He sandbagged me one year and let on that I had raised more money,” she said. “Then he had somebody stand up in the audience and say they had donated an extra $25,000, outdoing me.”
Long involved in Republican politics, Johnson ruffled some feathers late last year when he chided the Bush Administration for its inattention to the nation’s economic problems. At a breakfast meeting last December in Irvine, in front of a dozen television cameras, Johnson and Thompson announced that they were considering supporting Arkansas Gov. Bill Clinton for the Democratic presidential nomination. Johnson, who received hundreds of supportive phone calls from other Orange County executives, hopes he touched a nerve among mainstream Republicans and Democrats.
“I’m getting criticized from the party by people who miss the point,” Johnson said. “These economic issues are too serious to deal with in a partisan ideological fashion. If people call me disloyal to the party for doing this, so be it.”
Johnson said his top priority is returning Western Digital to financial health. Some have likened his predicament to that of Rod Canion, founder and former chief executive of Compaq Computer, who was fired in October after the Houston company reported a $135-million quarterly loss.
Johnson said he worries that the Compaq case is a sign that corporate directors, responding to recessionary and competitive pressures, are sacrificing long-term goals for short-term gain.
“I respect Canion,” Johnson said, aware of the parallels to his situation. “He grew a substantial company in a competitive industry, and it is unfortunate he left.”
As the computer industry has changed, Johnson has often responded by redirecting company strategy or shuffling his management team, analysts said. He has even been willing to loosen his control of the company by bringing in new executives.
His moves have the support of the company’s largest institutional investor, the Wisconsin Investment Board, which owns 8.8% of Western Digital stock.
“They have gone through a heck of a lot of troubled times, and the actions taken so far seem to make a lot of sense,” said fund manager John Nelson. “We think the company is going to be a survivor.”
Surviving those pressures have taken a toll on the Western Digital chairman. Some observers say Johnson has aged during the past year, and Johnson admits to feeling burned out at times. He reminisces fondly about a trip his family took five years ago to Africa, a getaway dreamland where there wasn’t a phone in sight.
“It never ends,” he said with a sigh.
