Symantec Corporation (SYMC) held its annual shareholder meeting Monday at its Cupertino, CA headquarters. Available food included a small spread of Starbucks coffee and untoasted bagels, with some juice drinks on ice. Shareholders received a free copy of Norton 360 Version 2.0 and a zip-up notebook with a pen and calculator inside.
There appeared to be about 25 employees attending, plus around four to ten non-employee shareholders. Helyn Corcos, VP Investor Relations, was in charge of the logistics of the meeting. Ms. Corcos seems very detail-oriented and asked me to rewrite my full name on the sign-in sheet (my handwriting is usually illegible), and then noticed I held my shares in street name, i.e., through a broker. She referred me to another person, Mr. Wilcox, who indicated I could not vote at the meeting, because I had not requested a legal proxy. Later, Mr. Wilcox accepted my legal proxy and politely explained the process of converting the street proxy into a legal proxy. (A shareholder should mark on the ballot that s/he will be voting in person, and then mail his/her voting ballot back to the brokerage, after which it will send a legal proxy. I knew all this, but sometimes the ballot comes in the mail too late to mail it back and receive a legal proxy in time.)
Symantec's CEO and Chairman, John Thompson, led the entire presentation, starting with the formal part and then moving to the informal presentation. Mr. Thompson's background can be found here.
Mr. Thompson's informal presentation started with some company background. After explaining that Symantec helps consumers and corporations manage digital content, he pointed to four focus areas: control (handling your digital environment); security (adding that "keeping good things in is as important as keeping bad things out"); compliance (legal requirements); and availability (accessibility of your information). He mentioned Walt Mossberg's glowing review of Symantec's latest Norton Internet Security program, which can be read here.
Mr. Thompson said "the number one issue is managing complexity," and Symantec's overall strategy was to "secure and manage" digital content. More specifically, Mr. Thompson identified five strategic areas:
- Growing core franchises (security, etc.)
- Scaling high growth businesses (data loss prevention, etc)
- Seeding longer term growth (e.g., virtualization)
- Going international
Symantec is in a good business. Data loss prevention is experiencing a 93% growth rate as more people buy computers and are willing to pay for online security. Symantec is ranked first in multiple categories in terms of market position and has a 58% market share in the fast-growing data loss prevention business.
Mr. Thompson said the company would use 1/2 of CFFO [cash flow from operations] for share buybacks, a very good sign.
The Q&A session started. I asked how Symantec differed from McAfee (MFE). I asked this same question from McAfee's CEO, who initially gave a confusing answer. Mr. Thompson's answer was clear and concise. He said McAfee focuses primarily on security, whereas Symantec has a dual focus of giving customers security, as well as recovery tools. Mr. Thompson implied McAfee doesn't focus on helping its customers beyond avoiding disastrous online attacks.
Another shareholder asked about the Veritas acquisition. (Symantec bought Veritas and its large enterprise storage business in late 2005.) While seemingly a natural fit - Symantec does data protection for large enterprises and Veritas handles storage for large enterprises - the acquisition ran into problems that have weighed down Symantec's share price. Symantec's shares were trading around $30 prior to the acquisition and now trade around $19, up from a 52-week low of $14.54.
This is where Mr. Thompson shined. Some CEOs will attempt to duck and dodge bad news, like MGM's (MGM) CEO, who made overly optimistic comments at his most recent shareholder meeting. Other CEOs get upset at bad news or hard questions, like Enron's former CEO. But Mr. Thompson immediately took responsibility and didn't try to blow any smoke. He said that the execution of the Veritas acquisition has not been stellar, but has improved over the last twelve months. His answer was just the right length and with the perfect tone. I left thinking he knew exactly what the problem was and was on top of it.
Another shareholder asked about Mr. Thompson's thoughts on the recent financial turmoil (e.g., Lehman Bros and Merrill Lynch (MER)). Mr. Thompson said the underlying dynamics of his business have not changed - only the identity of the buyers/customers might change. He also indicated that financial companies cannot avoid online security compliance. He then turned the question over to the CFO, James Beer, who confirmed that 98% of Symantec's $2 billion were in banks (cash) or money market funds, not risky or illiquid instruments [such as auction rate securities].
I asked whether Symantec was working with VMware (VMW). Mr. Thompson said that Symantec was working with VMware and had demonstrated the "best backup capability" and very strong endpoint virtualization. He said Symantec might compete directly with VMware in the endpoint market rather than partner with it, because the nature of the software business fostered competition. (This can't be good news for VMware.)
Another shareholder asked a general question about phishing, and COO Enrique Salem said Symantec was working on numerous anti-phishing defenses, including "trustmarks." The meeting ended shortly thereafter.
After the meeting, I got a chance to hear Mr. Thompson speak informally with several people. Mr. Thompson has a gift when it comes to storytelling. He talked about a recent salmon fishing trip, which took place in an exclusive area. From a small story about fishing, he expanded into bears, even detailing an age range in which young male bears are the most dangerous. He expressed more interesting tidbits, like how you shouldn't get between a mother sow (pig) and her young offspring. He talked about silver salmon (after returning to their spawning stream, their coloring changes from pink to pale grey) and why you wanted to catch them right before or after they hit freshwater (they are used to saltwater, so when they hit freshwater, their skin "degenerates"--goes from pink to silver). When I was done listening, I came away thinking this is a man who notices the details and is a natural-born leader. I realized right then and there that Mr. Thompson is one of the most charismatic CEOs in Silicon Valley.
So much of enterprise security sales is about sales ability--the underlying software products aren't yet so different that technology is the primary differentiator. Having a CEO like Mr. Thompson provides Symantec with a clear advantage over competitors, because he is someone you want to listen to and have a drink with. Contrast this with McAfee's CEO, who, while certainly a nice man, doesn't inspire confidence and seems to throw out terms he doesn't fully understand to impress an audience. His offhand, irrelevant mention of the Basel II Accord still rings painfully in my head. I don't claim to understand it 100% either, but even the Dallas Federal Reserve Bank president declined to answer a question about Basel II publicly in a recent Commonwealth Club speech, saying it was too complex for a short answer and the questioner should speak with him privately.
It's worth noting that Symantec's meeting was very well run - everyone knew what they had to do and adapted when necessary. When there was some static at Mr. Thompson's microphone, several people jumped and tried to fix it without interfering with the presentation. In contrast, during McAfee's shareholder meeting, I got the feeling that no one had spent substantial time planning the meeting in advance. In fact, one of McAfee's employees seemed upset non-employee shareholders had come to the meeting. Here, Mr. Thompson recognized a shareholder from last year and said hello.
If you're ever in a room with Mr. Thompson, go hear him speak. He's charismatic, dignified, and prepared. Mr. Thompson didn't just talk about salmon fishing after the meeting. He also briefly discussed politics - not surprisingly for a man who has a preternatural ability to put people at ease. He said he supported Barack Obama because he was dismayed at how the country was becoming divided. He said we needed to work together, and he favored "statesmanship rather than brinksmanship." Regardless of your political beliefs, Mr. Thompson's natural leadership ability is exactly what shareholders should value in a CEO whose business involves sales. Between McAfee and Symantec, there is no question that Symantec appears to have a more professional management team. However, both McAfee and Symantec lack true diversity - there are no Asians/Indians on their Boards or in top management positions, which is an unforgivable oversight when some of the fastest growing markets are India, China, and possibly Vietnam. In time, I hope this oversight will change, but when the main problems with your company are diversifying upper management and finalizing an acquisition - neither of which directly impacts your underlying business - that's a good sign.
Disclosure: As of September 22, 2008, I own less than 20 shares of SYMC.