When the president and CEO of a company suddenly leaves, it's usually a sign something bad is happening. So does Steve Smith's abrupt departure from WestJet Airlines fall into that category? WestJet co-founder Clive Beddoe, who is taking over as CEO, says it was just a clash of management styles and now it's business as usual at the upstart carrier.
WestJet certainly doesn't look like a company suffering from the kind of problems that would cause the board to ask for the CEO's resignation: the discount airline has been expanding like mad in order to capitalize on the upheaval in the market caused by the merger of Air Canada and Canadian, and its results have been climbing skyward as well.
The carrier's second-quarter earnings were up by 154 per cent over the same period last year, to $7.4-million - 17 cents a share, compared with analysts' expectations for a 12-cent profit. Revenue almost doubled to $80-million, thanks in large part to a 38-per-cent increase in capacity as a result of adding new routes and new aircraft.
So if things are going so well, why get rid of your CEO? In a statement, Mr. Beddoe said that Mr. Smith's management approach didn't fit with the corporate culture at WestJet, and that both sides realized the combination was never going to work. Mr. Beddoe said that the former Air Canada executive was a "top-down" manager who wanted to be involved in almost every decision, and that this wasn't what WestJet was looking for.
Mr. Beddoe, a veteran Calgary entrepreneur and investor who started WestJet with several partners in 1996, said one of the key things about the airline was its "bottom-up" culture, and that Mr. Smith's approach clashed with this approach. As a result, he said the board had "lost confidence in his ability to run the company on a going-forward basis."
If this was almost any other company, there might be reason to think there was more going on than just an esoteric debate over corporate philosophy, but WestJet is something of a special case. Lots of companies like to talk about "empowering" their employees and that sort of thing, but very few do it on the kind of sustained basis that WestJet has from the first day it was open for business: Feb. 29, 1996 - a leap day.
The kind of success that WestJet has had in creating a market for discount air travel in Canada is obviously a result of more than just its management style, but the company has been adamant about its intention to do things differently from the beginning. This extended all the way from the humorous answering machine messages at corporate headquarters, all the way down to the games that its flight attendants play with passengers.
It's true that this was carefully calculated to play up the idea of WestJet as a fun-loving upstart, in contrast to the image of Air Canada and Canadian as gigantic, unfeeling corporate behemoths. But WestJet executives have made a point of putting meat behind this image through various measures - such as giving almost every employee stock options long before the company actually went public, which it did last November.
Part of the reason for WestJet's approach is that its entire business model was designed to imitate another successful discount startup - U.S.-based Southwest Airlines - and the bottom-up, fun-loving atmosphere was very much part of that model. Southwest founder Herb Kelleher is legendary for his antics, such as arm-wrestling a competitor for the right to use a particular slogan, and he created a corporate culture at Southwest that analysts said was a key part of the company's success.
Is it possible for a simple change at the top to endanger a company's culture to the point where the CEO has to be asked to resign? Mr. Beddoe seems to think so - and he is after all the one who put WestJet together with his own money and that of a few key investors, and made a successful airline out of thin air. It is one of the few, in fact, that has been able to survive in an industry that chews up startups and spits them out.
Mr. Beddoe says WestJet's philosophy is to "trust people to do their job and reward them for doing it." Mr. Smith "wanted to oversee and... second-guess what the executive team or the managers [were doing]" That kind of thing, he said, "completely demoralizes people... and eventually they would have left and we would have seen a significant change in the whole style of this company." It's not hard to see how that could be a bad thing, especially for a company that has been as successful as WestJet.
But will this sudden change also be bad for the company? Julius Maldutis, a veteran airline analyst with CIBC World Markets in New York, doesn't seem to think so. "Whenever you have a change in management there is uncertainty," he told Dow Jones. However, he added, "These things happen. I do not think it's a fundamental change... it's not a negative for the company. WestJet is the great success story in Canada and will continue to be."