Apple sued Qualcomm in January 2017 alleging unfair licensing practices regarding Qualcomm’s chip technology. Since then, Qualcomm has lost $23 billion in market value, ostensibly because of the litigation. Then, Qualcomm had to deal with angry shareholders because its Board of Directors defeated a hostile takeover by competitor Broadcom Inc., with allegations that Apple was somehow supporting the hostile bid. A big part of this corporate feud stems from two CEOs (Apple’s Tim Cook and Qualcomm’s Steve Mollenkopf) who not only possess leadership and management differences, but an inability to look past their animosity for one another to preserve shareholder value. It reminds me of the book “All I Really Need To Know I Learned In Kindergarten.” Does conflict resolution, especially across companies, generate a shareholder dividend?
Qualcomm pioneered chips that allow mobile devices to access 3G and 4G networks, networks Apple users need for their mobile devices. Before Apple could launch the iPhone in 2007, Apple had to license Qualcomm’s patents in phone technology. The resulting licensing agreements led to Apple paying Qualcomm billions of dollars.
Eventually, Apple, along with government regulators around the world, accused Qualcomm of using its market power and position to charge exorbitant royalties. Apple sued Qualcomm in 2017, then stopped its contract manufacturers from paying Qualcomm billions of dollars per year for the chips used in its products. Apple’s original agreement with Qualcomm stems back to the Steve Jobs days at the company, when Mr. Jobs had the quaint view that companies should be compensated for their innovations. Apparently Tim Cook, Apple CEO since 2011, decided against this antiquated notion.
On April 16, 2019, Apple and Qualcomm announced they settled all their claims and counterclaims. Both companies entered into a six-year deal in which Qualcomm would supply Apple with the chips needed for its mobile devices. This is great news for Qualcomm since its shareholders were taking a beating from the stock market’s decline in Qualcomm’s stock. This comes in the wake of millions of dollars in legal fees being expended.
A business rationale is ostensibly at the center of this dispute. Tim Cook and his top executives were getting tired of what they believe was a huge and unfair overpayment of royalties.
What’s really going on?
Good old-fashioned conflict and the inability to resolve it. It involved two adults who can’t figure out how to work together. CEOs leading companies that have important contractual relationships with one another need to “plan and structure for peace,” even amidst disagreements. They should have a strategy for peace and for avoiding litigation. Now for some, this will sound like new age mumbo jumbo. In truth, it is a practical and wise approach to optimizing shareholder value. Weekly conversations between former Microsoft CEO Steve Ballmer and Sun Microsystems CEO Scott McNealy took place for six months before a two-year antitrust suit was ultimately resolved in 2004. A funny thing happens when there are good faith efforts to speak to one another– disputes dissipate. This responsibility falls under the category of the “burden of leadership” because strategic communications between company CEOs really can’t be delegated to a subordinate. You just need to put on your big boy (or girl) pants and get the job done because there is a ton of money and individual livelihoods at stake. What was at stake in this feud? For Qualcomm, this litigation was life threatening—it was a direct attack to its core licensing business and its business model. For Apple, a loss would have been financially punishing because the company would not have been able to deploy Qualcomm’s 5G chips in its phones and still remain competitive against Android.
How is this instructive for the thousands of companies of all sizes across the nation? It is a reminder that conflict can cost your company a lot of time and money, and not necessarily achieve the desired outcome. Studies have shown that employees at all levels spend 2.8 hours a week dealing with unproductive conflict. That adds up to $350 billion a year in wasted wages. There are some companies that I have consulted with that spend significantly more than the 2.8 hours per week per person in unproductive conflict. It boggles the mind to see grown adults act worse than five year olds in power confrontations, turf disputes, and downright unethical behavior. A partner in a major law firm once asked for my counsel regarding a personal feud with another partner in the firm. I challenged some of the questionable things he was telling me and said, “there can be heavy cost to the skullduggery you’re planning.” His response: “I like skullduggery.” To quote Michael Cain’s character Alfred Pennyworth in the Batman movie, Dark Knight, “some men just want to watch the world burn.” There’s a huge cost to a company that has people in its ranks who “want to watch the world burn.” Add to that the communications that are chilled because of the conflict, the demoralization to employees having to witness the conflict, and the sheer loss of the care and diligence that companies need from their employees to remain effective and profitable.
Many of us think that well-working relationships are natural and don’t require effort. However, the opposite is true. You need to “plan for peace” in the sense that it takes time and effort to have effective working relationships. Will that peace cost something to the business? Absolutely. Is there a return on that investment? Beyond dispute. Just ask employees who look forward to going to work, seeing their colleagues, and accomplishing the goals of the enterprise.
Is this easy to accomplish? It is not because there are many individual temperaments, personalities, and individual psychologies that are in play. Sometimes people are destructive and they themselves cannot understand their behavior nor even control themselves. For family owned businesses, add the legacy family issues that have developed over decades and you have a cauldron of intractable relational problems.
What’s the solution? There really isn’t one except this: leaders should model the behavior they want their employees to emulate. This, of course, is assuming a company’s leaders recognize that intra and inter-company conflict can exact a heavy toll on a business. If a company’s leaders cannot bring themselves to provide the necessary leadership, get a third party involved and obtain assistance early on. I constantly tell clients that the longer a problem persists, the likelier it will grow and the more costly the solution will be.
So, to answer the initial question, does conflict generate corporate value? It can, under some circumstances, but more often than not, conflict doesn’t create corporate value. It just costs the enterprise time, money, and the emotional wear and tear on the people involved. If the conflict turns into litigation, you are now costing the business a lot of money that could otherwise be invested in product (or service) innovation, employee retention, and customer relationships. A wise man once said, count the cost of war. This advice still holds true– it is usually not worth it.
 Managing Conflict Constructively, Karen Dillon, Harvard Business School Case Study, December 1, 2016.