Paul van Gerven
17 August

The man who finished Philips’ transformation from a conglomerate into a single-focus company is forced to step down during a deep crisis.

Philips has announced that CEO Frans van Houten (62) will step down in October, six months before the expiration of his third four-year term. He’ll be succeeded by Dutchman Roy Jakobs (48), who is currently chief business leader for Philips’ Connected Care businesses. Jakobs was also in charge of the massive recall operation of sleep apnea machines, which casts a dark shadow over Van Houten’s final year as Philips’ chief executive.

Van Houten started his career at Philips in 1986 in marketing and sales at Philips Data Systems. After holding several positions at the company, he became co-chief of the consumer electronics division in 2002 and CEO of Philips Semiconductors in 2004. He oversaw the spinoff of the chip division as NXP in 2006, a task that was generally considered as vetting for the top spot at Philips.

It proved a troublesome period for the Rotterdam-educated economist. With the chip market in a nasty downturn, NXP’s private equity owners spearheaded by KKR demanded deep cost-cutting operations and the divestment of ailing activities. Though forced to carry out drastic restructuring operations that included massive layoffs, Van Houten nonetheless championed a strategy aimed at growth, putting him on a collision course with the ownership.

Van Houten’s departure from NXP was announced on New Year’s Eve 2008, only days after he’d sketched an optimistic growth scenario in business paper Het Financieele Dagblad. He hinted that acquisitions, rather than more divestments, were the way forward. Not amused, the ownership consortium promptly replaced Van Houten with someone from their midst. Shedding the remaining digital CMOS activities that Van Houten preferred to keep, Richard Clemmer steered the company back to its roots: analog and mixed-signal semiconductors. NXP has been thriving ever since; Philips and digital chips have simply never been a good match.

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Bureaucratic

Van Houten must have nonetheless passed the test, because in 2010 he was nominated – and approved – to succeed Gerard Kleisterlee as CEO of Philips. This time, he made ample use of the knife. Divesting the television (2012), audio and video (2014), lighting (2016) and finally domestic appliances (2021) businesses, he completed what his predecessors had arguably started decades earlier: breaking up the Philips conglomerate. Van Houten – who originally wanted to become a doctor – chose medical technology to focus on.

If there was any sentimentality about dismantling the company he’d grown up with in Eindhoven, Van Houten never showed it. In those days, Eindhoven lived and breathed Philips. His father George was in charge of research activities at the famous Philips Natuurkundig Laboratorium (Natlab), as was his older brother Henk at Philips Research. But history played no part in Van Houten’s decision-making. “The past is the past, we need to move on,” he told Eindhovens Dagblad.

And yet, Philips’ longest-serving CEO in sixty years isn’t a man to only wield the knife. “Cut with one hand, invest with the other,” Van Houten once said in an interview. True to that adage, he spent billions on acquisitions to strengthen Philips’ healthcare portfolio. He was also adamant about injecting a spirit of entrepreneurship into the healthtech company. It was too slow, too bureaucratic, he said.

Changing the corporate culture was a slow process that he hadn’t finished, Van Houten said repeatedly over the past few years. Nonetheless, under his leadership Philips did well. In 2011, the year Van Houten took office, sales of the healthcare division amounted to 8.9 billion euros. Last year, total sales were almost twice as much at 17.2 billion dollars (thanks in part to acquisitions, of course). The company’s stock climbed from the low twenties to the mid-fifties.

Burden

Until quality control issues threw a wrench in the works. Since reports about faulty sleep apnea devices first emerged large, Philips stock has taken a nose dive. Over 30 billion euros in company value has evaporated. Though the health risks have been deemed limited by independent investigators, Philips was forced to issue a recall over plastic particles potentially ending up in users’ lungs. The cost involved is close to a billion euros, but that figure doesn’t include damages as a result of lawsuits that are already being lined up. Add to this the PR nightmare – quality is everything in the medical domain – and it’s clear that the company is in deep crisis. Heads had to roll.

How Van Houten will be remembered will in part depend on how fast his successor can get a grip on the situation. If the crisis doesn’t drag the company down for years, Van Houten will be seen as the man who started modern Philips. If it turns into a prolonged burden, the choice to place all eggs in one basket might come into question after all. In any case, Van Houten is disappointed that he doesn’t get a chance to finish what he started.

Main picture credit: Philips