Management Professor Sydney Finkelstein at the Tuck School of Business at Dartmouth has compiled a list of “Worst CEOs of 2012”.
Finkelstein the author of “Why Smart Executives Fail” (www.whysmartexecutivesfail.com/) and the sequel, “Think Again,” focuses on why good leaders make bad decisions. His list has five worst CEOs along with two CEOs who almost (but didn’t) make the list (Facebook’s Mark Zuckerberg, and Groupon’s Andrew Mason).
Here are Prof. Sydney Finkelstein’s pick for the Worst CEOs of 2012:
1. Brian Dunn, former CEO, Best Buy (resigned April 2012)
· Stepped down in April after five years of declining stock and loss of market share to Amazon, Wal-Mart, and Apple. Happened to Circuit City, happening again. Showroom to buyers is not a defensible strategy.
· Led the company in a strategy of up- and cross-selling instead of improving basic customer service and online offerings.
· Allegations of an inappropriate relationship with a 29-year old subordinate later surfaced.
· Stock down 50% YTD. Same stores sales down, eps down, sales down, cash down 85%.
· Constant use of operation cash to repurchase shares. According to Minyanville, Best Buy has spent $6.4 billion on share buybacks since 2008, which is $360 million higher than where the stock is currently valued. In essence, Dunn and co. completely wasted $6.4 billion in cash that it could direly use right now.
2. Aubrey McClendon, CEO, Chesapeake Energy (resigned as chairman, still CEO)
· CEO of America’s second-largest natural gas producer and champion of hydraulic fracking has a long history of mingling personal and company finances exposed. Often seen as an aggressive visionary, he was forced to sell all but 1% of his shares in 2008 and since then was allowed to run amuck by Chesapeake’s board. The board stripped Aubrey of his Chairman title, but he remains CEO. Stock down 20% YTD.
· Documents reviewed by The Wall Street Journal show that several major Wall Street banks lent Aubrey money and then received lucrative work as public-offering underwriters or financial advisers to Chesapeake.
· Personally borrowed $500 million from EIG Global Energy Partners, which had also been a large financer for Chesapeake. In securing personal loans from his company's business associate, McClendon exposed himself to a potential conflict of interest, as it's reasonable to expect him to feel pressure to serve EIG's interests in future corporate transactions, potentially at the expense of the best interests of shareholders.
· Reuters exposed a $200 million hedge fund trading oil and gas McClendon ran at the same time he was CEO of Chesapeake -- an obvious conflict of interest.
· Personal piggy bank and conflicts of interest. While all disclosed, actions are opposite of appropriate corporate governance and leadership: Company jets for personal purposes, Chesapeake employees working for McClendon personally, corporate sponsorship deal for Oklahoma Thunder while McClendon was an owner of the team), old friends on board. Reminds me of Rigas family of Adelphia (not disclosed, so they ended up in jail), and other CEOs who couldn’t keep personal and business sides of life separate.
3. Andrea Jung, Avon, Chairman of Board (resigned as CEO April 2012)
· Long string of poor performance – missing analysts’ estimates; unable to fix operational problems.
· Didn’t groom successor; so board went with Sherilyn McCoy, JNJ Vice-Chairman.
· Marketing capabilities in a company that needs operational skills to get back on track (like Carly Fiorina). And no COO since 2006.
· Rejected $10.7 billion offer from Coty (Avon mkt value in 2004 was $21 billion; today $6 billion).
· Forced to step down as CEO in 2011; now as Chair end Dec 2012 (1 year earlier than planned).
· Weak board that enjoyed working with celebrity CEO. When fired as CEO, kept her as Chair. When announced resignation at Chair, has contract to stay as senior advisor. Cushy.
· Stock at $14.50, down 18% on year.
· Q3 earnings down 81%. China sales down 31%. Dividend cut 74%.
· The U.S. Justice Department, Securities and Exchange Commission and Avon’s board are looking into possible violations of the Foreign Corrupt Practices Act, which bars bribery of foreign officials to get or keep business. Avon disclosed the probes in October 2011.
· In 2011 Avon spent $93 million investigating the bribery scandal. $300m already in legal expenses.
4. Mark Pincus, CEO, Zynga:
· Stock down 75% YTD. Number of users going up, number of paying customers going down.
· Incredible exodus of top executive talent, always one of the biggest warning signs for impending disaster.
· Another incompetent acquisition: OMGPOP for almost $200 million (4x revenue). Writedown of 50% of purchase price after 7 months. Unclear why it was necessary to buy this company (makes “Draw Something”) instead of copying it, since there are no barriers to entry.
· Totally dependent on FB for revenues (some 90%), so that when FB changes Zynga must adapt super-fast.
· Pincus onloaded 16 million shares after IPO lock-up period ended, not a crime to be sure, but a clear signal on what he thought of the company’s prospects.
5. Rodrigo Rato, President, Bankia (Spain):
· Former finance minister and MD of IMF (2004-2007), extremely well-connected at the top of Spanish and European political and business circles.
· Became CEO of Bankia in 2010, resigned in May 2012.
· Bankia is a new Spanish bank formed from the merger of 7 other banks, as part of the Spanish banking crisis.
· Promoted the health of Bankia, and sold shares to hundreds of thousands of small investors not long before Bankia was bailed out by Spanish government.
· 2011 profit announced of 309 million euros, restated to 3 billion euro loss after Rato’s resignation.
· Rato now under investigation for fraud.
· IPO at time where management had to know the extent of the damage in the bank. Either it was fraud, or massive incompetence.
And Two CEOs who Almost (But Didn’t) Make the List:
· Mark Zuckerberg, Facebook
· Andrew Mason, Groupon
· 2012 have not been good years for both CEOs, with Groupon’s business model in particular under attack.
· FB stock YTD down 30%
· Groupon stock YTD down 80%
· FB has to make big move to mobile, which they have started, late, but at least it’s a major focus now.
· Groupon has a business model without barriers to entry, but at least Mason keeps experimenting with new products.
· Both CEOs are not mature in a traditional sense, how they act (drinking beer during conference call; wearing the famous hoodie in all sorts of places), and there’s no reason to believe they have the management skills to run a major public company.
· Zuckerberg has also created a dictatorship, where investors are betting on him without recourse. Massive ego at work, a danger sign.