OOPS! 5 CEOs that Should Have Already Been Fired (Cisco, GE, WalMart, Sears, Microsoft)

by | May 12, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech

This has been quite the week for CEO mistakes.  First was all the hubbub about Scott Thompson, CEO of Yahoo, inflating his resume to include a computer science degree he did not actually receive.  According to Mr. Thompson someone at a recruiting firm added that degree claim in 2005, he didn't know it and he's never read his bio since.  A simple oversight, if you can believe he hasn't once read his bio in 7 years, and he didn't think it was ever important to correct someone who introduced him or mentioned it.  OOPS – the easy answer for someone making several million dollars per year, and trying to guide a very troubled company from the brink of failure. Hopefully he is more persistent about checking company facts.

But luckily for him, his errors were trumped on Thursday when Jamie Dimon, CEO of J.P.MorganChase notified the world that the bank's hedging operation messed up and lost $2B!!  OOPS!  According to Mr. Dimon this is really no big deal. Which reminded me of the apocryphal Senator Everett Dirksen statement "a billion here, a billion there and pretty soon it all adds up to real money!" 

Interesting "little" mistake from a guy who paid himself some $50M a few years ago, and benefitted greatly from the government TARP program.  He said this would be "fodder for pundits," as if we all should simply overlook losing $2B?  He also said this was "unfortunate timing."  As if there's a good time to lose $2B? 

But neither of these problems will likely result in the CEOs losing their jobs.  As obviously damaging as both mistakes are, which would naturally have caused us mere employees to instantly lose our jobs – and potentially be prosecuted – CEOs are a rare breed who are allowed wide lattitude  in their behavior.  These are "one off" events that gain a lot of attention, but the media will have forgotten within a few days, and everyone else within a few months.

By comparison, there are at least 5 CEOs that make these 2 mistakes appear pretty small.  For these 5, frequently honored for their position, control of resources and personal wealth, they are doing horrific damage to their companies, hurting investors, employees, suppliers and the communities that rely on their organizations.  They should have been fired long before this week.

#5 – John Chambers, Cisco Systems.  Mr. Chambers is the longest serving CEO on this list, having led Cisco since 1995 and championed much of its rapid growth as corporations around the world began installing networks.  Cisco's stock reached $70/share in 2001.  But since then a combination of recessions that cut corporate IT budgets and a market shift to cloud computing has left Cisco scrambling for a strategy, and growth.

Mr. Chambers appears to have been great at operating Cisco as long as he was in a growth market.  But since customers turned to cloud computing and greater use of mobile telephony networks Cisco has been unable to innovate, launch and grow new markets for cloud storage, services or applications.  Mr. Chambers has reorganized the company 3 times – but it has been much like rearranging the deck chairs on the Titanic.  Lots of confusion, but no improvement in results.

Between 2001 and 2007 the stock lost half its value, falling to $35.  Continuing its slide, since 2007 the stock has halved again, now trading around $17.  And there is no sign of new life for Cisco – as each earnings call reinforces a company lacking a strategy in a shifting market.  If ever there was a need for replacing a stayed-in-the-job too long CEO it would be Cisco.

#4 – Jeffrey Immelt, General Electric (GE).  GE has only had 9 CEOs in its 100+ year life.  But this last one has been a doozy.  After more than a decade of rapid growth in revenue, profits and valuation under the disruptive "neutron" Jack Welch, GE stock reached $60 in 2000.  Which turns out to have been the peak, as GE's value has gone nowhere but down since Mr. Immelt took the top job.

GE was once known for entering and changing markets, unafraid to disrupt how the market performed with innovation in products, supply chain and operations.  There was no market too distant, or too locked-in for GE to not find a way to change to its advantage – and profit.  But what was the last market we saw GE develop?  What has Mr. Immelt, in his decade at the top of GE, done to keep GE as one of the world's most innovative, high growth companies?  He has steered the ship away from trouble, but it's only gone in circles as it's used up fuel. 

From that high in 2001, GE fell to a low of $8 in 2009 as the financial crisis revealed that under Mr. Immelt GE had largely transitioned from a manufacturing and products company into a financial house.  He had taken what was then the easy road to managing money, rather than managing a products and services company.  Saved from bankruptcy by a lucrative Berkshire Hathaway, GE lived on.  But it's stock is still only $19, down 2/3 from when Mr. Immelt took the CEO position. 

"Stewardship" is insufficient leadership in 2012.  Today markets shift rapidly, incur intensive global competition and require constant innovation.  Mr. Immelt has no vision to propel GE's growth, and should have been gone by 2010, rather than allowed to muddle along with middling performance.

#3 – Mike Duke, WalMart.  Mr. Duke has been CEO since 2009, but prior to that he was head of WalMart International.  We now know Mr. Duke's business unit saw no problems with bribing foreign officials to grow its business.  Just on the basis of knowing about illegal activity, not doing anything about it (and probably condoning and recommending more,) and then trying to change U.S. law to diminish the legal repurcussions, Mr. Duke should have long ago been fired. 

It's clear that internally the company and its Board new Mr. Duke was willing to do anything to try and grow WalMart, even if unethical and potentially illegal.  Recollections of Enron's Jeff Skilling, Worldcom's Bernie Ebbers and Hollinger's Conrdad Black should be in our heads.  How far do we allow leaders to go before holding them accountable?

But worse, not even bribes will save WalMart as Mr. Duke follows a worn-out strategy unfit for competition in 2012.  The entire retail market is shifting, with much lower cost on-line companies offering more selection at lower prices.  And increasingly these companies are pioneering new technologies to accelerate on-line shopping with easy to use mobile devices, and new apps that make shopping, paying and tracking deliveries easier all the time.  But WalMart has largely eschewed the on-line world as its CEO has doggedly sticks with WalMart doing more of the same.  That pursuit has limited WalMart's growth, and margins, while the company files further behind competitively. 

Unfortunately, WalMart peaked at about $70 in 2000, and has been flat ever since.  Investors have gained nothing from this strategy, while employees often work for wages that leave them on the poverty line and without benefits.  Scandals across all management layers are embarrassing. Communities find Walmart a mixed bag, initially lowering prices on some goods, but inevitably gutting the local retailers and leaving the community with no local market suppliers.  WalMart needs an entirely new strategy to remain viable – and that will not come from Mr. Duke.  He should have been gone long before the recent scandal, and surely now.

#2 Edward Lampert, Sears Holdings.  OK, Mr. Lampert is the Chairman and not the CEO – but there is no doubt who calls the shots at Sears.  And as Mr. Lampert has called the shots, nobody has gained.

Once the most critical force in retailing, since Mr. Lampert took over Sears has become wholly irrelevant.  Hoping that Mr. Lampert could make hay out of the vast real estate holdings, and once glorious brands Craftsman, Kenmore and Diehard to turn around the struggling giant, the stock initially took off rising from $30 in 2004 to $170 in 2007 as Jim Cramer of "Mad Money" fame flogged the stock over and over on his rant-a-thon show.  But when it was clear results were constantly worsening, as revenues and same-store-sales kept declining, the stock fell out of bed dropping into the $30s in 2009 and again in 2012. 

Hope springs eternal in the micro-managing Mr. Lampert.  Everyone knows of his personal fortune (#367 on Forbes list of billionaires.)  But Mr. Lampert has destroyed Sears.  The company may already be so far gone as to be unsavable.  The stock price is based upon speculation of asset sales.  Mr. Lampert had no idea, from the beginning, how to create value from Sears and he surely should have been gone many months ago as the hyped expectations demonstrably never happened.

#1 – Steve Ballmer, Microsoft.  Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company.  Not only has he singlehandedly steered Microsoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) but in the process he has sacrificed the growth and profits of not only his company but "ecosystem" companies such as Dell, Hewlett Packard and even Nokia.  The reach of his bad leadership has extended far beyond Microsoft when it comes to destroying shareholder value – and jobs.

Microsoft peaked at $60/share in 2000, just as Mr. Ballmer took the reigns.  By 2002 it had fallen into the $20s, and has only rarely made it back to its current low $30s value.  And no wonder, since execution of new rollouts were constantly delayed, and ended up with products so lacking in any enhanced value that they left customers scrambling to find ways to avoid upgrades.  By Mr. Ballmer's own admission Vista had over 200 man-years too much cost, and its launch still, years late, has users avoiding upgrades.  Microsoft 7 and Office 2012 did nothing to excite tech users, in corporations or at home, as Apple took the leadership position in personal technology.

So today Microsoft, after dumping Zune, dumping its tablet, dumping Windows CE and other mobile products, is still the same company Mr. Ballmer took control over a decade ago.  Microsoft is  PC company, nothing more, as demand for PCs shifts to mobile.  Years late to market, he has bet the company on Windows 8 – as well as the future of Dell, HP, Nokia and others.  An insane bet for any CEO – and one that would have been avoided entirely had the Microsoft Board replaced Mr. Ballmer years ago with a CEO that understands the fast pace of technology shifts and would have kept Microsoft current with market trends. 

Although he's #19 on Forbes list of billionaires, Mr. Ballmer should not be allowed to take such incredible risks with investor money and employee jobs.  Best he be retired to enjoy his fortune rather than deprive investors and employees of building theirs.

There were a lot of notable CEO changes already in 2012.  Research in Motion, Best Buy and American Airlines are just three examples.  But the 5 CEOs in this column are well on the way to leading their companies into the kind of problems those 3 have already discovered.  Hopefully the Boards will start to pay closer attention, and take action before things worsen.

 

Too big to fail? Overcoming size disadvantages – JPMorgan Chase

by | May 27, 2009 | Current Affairs, Defend & Extend, Disruptions, General, Leadership, Lock-in, Openness, Quotes

"The Need for Failure" is a recent Forbes article on why it is bad – really bad – to prop up failing institutions. The author is an esteemed economics professor at NYU. He says "too big to fail is dangerous.  It suggests there is an insurance policy that says, no matter how risky your behavior, we will make sure you stay in business."  Rightly said, only it creates a conundrum.  Large organizations are not known for taking risky actions.  Large organizations are known primarily for lethargic decision-making which weeds out all forms of risk – right down to how people dress and what they can say in the office.  When you think of a big bank, like Bank of America or Citibank, you don't think of risk.  You think just the opposite.  Of risk aversion so great they cannot do anything new or different.

What I'd add to the good professor's article is recognition that large organizations stumble into risk they don't recognize, by trying to do more of the same when that behavior becomes risky due to market changes.  My dad said that 100 years ago when my grandfather was first given pills by a doctor he decided to take the whole bottle at once.  His logic was "if one pill will help me, I might as well take the whole lot and get better fast."  Clearly, an example where doing more of the same was not a good idea.  Then there was the boy who loved jumping off the railroad bridge into the river.  He did it all the time, year after year.  Then one month there was a draught, the river level fell while he was busy at school, and when he next jumped off the bridge he broke his leg.  He did what he always did, but the environmental change suddenly made his previous behavior very risky.

Big corporations behave this way.  They build Lock-ins around everything they do.  They use hierarchy, cultural norm enforcement, sacred cows, rigid decision-making systems, narrow strategy processes, consistency in hiring practices, inflexible IT systems, knowledge silos and dependence on large investments to make sure the organization cannot flex.  The intent of these Lock-ins is to make sure that historical decisions are replicated, to make sure past behaviors are repeated again and again with the expectation that those behaviors will consistently produce the same returns.

But when the market shifts these Lock-ins create risk that is unseen.  Bankers had built systems for generating their own loans, and acquiring loans from others, that were designed to keep growing.  They designed various derivative products as their own form of insurance on their assets.  But what they did not recognize was that pushing forward in highly unregulated product markets, as the quality of debtors declined, created unexpected risk.  In other words, doing more of the same did not reduce risk – it increased the risk!   Because the company is designed to undertake these behaviors, there is no one who can recognize that the risk is growing.  There is no one who challenges whether doing more of the same is risky – only those who would challenge making a change by saying change is risky! 

Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and AIG all created a much higher risk than they ever anticipated.  And they never saw it.  Because they were doing what they always did – and expecting the results would take care of themselves.  They were measuring their own behaviors, not the behavior of the market.  And thus they missed recognizing that the market had moved – and thus doing more of the same was inherently risky. 

(The same is true of GM, for example.  GM kept doing what it always did, refusing to see  the risk it incurred by ignoring market shifts brought on by changing customer behaviors, rising energy costs and offshore competitors.)

That's why big company CEOs feel OK about asking for a bail-out.  To them, they did not fail.  They did not take risk.  They did what they had always done – and something went wrong "out there".  Something went wrong "in the market".  Not in their company.  They need protection from the marketplace. 

Of course, this is just the opposite of what free markets are all about.  Free markets are intended to allow changes to develop, forcing competitors to adapt to market shifts or fail.  But those who run (or ran) our big banks, and many of our big industrial companies, haven't see it that way.  They believe their size means they are the market – so they want regulators to change the market back.  Back to where they can make money again.

So how is this to to be avoided?  It starts by having leaders who can recognize market shifts, and recognize the need for change.  In an companion Forbes article "Jamie Dimon's Straight Talk Has A Good Ring" the author takes time to review J.P. Morgan Chase's Chairman's letter to shareholders regarding 2008.  In the letter, surprisingly for a big organization, the JPMC Chairman points out market shifts, and then points out that his organization made mistakes by not reacting fast enough – for example by changing practices on acquiring mortgages from independent brokers.  He goes no to point out that several changes have happened, and will continue happening, at JPMC to deal with market shifts.  And he even comments on future scenarios which he hopes will help protect investors from the hidden risk of companies that take actions based on history.

Mr. Dimon's actions demonstrate a willingness to implement The Phoenix Principle.  For those who don't know him, Mr. Dimon has long been one of the more controversial figures in banking.  He is well known for exhibiting highly Disruptive behavior, yet he has found his way up the corporate ranks of the traditional banking industry.  Now he is not being shy about Disrupting his own bank – JPMC. 

  1. His discussion of future scenarios clearly points to expected changes in the market, from competitor shifts, economic shifts and regulatory shifts which his bank must address.
  2. He sees competitors changing, and the need for JPMC to compete differently with different sorts of institutions under different regulations.  Mr. Dimon clearly has his eyes on competitors, and he intends for JPMC to grow as a result of the market shift, not merely "hang on."
  3. He is espousing Disruptions for his company, the industry and the regulatory environment.  By going public with his views, excoriating insurance regulators as well as unregulated hedge funds,  he intends for his employees and investors to think hard about what caused past problems and how important it is to change.
  4. He keeps trying new and different things to improve growth and performance at the company.  It's not merely "more of the same, but hopefully cheaper."  He is proposing new approaches for lending as well as investing – and for significant changes in regulations now that banking is global.

Very few leaders recognize the risk from doing more of the same.  Leaders often feel it is conservative to not change course.  But, when markets shift, not changing course introduces dramatic risk.  People just don't perceive it.  Because they are looking at the past, not at the future.  They are measuring risk based upon what they know – what they've failed to take into account.  And the only way to overcome this problem is to spend a lot more time on market scenarios, competitor analysis and using Disruptions to keep the organization vital and connected with the market using White Space projects.