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Worst CEOs?
David Dorman, AT&T
AT&T shares have sunk about 60% under his leadership.
Carly Fiorina,
Hewlett-Packard
HP stock trades at the same value it did in 1995.
Larry Ellison, Oracle
Oracle shares trade 72% below March 2000 highs.
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The nation's worst CEOs
Execs grab headlines for soaring profits or sordid crimes, but rarely for wretched performance. Here are three who've run great companies into the ground.
By Jon D. Markman
In the late 1990s, investors deified corporate chief executives. In the first few years of the 2000s, CEOs were vilified. And now, it seems, they are pretty much ignored -- seldom appearing on financial television programs or news magazine covers anymore unless theyre in handcuffs. They are the forgotten souls of Wall Streets remodeled machine.
But that doesnt mean that the overpaid and underachieving heads of many public companies arent just as lame as ever. It simply means that weve gotten complacent about the hardships they cause shareholders when they pursue bad strategies, bad communications, bad hiring, bad products and bad marketing -- and then blame their problems on the weather, world politics or traders.
Who are the worst chief executives out there at the moment? You could probably name the CEO of every company youve lost money on. But a handful should be at the top of every capitalist cynics list.
See reader nominations in "Readers rage over worst CEOs -- their bosses"
AT&T's David Dorman
Lets start with David W. Dorman of AT&T (T, news, msgs). This one is almost too pathetic to make fun of. Though its true he inherited a junkyard dog of a company from the overrated prior chief executive, C. Michael Armstrong, he hasnt done a thing to improve Ma Bell in the past two years. With such an immensely well-known brand name and legendary research and development team, you would think that Dorman could make his company synonymous with the global growth of networking as a way of life.
Yet he appears to be pushing the company ever deeper into the background, outsourcing its wireless business in an expensive deal with Sprint, losing the price wars on bundling home wire line and broadband services to the more aggressive Baby Bells and the formerly bankrupt MCI, making its long-distance plans more ridiculously complex than ever, experimenting with a high-quality-but-high-cost enterprise strategy, pursuing Internet-based telephony too slowly and timidly -- and now, through no fault of its own, losing its local phone service connection in the recent court battle over FCC unbundling rules.
Since Dorman, who was once a Bell system wunderkind, has taken the reins, the value of AT&T shares have sunk about 60% -- which has been kind of a cool feat, since they had fallen about 60% in value in the three years prior to his installment. The stocks 5.8% dividend is a nice start on a return, but Dorman needs to find a way to grow the business -- not just cut expenses -- to keep capital losses from making the yield immaterial. Revenues have been down every year since 2000, and earnings-growth trends are negative.
Hewlett-Packard's Carly Fiorina
Its fashionable these days to suggest that Hewlett-Packard (HPQ, news, msgs) CEO Carly Fiorina is a genius for improving results slightly in the past couple of quarters, but lets be frank: Shes not. Not even close. Under her egotistical direction, a company that was once a paradigm of Silicon Valley entrepreneurship has simply failed to make any progress at enhancing shareholder value. It is now trading at the same value as it did in 1995. Almost 10 years of marking time.
Fiorinas reign at Hewlett -- combined with that of the CEO just before her -- makes a great case study of exactly what not to do. They took a company that was fantastic at doing one thing (printers), and made it a company that is increasingly marginalized at that one thing, and truly lousy at everything else. Her stubborn, ill-conceived purchase of fading, unprofitable computer giant Compaq has utterly failed to deliver on its promise of making shareholders richer with a soup-to-nuts strategy. The printer business still brings in the majority of the earnings of the entire entity.
And yet because Fiorina decided to pick a fight with Dell (DELL, news, msgs) in the personal computer business, Dell has turned the tables and made a strategic decision to return the favor. Dell has steadily released a very nice suite of new low-cost devices made by a variety of partners and, to make matters worse, it has slashed prices on ink -- the most profitable part of the printer trade. If Hewlett is not profitable in personal computers, and its not profitable in mainframe computers, and its not profitable in services, and their printer business is being hollowed out by Dell, then whats left? asks Bret Rekas, a hedge fund manager in Minneapolis. Ill answer that: nothing.
Heres a stat for you: In 1995, Hewlett-Packard posted $38 billion in sales and earned $2.5 billon. In 2003, it posted $73 billion in sales and earned the same $2.5 billion. Thats not progress. Thats running harder to stay in the same place. Hewletts new focus on digital imaging is great. It would probably do the company a world of good for Fiorina to do the math on one of her flagship financial calculators and admit her mistake with Compaq. She should sell off or just write down the purchase, and return the company to its roots as a smaller, duller but more profitable and innovative designer of digital imaging solutions.
Oracle's Larry Ellison
No major technology companys chief executive has put his shareholders through more pain than Larry Ellison at Oracle (ORCL, news, msgs) in the past four years. Oracle shares are down 72% from the March 2000 high, about twice as much as hardware peer Dell and about half again as much as Microsoft (MSFT, news, msgs). And while most of Ellisons peers have found a way to make shares grow over the past 12 months, Oracle is still stuck in a rut, down 11% since June 2003. (Microsoft publishes MSN Money.)
A large part of the problem at Oracle is that the company did so well for so long at getting its databases into Fortune 500 companies that there is little room for major business growth. With so few major installations left in the world, it will be difficult for Oracle to grow much faster than the global economy. But Ellisons personality is another major part of the problem. His combative approach to business with partners and competitors alike has turned off investors. His quixotic attempt to do a hostile takeover of PeopleSoft (PSFT, news, msgs) has justified their distrust of his instincts.
Mark Anderson, longtime technology industry observer and hedge fund manager, complains that Ellison is so predatory -- its as though he cannot control himself. Anderson says that Ellison would grow shareholder value more appropriately if he were more creative than rapacious. The PeopleSoft deal, in Andersons view, is a bid to buy seats for Oracle database software by purchasing and shutting down a competitor. It will probably fail, and, in the meantime, it has been a costly distraction.
Ellison would do much better by his shareholders, Anderson said, if he would drive an initiative to build communications more effectively into the world of database applications. The chief executive, who is a terrific competitive sailor and pilot, understood the power of the Internet early and rode the online boom brilliantly in the latter part of the 1990s. But since then he has failed to grasp a foothold for his company in a broader communications play that will carry it into the next decade.
With that failure, he has doomed his company to single-digit revenue growth and a stagnant stock price. Database software, after all, is a business that will never go away and gets deeply embedded in clients way of doing business. Once you have customers, you pretty much need to shoot both their dogs before theyll leave you, in Andersons colorful phrase. But Wall Street demands more than stability. With moderating sales, hes got to do more than try to ham-handedly smother the competition and cut costs -- especially with a premium multiple of six times sales and 24 times next years estimated earnings.
Assorted others
Some of the utilities deserve special mention for incredibly poor strategic decision-making in their executive suites. Among the worst are AES (AES, news, msgs), Calpine (CPN, news, msgs) and TECO Energy (TE, news, msgs).
Portfolio manager John LaForge, of FA Asset Management, told me that two chief executives he would put in the penalty box are Carol A. Ammon of Endo Pharmaceuticals (ENDP, news, msgs) and Austin Shanfelter of MasTec (MTZ, news, msgs). Ammon deserves opprobrium, he said, because she made a series of poor decisions in dealing with the Food and Drug Administration on her companys generic alternative to the addictive pain-killer OxyContin. She pandered to the FDA and let it push her around on doing extra trials when she should have held her ground, he said. Her calls cost the company valuable time to market, allowing arch-rival Teva Pharmaceutical (TEVA, news, msgs) to outmaneuver and beat them.
LaForge nominates MasTec's Shanfelter for the stonewalling his company did in not releasing its 10-K annual report to the Securities and Exchange Commission last year and all this spring. MasTecs communication has been horrific, he said. Company officials told investors repeatedly that they would file their report within two weeks and then neither filed nor advised investors that the reports were further delayed.
Nominations?
Would you like to nominate a chief executive as the worst of the 2000s so far? E-mail me at sm@jonmark.com and put the word CEO in the subject. Ill comment on the best suggestions in my next letters column. The following table lists 10 of the worst-performing big stocks of the past five years to get you started, including their StockScouter ratings.
| Worst-performing large stocks of past 5 years | | Company Name | 6/4 close | Mkt cap | % chg YTD | rating | | Winn-Dixie Stores (WIN, news, msgs) | $6.03 | 857 million | -39.4 | 2 | | Delta Air Lines (DAL, news, msgs) | $5.76 | 717 million | -51.2 | 2 | | TECO Energy (TE, news, msgs) | $11.92 | 2.2 billion | -17.3 | 3 | | AT&T (T, news, msgs) | $16.45 | 13 billion | -19 | 4 | | Eastman Kodak (EK, news, msgs) | $25.36 | 7.2 billion | -1.2 | 5 | | Wyeth (WYE, news, msgs) | $36.23 | 48 billion | -14.7 | 5 | | SBC Communications (SBC, news, msgs) | $23.93 | 79 billion | -8.2 | 6 | | LaBranche & Co. (LAB, news, msgs) | $8.67 | 518 million | -25.7 | 6 | | Newell Rubbermaid (NWL, news, msgs) | $23.51 | 6.4 billion | 3.2 | 7 | | Microsoft (MSFT, news, msgs) | $25.95 | 280 billion | -5.2 | 7 |
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Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at sm@jonmark.com. At the time of publication, Markman had positions in: Microsoft, Dell.
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