As 2012 comes to a close, it's that time of year again to list some of the best and worst CEOs over the past 12 months.
Sydney Finkelstein, a professor of management at the Tuck School of Business at Dartmouth and author of “Why Smart Executives Fail” and “Think Again," shared his annual "Worst CEOs" list with The Daily Ticker.
Two of the CEOs were so bad they are no longer on the job. For the CEOs who remain on the payroll, watch out. All of the CEOs on Finkelstein’s 2011 list have been shown the door.
While stock price is an important part of Finkelstein's criteria, it is not the only determining factor. The lack of corporate governance also plays an important part.
Without further ado, the top two “Worst CEOs of 2012” are Brian Dunn of Best Buy (BBY) and Audrey McClendon of Chesapeake Energy Corporation (CHK). Honorable mentions also go to Facebook’s (FB) Mark Zuckerberg and Groupon’s (GRPN) Andrew Mason.
1. Brian Dunn, former CEO, Best Buy (resigned April 2012)
“Brian Dunn...there is really not a lot of great things to say,” says Finkelstein in the accompanying interview. “You have a company that is in a virtual free fall. The stock is down something like 50% this year; cash is down; EPS is down; same-store-sales are down. You name it’s down.”
Dunn resigned this past spring; during his tenure Best Buy stock has fallen 80% in five years.
The electronics retailer's competitors — like Amazon (AMZN), Wal-Mart (WMT) and Apple (AAPL) —have been breathing down its neck for years and Dunn did little to fight back, says Finkelstein. Dunn also deserves blame for not improving Best Buy’s customer service, Finkelstein adds. Dunn also "completely wasted" $6.4 billion in company cash on stock repurchases, says Finkelstein. Dunn was also accused of dating a 29-year-old female employee.
2. Aubrey McClendon, CEO, Chesapeake Energy (resigned as chairman, still CEO)
“Aubrey McClendon is a classic entrepreneur who breaks all the rules,” says Finkelstein.
While he was a visionary in his line of work, he also pushed the envelope when it came to mixing business finances with personal finances. For example, McClendon used the corporate jet for his personal use and he cut a corporate sponsorship deal with a sports team he privately owned.
According to Finkelstein, McClendon's inappropriate behavior includes:
- Documents reviewed by The Wall Street Journal show that several major Wall Street banks lent McClendon 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.
“Nothing is illegal, everything is disclosed (as far as we know) but it sure doesn’t look good,” says Finkelstein.
3. Andrea Jung, Avon, Chairman of Board (resigned as CEO April 2012)
Andrea Jung of Avon (AVP) made this year’s list of worst CEOs due to a long string of poor performance and her inability to remedy operational issues, says Finkelstein.
Avon’s stock price is down 18% in 2012 and was down more than 80% in the last quarter.
The U.S. Department of Justice and the Securities and Exchange Commission are also looking into Avon's potential bribery of foreign officials. The investigation has been ongoing since 2011 and to date Avon has spent $300 million in legal fees.
4. Mark Pincus, CEO, Zynga
Mark Pincus of Zynga (ZNGA) made the list because of the huge declines in Zynga's stock price.
Zynga’s stock price is down 75% in 2012. Even though the number of users is increasing, the number of paying customers is shrinking, notes Finkelstein.
On top of that, there has been an “incredible exodus of top executive talent, always one of the biggest warning signs for impending disaster," says Finkelstein.
Another foreboding sign is the fact that the gaming company is dependent upon Facebook for 90% of its revenues.
5. Rodrigo Rato, President, Bankia (Spain)
Rato became the chief executive officer in 2010 and resigned this year after wrongfully promoting the health of the bank and its shares. The Spanish government had to step in and bail out the financial institution.
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Check out these other videos from The Daily Ticker:
- Investment & Company Information
- Best Buy
- Aubrey McClendon
- Chesapeake Energy