The CEOs of Netflix, Research in Motion and H-P all have one thing in common as the year comes to a close. They top the list of worst CEOs for 2011 for their general negligence towards customers and the resulting shock to shareholders, according to Syd Finkelstein, professor of management at the Tuck School of Business at Dartmouth and author of Why Smart Executives Fail.
In the accompany segment, Finkelstein joins The Daily Ticker's Aaron Task to discuss, or rehash, where Reed Hastings of Netflix, Mike Lazaridis and Jim Balsillie of Research in Motion and Leo Apotheker all went wrong this past year.
Netflix: Reed Hastings
Netflix, once a red-hot stock, has lost nearly 60% of its market value since the beginning of 2011. The company's dramatic decline is due in large part to the mistakes made by CEO Reed Hastings who followed a "textbook strategy" on how to handle a core business in a downtrend, says Finkelstein.
In September, Hastings announced Netflix would split its struggling DVD mail-delivery business from its booming online streaming business and raise prices at the same time. (See: With All Respect To Reed Hastings, The Netflix-Qwikster Split Bad For Customers)
Customers were confused by the breakup and outraged by the price hikes. As a result of the changes and price increases, the company lost nearly 800,000 subscribers in the third quarter. (See: A "Spectacular Collapse": Netflix Loses 800,000 Subscribers, Stock Plunges 35%)
After such intense backlash, Hastings issued an apology to customers and announced the company's plan to backtrack on the decision to split the company.
"I messed up. I owe everyone an explanation," he wrote on the company's website. "It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs." (See: Netflix Backtracks − Abruptly Cancels Plan To Spin Off DVD Business)
So are Netflix's best days behind it?
It is hard to tell right now, says Finkelstein, but what is certain are the two key problems facing the company:
1) Growing competition from companies like Amazon and Google and
2) Rising licensing fees for the movies they hope to rent and stream.
Research in Motion: Co-CEOs Mike Lazaridis and Jim Balsillie
It's been years since Research in Motion was the little darling on Wall Street. But this year was particularly bad for RIM's co-CEOs Mike Mike Lazaridis and Jim Balsillie.
"What went right for them this year?" asks Finkelstein. "Anybody who has a BlackBerry knows exactly what [I'm] talking about."
If you don't have a BlackBerry, he is referring to the largest service outage the company has ever experienced in October, which hit customers across the globe.
On top of the outages, Finkelstein says the CEOs spent more time looking for an NHL franchise to buy than caring about the competition from Apple's iPhone and Google's android phones, which have been negatively impacting BlackBerry sales.
RIM, like Netflix, also lost more than half its market value in 2011, and is now the subject of takeover rumors. (See: Palm 2.0? Research In Motion Tumbles After Another Lousy Quarter)
So is RIM at risk of a terminal decline?
"It is hard to say it's 'terminal'" because they do have a lot of loyalty from the corporate world, says Finkelstein. "But they haven't adapted and they haven't changed and .... slowly but surely the iPhone and Android are taking away [their market] share."
Leo Apotheker, former CEO H-P
Leo Apotheker was one of the shortest-lived CEOs and yet he still managed to make the list of worst chief executives for 2011.
Apotheker only donned the CEO moniker of H-P for 11 months, but during that time he missed financial targets and couldn't figure out whether the company was selling or keeping the consumer PC business, says Finkelstein.
Since the the firing of Apotheker, H-P's board has hired former eBay CEO Meg Whitman. (See: HP's Implosion Continues: Hapless Board Prepares To Fire CEO, Hire Meg Whitman)
But the icing on the cake is Apotheker's reward for failing at his job. His good-bye package totals upwards of $25 million, according to Footnoted.com's Michelle Leder, and includes $7.2 million in severance pay, 156,000 shares of accelerated vesting stock, another 424,000 in performance shares, a $2.4 million bonus and money to relocate his family back to Europe. (See: Another Corporate Outrage: 'Golden Parachutes' for Failed CEOs)
Like Netflix and RIM, H-P's stock lost about 50% of its value in 2011.
Watch the segment to find out why MF Global's Jon Corzine did not make the list this year and check out part two of this interview on the three CEOs who were truly the worst of the worst in 2011. (See: Hall of Shame: Rupert Murdoch, Graham Spanier and 'the Tony Hayward of 2011')
- Finance/Investment & Company Information
- Leo Apotheker
- Mike Lazaridis
- Reed Hastings
- Jim Balsillie