The best CEOs grow profits and market share, but those hired to transform a failing company have an even bigger job. When a CEO fails to turn a floundering company around they risk losing their jobs, which is exactly what happened to Ron Johnson, former CEO of J.C. Penney (JCP) and Thorsten Heins, former CEO of BlackBerry (BBRY).
They’re among The Worst CEOs of 2013, according to Sydney Finkelstein, professor of management and associate dean for executive education at Dartmouth’s Tuck School of Business. Finkelstein’s 5 Worst CEOs list also includes Eddie Lampert of Sears (SHLD), Brazilian commodities entrepreneur Eike Batista, once Brazil’s richest man, and Steve Ballmer of Microsoft (MSFT), who announced in August he would leaving the company within the year.
Finkelstein, also the author of Why Smart Executives Fail: And What You Can Learn from Their Mistakes, tells The Daily Ticker that he had a hard time coming up with a list of the worst CEOs because “it’s been an unbelievable year for the market and a lot of companies.”
Here are some highlights from Finkelstein’s interview with The Daily Ticker’s Aaron Task, which you can watch in the video above.
Ron Johnson, former CEO of J.C. Penney
Ron Johnson’s mistake was applying his winning strategy from Apple's (AAPL) retail stores, which he created with Apple founder Steve Jobs, to J.C. Penney, says Finkelstein. That included highly differentiated products, sleek and hip store designs and no discounts. “Someone told me ‘It’s almost as if he fired his customers,’" says Finkelstein.
“He thought he had the right solution… and didn’t question it. When he was asked why he didn’t, he said ‘We didn’t test anything at Apple.’" J. C. Penney Stock fell 50% during Johnson’s tenure.
Thorsten Heins, former CEO of BlackBerry
Heins made two major mistakes, says Finkelstein. He “kept pushing the same idea of phones,” but by the time new phone models came out, “customers had moved on.” And Heins “didn’t understand BBM--blackberry messenger-- an incredible app. It took him forever to release it as an independent app... There are a handful of platforms being formed where BBM was the platform to start…”
Blackberry stock, which was already in deep decline when Heins took the reins in January 2012, fell another 64% while he was CEO.
Eddie Lampert, CEO of Sears
Unlike Johnson and Heins, Lampert is still in the job as CEO, but his hedge fund ESL Investments now owns less than 50% of Sears stock. ESL had to sell shares in order to meet investors’ redemptions.
Lampert ”is a hedge fund genius.... He’s applied a classic financial strategy to Sears—cut costs, sell off assets and then buy back stock,” says Finkelstein. “But the stock is 70% off its peak which means you’re buying stock as it keeps going down...buying high, selling low—not really what you’d think a hedge fund expert would be doing.” Finkelstein says Lampert has “no understanding of merchandising…of customers…of how to manage the stores.”
Steve Ballmer, Outgoing CEO of Microsoft
Ballmer was at Microsoft for 20 years before he became CEO 13 years ago. During his tenure the tech industry changed dramatically, from a focus on desktops—where Microsoft reigned supreme in terms of software—to mobile, where it didn’t.
“It’s never your fault that the world changes unless you’re the biggest company with the most power that can actually create what that future is, which, of course, they were,” says Finkelstein. But Microsoft’s experiments with Zune for music, Window-based phones and Bing for search couldn't compete.
“In every one of these areas, they throw something out, like new windows releases, then they fix the bugs and go along," says Finkelstein. "[But] you can’t get away with that stuff when you have no market presence in that new segment and players like Google and Apple are living that and breathing that every day,” says Finkelstein.
During Ballmer's tenure as CEO, Microsoft stock fell about 35% while Apple shares soared about 1900 percent. (Google stock has gained 880% since it started trading in August 2004).
Eike Batista, Founder of EBX
Finkelstein writes that the entrepreneur who made his fortune in gold mines and was once Brazil's richest man lost 99% of his wealth when his OGX (OGXPY) and OSX oil and gas exploration companies filed for bankruptcy. Batista is an “incredible salesman…but ultimately spent more time generating interest for the project than executing it,” says Finkelstein.
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