Santa makes a list of naughty children every year. I do the same thing, except my list is of naughty adults – a specific type of adult, actually. They’re called CEOs. Don’t let the suits fool you. Some chief executives are as mischievous as little children. The big difference is that they can do a lot more damage.
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What does it take to make the list? Some very, very naughty behavior that usually costs investors and employees dearly. I say “usually” because that’s not always the case.
Take Netflix (NFLX) CEO Reed Hastings, for example. Even though the once high-flying company’s revenues have flatlined and its profits have turned to peanuts, its share price tripled because Hastings has somehow managed to convince investors that fundamentals don’t matter. Only subscriptions matter.
That little high-wire act was the only thing that kept Hastings off the list this year. Only time will tell if its 300+ price-to-earnings ratio is justified or a bubble just waiting to burst as it did in 2011. In any case, you’re on notice, Hastings: I’m watching you.
What makes this list unique is that I’m not some academic or stock tracker who’s never managed a soul in his life. As a former senior executive, I’ve actually done this sort of thing for a living. I’ve known and worked with hundreds of CEOs, good and bad. I know what they look like. And these, in my opinion, are the worst of 2013, counting down from …
#7. Tom Ward, former CEO, SandRidge Energy. In June, this relatively small oil and natural gas company fired its founding CEO for a combination of poor performance, exorbitant pay, and possible conflicts of interest involving another oil company run by Ward’s son, Trent. During Ward’s final quarter, SandRidge had an operating loss of $562 million on $511 million in sales and its stock had lost 90% of its value in 5 years. For that, Ward walked away with over $200 million in total compensation. It’s people like Ward that give CEOs a bad name.
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#6. Paul Ricci, CEO of Nuance (NUAN). Talk about a technology whose time has come. Voice recognition is in everything from cars and call centers to cell phones and computers. And owing to dozens of acquisitions, one company has come to dominate the market: Nuance. In spite of that, the company’s growth has stalled, it’s bleeding red ink, and its stock is down 36% this year and trading at a three-year low. While Ricci has been impressive in the M&A department, he doesn’t appear to be competent when it comes to organic business growth and profits.
#5. Eddie Lampert, Chairman and CEO, Sears (SHLD). As chairman since the merger of Sears and Kmart in 2005, Lampert has presided over the slow and steady decline of what was once a great American retail brand. This year he added chief executive to his title and, long story short, as revenues continue to slide, losses continue to pile up, and stores continue to close, the only thing up this year is the stock … and that’s not saying much.
#4. Don Basile, former CEO, Violin Memory (VMEM). After raising more than $180 million in venture capital, Basile botched the flash memory maker’s September IPO. The stock priced at $9, started trading at $7.50, and dropped 70% since. After surprising Wall Street with a horrendous quarter – a net loss of $34 million on revenues of just $28 million – Basile was fired. Interestingly, Basile lost his previous job as CEO of Fusion-io. Detect a trend?
#3. Michael Jeffries, Chairman and CEO, Abercrombie & Fitch (ANF). While he deserves credit for reviving the once-bankrupt clothing chain, Jeffries has become the CEO that everyone with a weight problem loves to hate with infamous lines such as “we want to market to cool, good-looking people.” But that’s neither here nor there. Far more importantly, the company’s growth has stalled amidst declines in same-store sales and profit margins. The stock is down 30% this year.
#2. Thorsten Heins, former CEO, BlackBerry (BBRY). Granted, when BlackBerry’s founding co-CEOs finally stepped down in 2011, they didn’t do the company any favors by handing the mess they created to one of their hand-picked, Kool-Aid drinking disciples – sleepy co-COO Thorsten Heins. On his first investor conference call, Heins proclaimed, “I don’t think there is some drastic change needed.” That was a sign. Between then and his termination last month, the once-leading smartphone company has been decimated.
#1. Ron Johnson, former CEO, JC Penney (JCP). Customers, investors, employees – pretty much everyone involved with JC Penney – rues the day that Bill Ackman’s hedge fund bought 18% of the storied retailer and brought in Ron Johnson as CEO.
In an attempt to replicate his success as head of Apple’s retail operation, Johnson tried an extremely risky move. He gutted the company from top to bottom in a massive restructuring and reorganization of its executive team, middle management, retail stores, inventory, and promotional strategy.
The results were a complete disaster as customers fled, revenues plummeted, and cash dwindled. Johnson was canned in April but so much damage was done it’s still not clear if the 100-year-old chain will ever recover. JC Penney shares are trading near 25-year lows.
Not only is Ron Johnson my hands-down pick for worst CEO of 2013, he may very well turn up in my worst of the decade list.