Of course, CEOs are thrown out for a number of reasons. Stock price and financial performance are at the top of the list, though. Additionally, some chief executives have been unable to reverse long-term declines. This has been the problem for Rory Read at Advanced Micro Devices Inc. (NYSE: AMD). The dying chip company has begun to slip away even more quickly since he joined.
Other CEOs were hired to rapidly turn around a company, and investors often discover they had too high hopes. Either the public corporations they took over are so badly damaged that no one can repair them, or these CEOs were ill-suited for the job. It became evident quickly that Ron Johnson could not repair J.C. Penney Co. Inc. (NYSE: JCP) and Sherilyn McCoy could not fix Avon Products Inc. (NYSE: AVP). In each case, the problems at the companies they took over went from serious to critical.
24/7 Wall St. reviewed the stock performance of S&P 500 companies in 2012 and the past five years. We also reviewed financial performance for 2012 and the past five years, unless a company was taken public more recently. All of the CEOs likely to be fired next year run companies that had huge share price drops.
As a general rule, a CEO had to be in his or her job for two years or more. The exceptions were cases in which a new chief executive made a troubled situation worse through a series of poor decisions that accelerated a sharp decline in the company’s fortunes.
These are the CEOs likely to be fired next year.
1. Ron Johnson
> Company: J.C. Penney Co. Inc. (NYSE: JCP)
>Share price YTD: -42%
Johnson became CEO of J.C. Penney in November 2011. In a little over a year, he has crippled what was already a vulnerable retailer. Johnson, the former retail chief at Apple Inc. (NASDAQ: AAPL), serves at the pleasure of William Ackman of Pershing Square, which owned, as of the last proxy, 18% of J.C. Penney. Vornado Realty Trust also owns nearly 11%, which means the two groups together control much of the sentiment of the board. Ackman will get tired of losing money, or perhaps the holders of Pershing fund will. It is amazing Ackman has stayed with Johnson as long as he has, given J.C. Penney’s performance. In the most recently reported quarter, revenue fell from $4 billion to $2.9 billion. J.C. Penney posted a loss of $123 million. The figures for the first three-quarters of the year were just as bad. Revenue fell from $11.8 billion in the same nine months a year ago period to $9.1 billion. The loss for the nine months was $433 million. Johnson will not make it through 2013. The question is whether J.C. Penney will, or will the board need to sell the retailer off in pieces.
2. Jeffery R. Gardner
> Company: Windstream Corp. (NASDAQ: WIN)
> Share price YTD: -26%
Gardner became Windstream CEO in late 2005. One of Gardner’s great accomplishments as head of Windstream, according to the company, is that he “has completed nine acquisitions since its 2006 spinoff from Alltel Corp.” Windstream’s stock performance has been weak so far this year, as well as over the longer term of five years. Wall St. has shied from the Windstream shares because, although revenue has risen because of M&A, the bottom line has not. Revenue has gone from $3 billion in 2006 to $4.3 billion in the most recent fiscal year. Net income has dropped from $545 million in 2006 to $172 million in the most recent fiscal year. Matters have gotten even worse recently. In the most recently reported quarter, pro forma revenue was $1.55 billion, a drop of about 1% from the same period a year ago. Net income on the same basis was $54 million, down from of $78 million a year ago. Where has Gardner failed shareholders? He has diversified into very weak businesses, particularly in the disappearing landline sector. Gardner’s efforts in high-speed Internet and competition from alternate broadband offerings continues to damage Windstream.
3. Michael Dell
> Company: Dell (NASDAQ: DELL)
> Share price YTD: -30%
It is usually hard to fire a founder who is also the CEO of the company he started. Michael Dell may be the most powerful case for breaking this precedent. Dell’s shares are not only down 30% this year, but they have fallen 59% over the past five years. For the most recent quarter, revenue fell from $15.4 billion to $13.7 billion. Net income fell to $475 million from $893 million in the same quarter a year ago. For the first nine months of the fiscal year, results were equally disappointing. The most damning evidence against Michael Dell is that he has been much too slow to diversify his company into either the enterprise markets, which are controlled by such companies as International Business Machines Corp. (NYSE: IBM) and Oracle Corp. (NASDAQ: ORCL), or into the smart device business, as Apple and Google Inc. (NASDAQ: GOOG) have. M&A activity has included deals such as the recent one to buy Gale Technologies. The company is not large enough to give Dell critical mass in the enterprise, consulting, software and services business, which drives the strong results at industry leader IBM.
4. Sherilyn McCoy
> Company: Avon Products Inc. (NYSE: AVP)
> Share price YTD: -38%
McCoy joined Avon Products as CEO on April 12. Avon’s share price is down 38% since then, a remarkably poor record. McCoy was brought in to turn around a company almost ruined by her predecessor, Andrea Jung. In the third quarter, revenue dropped 8% to $2.6 billion. Net income dropped 81% to $32 million. Results for the first three-quarters of the year were not any better. If strong leadership is highlighted by the ability to articulate the plans that will make the company successful in the future, McCoy has failed. Among the comments in the most recent quarterly report was: “Management has the team fully aligned around actions that will accelerate top-line growth, reduce costs and improve working capital.” Shortly after Avon released its quarterly results, it announced it would cut 1,500 jobs and close its South Korea and Vietnam operations. This was part of a program to save $400 million annually. McCoy explained these moves “begin the process of returning Avon to sustainable growth.” She did not explain how cutting costs brings about better sales.
5. John Riccitiello
> Company: Electronic Arts Inc. (NASDAQ: EA)
> Share price YTD: -32%
Riccitiello joined EA as CEO in April of 2007. The game company’s fortunes have run very much downhill since then. EA shares are off more than 75% in the past five years. EA had a combined net loss of almost $2.5 billion over fiscal years 2008, 2009, 2010 and 2011. During the most recently reported quarter, revenue fell from $715 million to $711 million. EA’s net loss was $381 million compared to a loss of $340 million in the same quarter a year earlier. Wall St. was disappointed by the company’s financial outlook for the quarter going forward. The case against Riccitiello is easy to make. His ability to move more of the company’s revenue to new social media and mobile platforms has been poor. In July, 2011, EA bought PopCap Games for $650 million plus earn outs to move further into the social game and smartphone sectors. It bought Playfish in November 2009, paying as much as $400 million, to reach the Facebook online game sector. But EA continues to be flanked by companies such as Zynga Inc. (NASDAQ: ZNGA), and its revenue does not show that it has made much progress with its diversification efforts beyond legacy platforms like game consoles.
6. Rory Read
> Company: Advanced Micro Devices Inc. (NYSE: AMD)
> Share price YTD: -54%
Read joined the troubled chip company in April 2011. AMD shares have plunged 72% since then, and there is virtually no case to be made that his tenure has not done more to wreck the company that so badly needed to be turned around. At the end of the third quarter of 2012, AMD’s share of the microprocessor market worldwide was less than 17%. Intel Corp. (NASDAQ: INTC) had the balance of the market and was still gaining ground. Part of AMD’s demise is largely beyond its ability to control. The PC market, which is so important to its prospects, has been on the decline, with shipments falling 8% in the third quarter, according to industry research firm Gartner. The portion of AMD’s fortunes over which the company has some measure of control is diversification beyond PCs into the fast growing tablet and smartphone markets. These markets are currently dominated by Qualcomm Inc. (NASDAQ: QCOM) and Samsung. However, Intel has begun to gain sales with its Atom x86 chip. AMD, on the other hand, under Read, has made no strides in this important sector.
7. Andrew Mason
> Company: Groupon Inc. (NASDAQ: GRPN)
> Share price YTD: -78%
There have already been rumors that the Groupon board might replace Mason, who has been the CEO since he co-founded the company in November 2008. For now, Mason has dodged that bullet, but Groupon’s share price and operating results mean he remains under pressure. The CEO’s fate could be determined by one or two people. Eric P. Lefkofsky, Groupon’s co-founder and executive chairman, owns shares that represent 27.7% of the voting power of the board. Accel Partners and New Enterprise Associates also have a substantial number of voting shares. One of the criticisms of Mason is that he has allowed smaller companies, as well as larger ones such as Amazon.com Inc. (NASDAQ: AMZN) and Wal-Mart Stores Inc. (NYSE: WMT), to take market share from Groupon. In part because of Mason’s failures to defend the business from competition, Groupon’s financial results have been horrible, causing concerns it will not survive as an independent company. In the most recent quarter, revenue rose to $569 million from $430 million. That growth rate of 32% is below what would be expected of a dominant Web 2.0 company. Despite top line growth, Groupon lost $54 million in 2011. The revenue improvement for the latest quarter was a slowdown from the 52% rate for the first three-quarters of the year. Groupon’s appeal to customers is slowing down.
8. Aubrey McClendon
> Company: Chesapeake Energy Corp. (NYSE: CHK)
> Stock price YTD: -24%
It is nearly impossible to understand how Chesapeake CEO and co-founder Aubrey McClendon has kept his job. In April, an investigation found that he borrowed $1.1 billion against personal interests he had in oil and gas wells held by his firm. Most analysts viewed this as a conflict of interest. The Securities and Exchange Commission said it has started an “informal inquiry” into the matter shortly thereafter. In May, his board forced him out as chairman. In June, McClendon hired an ex-SEC lawyer to represent his interests. As if these were not enough to trigger his dismissal, revenue in the most recently reported quarter dropped to $3 billion from $4 billion in the same period a year ago. And Chesapeake suffered a loss of $2 billion, compared to a $922 million profit in the same quarter in 2011. Chesapeake’s board was shaken up in June as a new chairman and four new board members were added. McClendon has run out of time.
Douglas A. McIntyre