America’s Most Dysfunctional Boards

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7. Sears
> Current CEO: Louis J. D’Ambrosio
> 5 yr. share decline: 65%

Sears Holdings (NASDAQ: SHLD) shares are down almost two thirds over the last five years. Edward S. Lampert, the retailer’s Chairman of the Board, holds directly or indirectly 65,243,311 shares, or 59.9%. Sears and K-Mart merged in 2005, and several Sears Holdings directors served on the board of one or the other of those companies prior to that merger. They include Steven T. Mnuchin, Ann N. Reese, and Thomas J. Tisch. Sears Holdings’ interim Chief Executive Officer and President from February 2008 until February 24, 2011, W. Bruce Johnson, was elected to the board in 2010. Louis J. D’Ambrosio, Chief Executive Officer and President since February 2011, is also a board member.

The board has not only failed to find a permanent CEO for two years, but its strategy to hold onto customers and manage the Kmart and Sears brands has failed as well. This has become clearly evident in the company’s financial results of the past several quarters. In the recent second quarter, Sears posted a large $144 million net loss, exceeding both the mean analyst expectations and the net loss posted in the same quarter last year ($34 million). The company has not made any successful effort to outflank rivals Home Depot (NYSE: HD), Lowe’s (NYSE: TGT), Target, and Walmart. The lack of success is clearly seen in the 3.6% decline in same-store sales in the quarter ended April 30. The figures were down more modestly in the latest quarter. Sears sales have dropped every year since Lampert created the company in 2005.

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8. GE
> Current CEO: Jeff Immelt
> 5 yr. share decline: -55%

GE’s (NYSE: GE) shares have dropped 55% during the last five years. The company’s revenue in 2006 was $163.4 billion. Last year, that number was $150.2 billion. Net income was $20.8 billion in 2006, but approximately half that — $11.6 billion — last year. GE has recently restructured in a way that would affect the numbers between the two periods modestly. The largest of these changes is the sale of the majority interest in NBCU to Comcast. However, that does not change the overall picture of GE as a company that has stagnated during the last half decade, despite restructuring efforts and a hard push into the healthcare and environmental business sectors.

A large number of directors have been with GE for a decade or more. Former banker Douglas A. Warner III became a board member in 1992. Sam Nunn, a former Senator, has been a member since 1997. Race car entrepreneur Roger Penske has been a member since 1994. Andrea Jung of Avon has been a member since 1998. All joined prior to the appointment of current CEO Jeff Immelt. Only two new directors have joined the board since 2005. The trouble at GE is all the more vexing, since it was once viewed by many as the best run company in the world.

There have been a good many periods of management indecision since Immelt became CEO. For years, he said that NBCU was a core business. He reversed field less than two years ago. The board, arguably, should have pressed Immelt to alter what the market has come to believe is an outdated strategy. Fortune wrote of Immelt earlier this year that “judged rigorously on what he has delivered — the GE way — he has not made a strong case for 10 more years.” The fault for that is a board that has too many people who have been in place for too long.

-Douglas A. McIntyre

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