Investing

The Worst CEOs In American History

3.   Chuck Conway. Chuck Conway was the head of Kmart when it declared bankruptcy.  He was charged with accounting fraud that improved the company’s balance sheet.

Founded in 1899, Kmart, formerly known as S. S. Kresge Co., was one of the preeminent retailers in the US for decades.  By the 1970s, Kmart was the Walmart of its era and controlled a large portion of the “big box” retailer business in the US, Canada, and Australia. At its peak, it had over 1,000 stores.  In the 1980s, despite its slowing growth, the company began to invest in separate business lines, which included Waldenbooks, the Sports Authority, and Office Max.

By 2000, following a string of unsuccessful business decisions, Conway was brought in to turnaround Kmart.   When he joined the company in 2000, it was still a formidable force in the US retail space, despite its lackluster performance over the prior 15 years.  As part of his inaugural address, he said his primary goal was to improve the company’s supply chain and bolster its brand so that the firm could better compete with Walmart, a company that was founded over 60 years after Kmart. He did not carry out any of his goals.

At the time of Kmart’s bankruptcy in 2002, he was charged with defrauding stockholders by covering up details of the firm’s faltering financial position. He was also accused of spending the company’s money on airplanes and houses.

4.   George Shaheen. Shaheen joined Webvan in September 1999 after being the head of Andersen Consulting, later renamed Accenture.

The company, one of the largest start-ups during the Dot-com Bubble, was set up to take grocery orders over the Internet and deliver the orders within 30 minutes. Webvan planned to have operations in 26 cities.  It never got beyond 10, and most of these remained on the West Coast. The company spent $1.5 billion over a year and a half period, beginning in 2000. At one point, Webvan had 4,500 employees and owned a string of warehouses. When it declared Chapter 11 in 2001, it fired 2,000 people.

Webvan doubled down on its strategy to operate an online grocery business by buying HomeGrocer in June 2000. It was an error that increased Webvan’s cash burn rate. The logistics needed to execute its business model were a nightmare. Shaheen failed to understand that all retailers operate on tiny margins and Webvan had no leverage with customers to improve that. Perhaps, worst of all, he authorized issuance of an IPO that raised $375 million – almost none of it was recovered.

Shaheen holds a special place among bad CEOs. He fancied himself as one of the greatest business consultants in the world when he ran Andersen.  Yet, it seems he did nothing to effectively review Webvan’s business model. It appears that he made no attempt to work with his board of directors or management to alter the company’s operations.

5.   Tommy Sopwith. Tommy Sopwith, the founder of The Sopwith Aviation Company, began the storied airplane business in 1912. Contracted by the British government during the First World War, the company built 16,000 aircraft and employed 5,000 people.  It was one of the largest aircraft manufactures of the first two decades of the 20th century.

Sopwith was slow to realize that most airplane manufacturers would need to convert their products to appeal to the commercial market and failed to adjust to the civilian world in time. Sopwith tried to sell slightly modified models of its military planes, but was unsuccessful. Although the company bought ABC Motors Limited, a motorcycle and engine manufacturer, in 1919, it was too late to diversify this business. Sopwith closed the following year.

Sopwith’s problems were compounded by charges that the company made exorbitant earnings on its wartime enterprises, and were eventually punished by punitive anti-profiteering taxes.

6.   John Sculley. John Sculley is on the list for one reason. He fired Steve Jobs from Apple. Similar to the Google board’s decision to hire Eric Schmidt to run the company with its precocious founders, Sculley was hired to be Apple’s CEO in 1983.  Because of his significant business experience and marketing acumen, which included the top job at PepsiCo and introduction of the Pepsi Challenge, the board hoped Sculley would bring a proven management style to Apple.  It also hoped that he would bring a mature business approach to a company that was growing quickly but was run by inexperienced executives, which included its co-founder Steve Jobs.

In 1985, he convinced the board to strip his rival, Jobs, of all managerial responsibility, effectively canning one of the greatest product designers and marketers of all time.

Sculley believed in expensive marketing campaigns. Unfortunately, his marketing heft did not compensate for his insufficient product management skill. At the end of the day, he lacked sufficient technical background to be a product manager for Apple.  During his tenure, he invested heavily in a number of failed ventures, including Apple’s Newton, an early PDA-like device, cameras and CD Players.  And in 1993, Sculley’s lack of knowledge regarding the technical details of the products built by Apple and its competitors cost him his job.

Apple bought the computer company that Jobs had created, NeXT, in 1997, and Jobs became Apple’s CEO that same year.  Like Sculley, the rest is history.

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