It is that time of year where companies should have been evaluating their plans for the year ahead. Each year we come out with a list of companies who should get rid of their CEOs or which should make some strategic changes inside the company that revolve around the CEO and management. Boston Scientific Corp. (NYSE: BSX), Citigroup, Inc. (NYSE: C), Dillard’s Inc. (NYSE: DDS), Eastman Kodak Co. (NYSE: EK), General Motors Corporation (NYSE: GM), Nortel Networks Corp. (NYSE: NT), Rite Aid Corporation (NYSE: RAD), SanDisk Corp. (NASDAQ: SNDK), SIRIUS XM Radio Inc. (NASDAQ: SIRI), and Sun Microsystems Inc. (NASDAQ: JAVA) are all on this year’s list.
With so many stocks down 50% and more, we want to stress that the list could have had hundreds of management teams on the list if stock prices were the sole criteria. Our criteria for change is far more than just poor stock performance. The list is broken down individually below and summarized with links to the full story on each individual.
Boston Scientific Corp. (NYSE: BSX) is somehow still being driven by James Tobin and we cannot figure out how nor why. Tobin has led the destruction shareholder value before, and this year’s antics have only added to more destruction of the company’s future.
Citigroup, Inc. (NYSE: C) has been a disaster. We do not blame CEO Vikram Pandit for this entirely because most of the problems were there before his fund was bought and before he took any control. The problem is that the company needs a hatchet man and a swift action-taker more than it needs what it has been seeing. There is some pain coming for the company and its workforce, and the question is when and how it comes rather than if it comes. Getting rid of a highly overpaid Bob Rubin is not going to be enough.
Dillard’s Inc. (NYSE: DDS) is being run like a family business and could use new blood, literally. The company is run by William Dillard II as CEO (founder’s son) and as Chairman, and its President is Alex Dillard. It now has more activists after it even though management can hide behind a dual-class of stocks that allows the founding family to retain control. He is going to be a tough one to get rid of, but an outsider needs to be brought in whether the Dillard clan wants to carry the flag or not.
Eastman Kodak Co. (NYSE: EK) needs to bring in new blood to more rapidly adapt to the new world of film and photography and imaging. Chairman & CEO Antonio Perez has been on our list to go, yet somehow he is still sitting on the Eastman Kodak throne despite its incredibly poor performance.
General Motors Corporation (NYSE: GM) may seem like too easy of a pick of companies which need to replace their CEO. Rick Wagoner needs to leave regardless of whether the company gets a bailout or not. The first beggar presentation given to Congress was almost as big of a disaster as the sheer loss of wealth which has been seen here. Whether Congress bails the company and other auto players out is probably not going to be enough to keep Wagoner on. He might even say, "Weeee-Goner!" as he leaves.
Nortel Networks Corp. (NYSE: NT) is driving off the edge into the abyss. Mike Zafirovski was brought on to fix things. Considering he came from Motorola with its lovely success story, it is of little shock how poorly this turnaround has gone and how the restructuring just never ends. The company needs to get Fafirovski out of there quick, or Nortel stock certificates will be able to be auctioned off as stock market history memorabilia.
Rite Aid Corporation (NYSE: RAD) is in a pickle jar whether it reverse-splits its stock or not. We are not calling for the outright ouster of Chairman & CEO Mary Sammons, but we expect a strategy that by mid-2009 she either takes back more of the control or that she turns the CEO role to the new president. Because she turned this one around once, she has been given the benefit of the doubt more than other managers.
SanDisk Corp. (NASDAQ: SNDK) is run by co-founder Dr. Eli Harari as Chairman, CEO, and a member of the Special Option Committee. He is one of the more well-known industry executives. Our call here is more of a strategy call for Harari rather than an ouster. He should remain Chairman, but the troubling times ahead and the trends of memory prices and end-user products down the road is going to require a much better CEO role.
SIRIUS XM Radio Inc. (NASDAQ: SIRI) now stands at a critical juncture, and this is a call which will not come about easily. Mel Karmazin as CEO is only part of the issue here, but we think shareholders will ultimately be better without Karmazin running the ship. The reverse split and the financing needs are only part of the problem here. There is a real shot that if any access to capital comes available, he might actually be able to take this company private at everyone’s expense.
Sun Microsystems Inc. (NASDAQ: JAVA) has been a complete disaster under Jonathan Schwartz as CEO. When Scott McNealy dropped the CEO role to just be Chairman it seemed like a natural choice. This was a huge mistake and shareholders are being plundered as a result. Our opinion is apparently the same as many who are in or close to Sun as well. Schwartz just needs to go. Period.
If you want to know how our past predictions in this exact area have gone, there is a precedent here. Our 2008 CEOs TO GO has at least 7 out of 10 picks following the path, and most of the 2007 CEOs TO GO have gone on down the road.
As a reminder, not all of these calls are for sheer ousters of CEOs. Some are strategic calls. In many cases it will be hard to find a replacement as so many companies are in trouble right now. We tried our best to avoid the massive numbers of financial firms, homebuilders, retailers, media and more because so many of these sectors are in trouble and you could almost include all of them if you only looked at the stock prices. These were specific public company figures with specific reasons set out for each case.
Jon C. Ogg
December 5, 2008