John Kenneth Galbraith once observed that changing the top man in important business corporations rarely affects the price of their shares on the market. This is true, to an extent, although there are a number of notable cases which suggest that getting rid of a truly bad CEO dramatically improves it. There is a theory that history is made for the most part by towering figures of stupidity rather than of genius, and the evidence would certainly seem to support this is business. HP, for example, gained almost $3 billion of market value the day after news of Carly Fiorina was made public in 2005, following a long catalogue of failures.
The decision of Uber founder and CEO Travis Kalanick to resign under heavy pressure from investors has again raised the question of how important a CEO actually is. Prior to his resignation, Uber had suffered a number of scandals, all of which were blamed largely on the culture Kalanick had implemented. There were accusations of sexual harassment and discrimination in the workplace, as well as an intellectual property lawsuit from Waymo and accusations of corporate espionage from Lyft. Kalanick has been vocal in his encouragement for such aggression and alpha male chest beating. In April, however, the bad press finally caused investors to cut the price they said they were willing to pay for Uber stock on the secondary market by about 15% to a level that values Uber at around $50 billion, according to one broker - $10 billion lower than the company had been valued at in February.
Obviously, while this all sounds terrible, Kalanick did build Uber from nothing into the behemoth it is today. He is certainly not, by any stretch of the imagination, the worst CEO in history and he is hardly leaving Uber completely down and out. We've looked at 5 CEOs who really took their company to the brink - and even past it.
John Keyes - Blockbuster
John Keyes to over from John Antioco in 2007, was named as his replacement. He took over at a challenging time for the company, with Netflix beginning to make moves. However, they had introduced their own online platform, Total Access, and the option of being able to take DVDs you rented back to a Blockbuster store was proving popular. Indeed, it was likely with the resources at their disposal that if they had continued taking that strategic line, they would have crushed Netflix. At a conference call with analysts in 2007, Netflix CEO Reed Hastings said Blockbuster had thrown everything at them but the kitchen sink. Blockbuster COO Nick Shepherd sent Hasting’s office a kitchen sink the next day with a note that read simply, ‘Here’s your sink.’
Then, following some boardroom machinations, Antioco was pushed out and Keyes was brought in. He immediately reversed Antioco’s changes in order to increase profitability. Keyes cut spending on Total Access, and while subscribers remained stable at 3.1 million, there was no growth, while Netflix continued to boom. Instead he focused on retail, choosing to turn Blockbuster into a one-stop entertainment shop selling everything you could need around watching a video in house. This was a strategy that Blockbuster had tried before. And it had failed before. Despite declaring revenues of $6 billion in 2004, Blockbuster declared bankruptcy in 2010.
Gerald Levin - Time Warner Inc.
Levin really only made one real mistake, but it was a whopper. On January 10th, 2000, Levin, Case and a host of other executives from both companies announced the merger of AOL and Time Warner. The plan had AOL, using the value of its stock - wildly inflated by the Internet financial bubble - to purchase Time Warner for about $164 billion.
The worth of AOL Time Warner stock dropped by 90% over the next decade, with AOL being spun out as a separate company again. There were massive layoffs and retirement savings plans were destroyed. The AOL deal destroyed over $200 billion in Time Warner shareholder value. Levin apologised in 2010, saying, ‘I’m really very sorry about the pain and suffering and loss that was caused. I take responsibility.’
Marissa Mayer - Yahoo
Former Google exec Marissa Mayer took over as Yahoo CEO in 2012 tasked with making the company, one of the oldest search engine providers, competitive with Google again. She intended to do this by acquiring as many innovative fledgling internet companies as possible, making 53 acquisitions worth $3 billion. This might have worked, if any of the startups had been any good. With the exception of Tumblr, none of Yahoo’s acquisitions made so much as a ripple on the consumer radar. Even Tumblr decreased in value by $230 million following its 2013 acquisition.
Her other initiatives were to change Yahoo's home page layout and cancel the company's work-from-home policy. Shockingly, these weren't enough to turn the company's fortunes around.
In February of last year, Mayer was forced to announce that the company was laying off 15% of its workforce - around 1,700 jobs - having made a loss of $4.4 billion. Activist investors at hedge fund Starboard Value declared recently that Yahoo’s entire board should be axed for their poor performance. The company was finally sold to Verizon for $4.8 billion, not a number to be sniffed at unless you consider what could have been. Mayer got a payout believed to be in the region of $260 million that few would argue is deserved.
John Sculley - Apple
John Sculley notoriously forced Steve Jobs out of Apple, a move that was to be made to look even more foolish in 1997 when Jobs was brought back in. Jobs almost didn’t have a company to come back to, though. Sculley’s regime was notable primarily for infighting among its leadership and a number of expensive failures such as the Apple Newton. Sculley also made a number of dubious strategic decisions, including raising the price of the Macintosh when personal computer prices were falling, refusing to license the Mac operating system, ignoring the corporate market, and chasing high profit margins at the expense of high market share. He was deposed by the board in 1993 with the company on the brink of bankruptcy.
Carly Fiorina - HP
Failed Republican leadership candidate Carly Fiorina became CEO of HP in 1999 and left the company in 2005. One unnamed top HP executive called Fiorina ‘polarizing [and] disenfranchising… She was a value destruction machine with near zero cultural sensitivity… Carly self-excused a barrage of criticism by saying it all came with her necessary role as a change agent.’ During her six years in charge, the company lost half its value and thousands lost their jobs, so change the company she did, though few would argue it was a positive change. The $25 billion merger with Compaq was her doubling down on the PC market and sacrificing the company’s far more profitable printer division to do so, a strategic decision that only her most die-hard of defenders would argue was a good idea.
The day after news of the HP board of director’s decision to fire Fiorina was made public, HP gained almost $3 billion of market value.