Worst CEOs: A Check Up From The Head Up
LINDA WERTHEIMER, HOST:
Some of the most spectacular business failings of 2011 were created or enhanced by the very people who should have provided protection against failure: the CEOs.
To tell us about some of the worst offenders, we're joined by Sydney Finkelstein, of Dartmouth College's Tuck School of Business. He is the author of "Why Smart Executives Fail."
Welcome to our program.
SYDNEY FINKELSTEIN: Thank you, Linda.
WERTHEIMER: Now, you've compiled a list of some of the most egregious management blunders of the year. Let's start with the co-CEO's of Research in Motion or RIM. That's the company that makes the BlackBerry smartphone.
FINKELSTEIN: Well, the co-CEO's of Research in Motion, Mike Lazaridis and Jim Balsillie, are really two people that built their business on that BlackBerry - that one product - and haven't adapted, haven't changed, because the world's changed quite dramatically around them, most obviously with the rise of the iPhone and even Google's Android.
There are other things they've done that I think are troubling. This co-CEO structure is almost a guaranteed model for failure. It hardly ever works. It makes it difficult to know who is in charge and I think that slowed down their ability to adapt to competitors.
WERTHEIMER: Now another technology company made big headlines this year for some fairly disastrous decisions - HP - the world's largest computer maker. Former CEO Leo Apotheker veered pretty far from the HP way. What was his biggest mistake?
FINKELSTEIN: Well, Mr. Apotheker really - there's so many things that he did wrong. first. let's get rid of the PC business, which became a something like $40 billion business for HP. And then let's keep it. Let's create a new tablet and then let's drop that almost as soon as possible. Actually, it's one mistake after another in this instance.
WERTHEIMER: Shouldn't the board of directors that hired him take some of the heat on this?
FINKELSTEIN: Yes. Absolutely. This is also a board of directors that hired Carly Fiorina a few years ago and she also ended up having a very short tenure. And by the way, these people that become CEOs of HP and then are shown the door typically walk away with $25 million or $30 million in severance. That's not going to make a lot of people or shareholders happy for that matter.
WERTHEIMER: Another Silicon Valley company, Netflix, created its own drama this year. CEO Reed Hastings changed the way that people watch television and watch movies. What happened to Mr. Hastings?
FINKELSTEIN: So, yes, he was very beloved. But he came up with a plan to split the business into two: the traditional DVD mail order business, and then the newer streaming business. That in and of itself is not a mistake. However, in the process of doing that, he ended up raising the prices and making it actually much more complex for customers to order what they wanted.
I think customers felt betrayed.
WERTHEIMER: But on the other hand, here's a man who was trying to get his company into a new position, not sticking with the old tried and true, which, I mean it's the opposite from the BlackBerry story.
FINKELSTEIN: Yeah. In fact, I like the idea of splitting the company into two. In some ways that's textbook strategy. You split the company into two to protect the new fledging business, but the process that he went through has been a disaster. His communication wasn't very good, and I think there's a lot of people that are wondering what is new that they are doing that nobody else can do. And I don't actually there's very much.
WERTHEIMER: One company that was not quite so widely reported was Johnson & Johnson.
FINKELSTEIN: Johnson & Johnson and William Weldon, the CEO, is almost like a Teflon CEO because there's a lot of stuff that went wrong under his watch this past year and as you say, hardly anyone ever talked about it. And I'm talking specifically about the incredible number of product recalls in this company: insulin pumps, the sutures, syringes, hip implants, contact lenses, Tylenol, Benadryl, Rolaids, you name it. And that's not...
WERTHEIMER: Baby shampoo.
FINKELSTEIN: And that's not even the whole set of them. And for a company like this to fall down when it comes to quality and safety is - I think it's shocking. And William Weldon is the CEO and it's happening under his watch.
WERTHEIMER: Is anything going to happen to these guys? I mean are they likely to lose their jobs? Were there consequences for some of the bad things that happened to good companies?
FINKELSTEIN: Well, you know, some have lost their jobs. But it gets back to this issue of boards of directors and how vigilant the boards are in overseeing those organizations. And sometimes they let their CEOs stay in those positions perhaps a little bit too long.
WERTHEIMER: Sydney Finkelstein, thank you very much.
FINKELSTEIN: Thanks, Linda. Great to be on.
WERTHEIMER: Sydney Finkelstein is a professor of Strategy and Leadership at the Tuck School of Business at Dartmouth College.
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