Management Turnover as Change Agent

Monday, April 30, 2007

Hands on Exec - Key to Pep Boys Future?

Pep Boys (PBY - NYSE) was one of ten CEO changes I selected out of a total two hundred and eight CEO changes in the month of March 2007 investors might wish to reconsider for potential investment opportunity.

On March 13th, Pep Boys, a leading automotive retail and service chain, appointed Jeffrey C. Rachor as the company's new president, CEO and director of the firm. Rachor until his new appointment was the president and COO of Sonic Automotive (SAH - NASDAQ) one of the nation's largest automobile retailers. A real car guy, Rachor appeared to do a good job while at Sonic. During his 10 year stint at the firm, he showed himself to be a real "hands on" executive which could work well for the Pep Boys business model. Sonic's stock during his 10 year stint performed terrifically. He is expected to remain a director at Sonic which could be viewed as a positive indication of how he is still viewed by Sonic management.

Pep Boys has been under increasing pressure, the firm has been caught in the cross hairs of activist hedge fund investors (Ramius Capital, Pirate Capital, and Barington Capital) who have played a part in getting the company to make changes in management and focus. In fact, some of the Hedge funds have recently got on the company's board.

Rachor's appointment appears to have been a really good choice. He has quickly begun visiting the company's different stores to get a feel for the business and what is transpiring. His background and nuts and bolts expertise should serve him well at the company. After some expected up time, it's likely he will work on revising the company's overall strategic approach to the market.

Keep an eye on Rachor and Pep Boys.

Thursday, April 26, 2007

Sony Video Game Guru Gets Zapped

April 26, Ken Kutaraji the inventor of Sony's PlayStation Video game consoles has called it quits. It was announced he will cease being the CEO of Sony's game division effective June 19. Sony (SNE - NYSE) whose star has been fading for some time now despite numerous attempts to right the ship, keeps looking for the holy grail. The company made a surprising change over two years ago with its CEO and Chairman when the board chose an outsider, Sir Howard Stringer to be the company's leader. Stringer, a well-known former TV and news executive was an out-of-the-box appointment for a Japanese company. Many people at the time expected Kutaraji to be the heir apparent to the CEO and Chairman spot, not Stringer.

Throughout the last few years, Sony has made a number of executive changes in its consumer product and entertainment divisions. At one point, despite numerous product disappointments, many experts thought Sony's future might brighten with the launch of the firm's newest video game console, the PlayStation 3 (PS3). The predictions, however, came up a bit short. The new PlayStation has not done very well against Microsoft's Xbox 360 and more significantly, has been overwhelmed by the huge success of Nintendo's Wii console.

Kutaraji will become honorary chairman of Sony's Computer Entertainment Inc. In his place, Sony promoted Kas Hirai, the unit's current president and COO. Hirai will become president and group chief executive in charge of the PlayStation business.

Sony needs to come up with a real consumer winner and it needs to do it soon. Despite reasonable performance in the stock there continues to be concerns for the company long-term.

For more:

Associated Press
Business 2.0 Magazine
Reuters Article
Business Week
Daily Tech

Wednesday, April 25, 2007

Off the Standard Track But Good Choice

Yesterday I focused on L-3 Communications' CEO choice back in June 06'and today is another one I selected from last June, International Flavors & Fragrances (IFF - NYSE), one of the leading creators and manufacturers of artificial aromas and flavors. In January of 06', the long time CEO of IFF, Richard A. Goldstein, announced he planned to retire from the firm after its May 06' annual shareholders meeting. The company initiated a search for a new CEO and in the interim upon Goldstein's retirement in May, IFF put in place an interim CEO, Arthur M. Martinez the lead director from the board and a former Chairman and CEO of Sears, Roebuck & Co. In less than two months from Goldstein's actual retirement, IFF announced the appointment of a somewhat surprising choice, Robert M. Amen as Chairman and CEO.

Amen, who was previously the President of International Paper and worked for the company for over twenty six years was an extremely well rounded executive with global-branding expertise and keen operational skills. He was not, however, an executive from either the food or cosmetics related industries which was where many people thought IFF's next CEO would be from. Nevertheless, I saw his appointment as good fit for the firm.

With nearly ten months under his belt, IFF results have been quite positive.

Tuesday, April 24, 2007

Good Choices in Difficult Times Can Make A Difference

Back in early July 06' I selected twenty three companies out of a total two hundred and nineteen CEO related changes for the month of June investors should consider re-examining for investment possibilities. Below is the firm selected with the largest market cap at the time, L-3 Communications (LLL - NYSE) $9.363 billion.

In early June 06" L-3 Communications, a defense contractor that makes systems for satellite, avionics and marine communications, lost its famed founder and CEO, Frank Lanza. Lanza who was known as a hands-off executive (an unusual trait for a defense contractor chief executive) built the company through a series of keen acquisitions and entrepreneurial management over its different divisions. Lanza's death put a shroud over the company. The board of directors quickly appointed an interim CEO, Michael T. Strianese, the existing CFO and someone who was intimately involved in the firm since its formation back in 1997. Prior to working at L-3 Communications, Strianese worked for Lockheed Martin and earlier with Ernst & Young.

Liberum viewed Strianese's appointment favorably. Nearly five months after his interim appointment the board chose to make Strianese the CEO and President of the firm. Strianese learned a great deal from Lanza and throughly understood the business and how to handle acquisitions. So far he has turned out to be an excellent choice.

Friday, April 20, 2007

CEO Changes Can Matter. One Positive, One Negative

Back in early August of 06' I selected eleven companies out of a total one hundred and sixty seven CEO related changes for the month of July investors should re-examine for investment possibilities. Two of the picks were LeapFrog Enterprises (LF - NYSE) and Capstone Turbines (CPST - NASDAQ). Each pick was for opposite reasons.

LeapFrog Enterprises, manufacturer of the well-known children's LeapPad multimedia product, announced the hiring of Jeffrey G. Katz as CEO and president. Katz immediately took over the position from Tom Kalinske. Kalinske continued to serve as vice chairman of the board. Katz was a great hire.

He was the founding chairman and CEO of Orbitz, the ecommerce travel site. Prior to Orbitz, Katz was the COO of Swissair and before that worked with American Air. While with American Air he served as the President of the Computerized Reservation System Division of SABRE. Katz is also a director on a number of boards. He was the kind of executive choice that had the potential to take the firm to another level.

So far, the choice has worked out. Keep a close eye on the firm.

Capstone Turbines on the other hand, was a different situation. The company's principal activity is to develop, manufacture and market microturbine generators. The company was already having problems when the company announced in late July that its CEO, John Tucker, citing personal reasons had submitted his resignation effective July 31 as President, CEO and director. The company did not have a ready successor and in the interim, appointed Mark Galbreth, the company's executive vice president and chief operating officer, to serve as president and chief executive. Not until December 12th did the company find a replacement for Tucker. The company named Darren R. Jamison its new president, CEO and director. Jamison while an acceptable appointment did not appear to have the depth of high level experience and skills necessary to help turn the ship.

Prior to joining Capstone, he had been President and Chief Operating Officer of Northern Power Systems, Inc. since 2004. Previous to Northern Power Systems he was Vice President and General Manager of Distributed Energy Solutions for Stewart & Stevenson Services Inc. from 1994 to 2003.

We will just have to wait and see.

Thursday, April 19, 2007

A CEO Change Back in August Worth Noting

Back in early September, I selected six companies out of a total two hundred and thirty three CEO related changes I recommended investors re-examine for investment possiblities. One of the six was Clorox (CLX - NYSE).

On August 30, 2006 Clorox announced that Donald R. Knauss would be named chairman and chief executive officer to be effective in early October. For nearly six months Clorox had experienced a number of management changes at the top which first started back in March of 2006, when its chairman and chief executive officer Gerald E. Johnston was hospitalized for a heart attack on March 1. Initially, the company appointed an interim chairman and chief executive, Robert W. Matshullat the presiding director of the company's board of directors, to take Johnston's place. Two months later, Johnston announced his formal retirement from the firm. Finally at the end of August, Clorox found Johnston's replacement.

I considered Knauss' selection an excellent choice. He previously worked as a senior executive for Coca Cola for twelve years. His last position before joining Clorox was president and chief operating officer of Coca Cola North America. Knauss had extensive experience in consumer marketing and operations which was a perfect fit for Clorox job. Prior to his work at Coca Cola he worked for different divisions at Pepsi and earlier began his career with Proctor & Gamble.

Keep an eye on Knauss.

Wednesday, April 18, 2007

Can Yahoo's Semel Survive?

Predictions on Terry Semel's fate as Yahoo (YHOO - NASDAQ) CEO have been all over the map for the last year and a half. Yesterday's first quarter report was a disappointment to Wall Street despite the fact that the overall numbers came close to Yahoo's earlier first quarter guidance.

Yahoo's perception on Wall Street which has been somewhat negative recently showed signs of moving in a more positive direction until yesterday's earnings announcement. Despite some positive feelings about Yahoo's new search/advertising technology, Project Panama, and its deal with Ebay/paypal and recent deal with newspapers many pundits are again predicting Semel's demise.

Semel predicts Project Panama will show real results in the second quarter. Even if true, will it stave off the calls for his head? Acting CFO, Susan Decker is often touted as his possible successor but that remains in question. The real issue is what could a new CEO, whether from within or outside the firm, do to help Yahoo compete more effectively with Google?

For more on the Semel saga check out:


Tuesday, April 17, 2007

Can Dual Leadership Changes Make A Difference?

Credence Systems (CMOS - NASDAQ), a company that makes automatic test equipment and related software used in the design and manufacturing of semiconductor production, has undergone two key management changes over the last five months. The new CEO is working hard to put his stamp on the company. It is time to keep a close eye on the firm. A recent piece in Barron's and later picked up in Seeking Alpha examined the changes. Liberum suggests investors always keep an eye on multiple management changes.

The first change came in early December with the appointment of Lavi Lev as President and CEO to replace Dave Ranhoff who stepped down. Lev, who had experience in product development, management and business development in the design tool industry had over twenty years experience in the semiconductor industries. He appeared to be an appropriate choice for the company at its specific stage of development. Lev previously worked for a number of firms in the field, including National Semiconductor, Intel, Sun Microsystems, Silicon Graphics and most recently as EVP and General Manager of the products and Solution business at Cadence Systems.

Since Lev's appointment he has been working hard to get the company moving forward. Yesterday the company announced the appointment of Joy E. Leo as senior vice president of finance and CFO. Leo's appointment will be effective upon the filing of the company's quarterly report on Form 10-Q, expected in early June. Ms. Leo has an extensive financial background with over twenty-five years of financial and corporate management experience with leading electronics companies. Prior to joining Credence, she was VP of finance and administration, CFO and secretary for Artisan Components, Inc., now known as ARM Holdings PLC. She also served as VP of finance and administration and CFO for IMP, Inc.; VP of finance, operations and administration at Innomedia Incorporated; and, VP and CFO for Philips Components, a division of Royal Philips Electronics N.V.

The company's new dual leadership could be the beginning of a shift in the company's fortunes.

Monday, April 16, 2007

Delta Brankruptcy Exit - Awaits New CEO Pick

Delta Airlines Inc., (DALRQ - Other OTC) will soon exit bankruptcy and has a big decision awaiting the board. Gerald Grinstein, the current CEO, plans to step down as soon as the board makes its decision on his successor. The question on everyone's mind is whether the board will go outside Delta or pick from within, Grinstein's expressed hope. This is a decision to watch.

Delta remains the third largest carrier in the United States and the decision could have great impact on the company and possibly the industry. According to an Associated Press article by Harry R. Weber inside candidates under consideration include Ed Bastian, CFO and James Whitehurst, COO. One important question is who is the board considering from the outside?

Stay tuned, the decision could be significant.

Friday, April 13, 2007

CEO Turnover at the Top of the Corporate Food Chain

Liberum has for sometime been talking about the growing turnover in corporate management. Our data has continued to demonstrate the increasing level of management turnover in public companies. Early 2007, unlike the same period in 2006, has not however, shown an increase in overall C-level turnover. To the contrary, first quarter totals indicate a continuation of a C-level slowdown that first appeared in the fourth quarter of 2006. The slowdown took place in a number of key title categories. To get a better feel for one of the more important categories, we have put the following numbers for CEOs broken down by market cap ranges.

We broke the figures down by market cap range to get a different view of where changes are taking place in a specific title category. The below two charts outline the different turnover figures at the larger public companies. The charts illustrate an interesting dichotomy. CEO turnover did not appear to decline in the first quarter of 2007 for the large cap firms with market caps over $10 billion. There was, however, a measurable decline in CEO changes in first quarter for companies with market caps below $10 and up to $1 billion.

CEO Changes in Companies with Market Caps

Equal or Greater than $10 Billion

Time Frame Internal Moves Joining Leaving Promoted Resigned/Retired Terminated TOTALS

2005 * 28 24 5 58 25 0 140
2006 72 43 10 143 45 1 314

Q 1 2006

17 8 5 47 11 0


Q 1 2007 16 13 0 51 12 0 94

2005* data is not complete with regard to market caps. A portion of the data was not compiled with market cap data and are not accounted for in this table

CEO Changes in Companies with Market Caps

Less than $10B and Greater than $1B

Time Frame Internal Moves Joining Leaving Promoted Resigned/Retired Terminated
2005 * 28 40 6 71 51 0
2006 128 89 17 165 123 3

Q 1 2006

35 16 4 54 43 1


Q 1 2007 25 18 0 33 17 1

2005* data is not complete with regard to market caps. A portion of the data was not compiled with market cap data and are not accounted for in this table

We will soon publish the same type of figures for public companies with market caps below $1 billion, stay tuned.

Thursday, April 12, 2007

Monster of a choice?

Monster Worldwide (MNST - NASDAQ) announced that William Pastore, who became CEO back in October 2006 in the wake of the stock option scandal, will step down as president and CEO effective immediately. Sal Iannuzzi, former CEO of Symbol Technologies will succeed him. Iannuzzi, a previously favored CEO pick of Liberum when he became CEO of Symbol Technologies, is a good pick despite the continuing uncertainties facing Monster. Iannuzzi was chosen to lead Symbol when that firm was facing serious financial related problems as well. He managed to handle a very difficult situation. He cut costs and put Symbol back on track. He was at the helm when Motorola purchased Symbol back in September 2006 and the deal was finalized in January 2007.

It's possible Monster may at some point be a candidate for takeover. Keep your eye on Iannuzzi.

Can a white knight be found?

No real surprise. Earlier today Vonage (VG - NYSE) announced the resignation of its CEO Michael Snyder. After a series of serious mis-steps, a patent battle with Verizon which could lead to bankruptcy, the company has temporarily turned to its Chairman, Jeffrey Citron to fill Snyder's shoes. Citron who owns over 30% of the company has more than his hands full. Is there really anyone out there that could right the ship?

Stay tuned, but I wouldn't bet the ranch on it.

Wednesday, April 11, 2007

Solid Choice to Head Gaming Software Developer - Cryptologic

April 2 Cryptologic (CRYP - NASDAQ), a leading software developer to the global Internet gaming industry, appointed Javaid Aziz as the company's president and CEO. Aziz replaces Lewis Rose, the company's CEO since July 2002, who back in September announced his intention to step down because of family commitments, effective upon hiring of the new CEO. Shortly after Rose's announcement the stock took a real decline but eventually began to recover. Aziz was a very solid choice to replace Rose.

Aziz is an extremely well-seasoned executive with over thirty years of diversified international experience in the information technology industry. He worked for twenty years at IBM where he eventually became chief executive for the United Kingdom. He then went on to Silicon Graphics as a Senior Vice President and later founded Aspective in 1999 and sold it in 2006 to Vodafone Group Plc. He appears to have all the qualities necessary to fill Rose's shoes and take Cryptologic forward.

Rose successfully put Cryptologic on the map. He recognized the limitations of the firm's services in the United States, which are increasingly limited by a number of regulatory matters. Rose responded to the problem by successfully focusing the company's business on Europe and has also pressed to do the same in Asia. He successfully arranged to have the company's headquarters moved from North America to Ireland. Aziz , who is already European based, can be expected to continue the firm's efforts in Europe and Asia.

Tuesday, April 10, 2007

Questionable CEO Promotion

Back in late January, Liberum put together a list of seven companies out of a total of two hundred and thirty three CEO changes investors might consider for re-examination. One of the seven companies was Cytokinetics (CYTK - NASDAQ) a biopharmaceutical company. The company is working on a number of drugs in early clinical testing (Phase I & II) for treating different forms of cancer and heart failure. I viewed the CEO choice with skepticism.

The new CEO, Robert I. Blum was promoted from president to the position of chief executive officer (January 22). Blum, who has been with the firm since July 1998, has steadily moved up the corporate ranks within the firm. Over the last few years and more recently, he has been instrumental in negotiating a number of collaborative arrangements on some of the key drugs the firm has been developing. Despite his positive talents, I was skeptical of the decision to make him CEO at this specific juncture in the firm's development. I found nothing in his background to indicate he was the right kind of executive for the firm as this point in time. I felt the company needed a heavy hitter from the outside, not a long-serving corporate citizen with little outside experience.

As you can see, the market has not been impressed so far either.

Thursday, April 5, 2007

Management Change Makes A Difference

March 28, 2007 SAP AG (SAP - NYSE) announced the departure of Executive Board member Shai Agassi. Agassi, a true star and visionary at SAP, made his surprise decision after deciding he did not want to wait a long period of time to become CEO of SAP.

As an alternative, Agassi decided to follow his personal passion - environmental policy and alternative energy sources
. Agassi's announcement was quickly followed by a large drop in SAP's share price. While SAP may be facing serious competitive challenges, Agassi's announcement certainly had a direct short-term impact. The stock price appears to have bounced back but there was a definite response to his decision to leave the firm.

Getting what you wish for is not always what you expect.

UPDATE to earlier post on Heyer ouster.

Peter Sanders and Joann S. Lublin of The Wall Street Journal published an article on 4/8/07 in which they stated:
"Last week's abrupt departure of former Coke and Turner Broadcasting executive Steven J. Heyer from Starwood & Resorts Worldwide followed a confrontation with the hotel company's board, ignited by an anonymous letter accusing him of personal misconduct, according to people familiar with the situation."

"Heyer--who denies engaging in any impropriety--was unexpectedly ousted as chief executive officer, and in the process opted to forfeit an estimated $35 million of severance."
Heyer's tenure at the firm included a $17 rise in Starwood shares.

April 2, Starwood Hotels & Resorts Worldwide Inc. (HOT - NYSE) announced th
e resignation of its CEO, Steven J. Heyer. The board stated the resignation was due to Heyer's management style.

"While the board appreciates the good work Steve Heyer has done to position Starwood for the future, issues with regard to his management style have led us to lose confidence in his leadership."

The more surprising aspect of the change is the fact that
Heyer will not be getting a huge severance package, which has been so often typical for outgoing CEOs. See below the exerpt from the 8K.

Effective as of March 31, 2007, Starwood Hotels & Resorts Worldwide, Inc. (the "Company") and Steven J. Heyer entered into an Agreement and General Release (the "Agreement"), pursuant to which Mr. Heyer resigned his positions as the Chief Executive Officer of the Company and as a member of its Board of Directors, effective March 31, 2007.

Pursuant to the Agreement, the Company and Mr. Heyer acknowledged that the Company has paid Mr. Heyer $250,000, which is one quarter of his base salary at the rate of $1,000,000 per annum, less applicable withholding of taxes, for the first quarter.

Tuesday, April 3, 2007

13D Filings? Four CEO Changes Two Months Out?

Key management changes get covered in the business press all the time. Whether a specific management change is a termination, unexpected resignation or retirement, an outside hire of a well-known business figure or an unexpected promotion, the human element behind a specific management change is often perceived as newsworthy. The real question that often gets ignored or fades into the background after an initial period of publicity is what possible significance the management change or management changes at a firm might mean to the short and/or long-term performance of the firm. Liberum Research's management change data and analysis is founded on the premise that "significant" management change/s can have a real impact on a company's performance.

More and more, activist investors (Carl Icahn, Relational Investors, Pirate Capital, Third Point and others) can often be found focusing their own efforts on pushing for specific management changes at companies they are heavily invested in. Activist investors are often advocates for specific management change/s. At times they contend that in the right circumstances, specific types of management changes can be key to a company's performance. We have already seen the impact they can have on companies both short and long-term. In essence, a 13D filing can in certain circumstances be viewed as a management change in and of itself. The easiest way to stay on top of activist investor intentions is to follow 13D SEC filings. ( An SEC rule requiring disclosure by anyone acquiring a beneficial ownership of 5% or more of any equity security registered with the SEC.) To get a real feel for the impact of management change, investors need to examine the details behind the change/s to determine what it might mean for the short and long-term.

Questions that could be explored include:

  • Why did someone leave?
  • If there is no succession plan in place, what does that mean for the company?
  • Who has been hired or promoted?
    • Do they fit in?
    • What have they done before?
    • Are they operational, marketing, and/or acquisition oriented?
    • Are more management changes to come?
    • Will they make a strategic change in direction?
These and many other questions need to be asked and answered.

Back in February, I picked 13 companies out of a total of 204 CEO changes in Februa
ry investors might re-examine for possible investment consideration. Below are four from the list:

2/1 Crystallex International Corporation, (KRY - AMEX)

Mr. Gordon Thompson, was appointed President, CEO and Director of Crystallex International Corporation. Thompson replaces Mr. Todd Bruce as President, CEO and Director of Crystallex.

Thompson, who was a director of Crystallex from 2000 to 2002, has more than 30 years experience in the financial services sector including significant expertise in raising debt and equity in Canadian and US Capital Markets including Project Finance. More recently, Mr. Thompson served as Senior Vice President Corporate Development of NCE Resources Group/Sentry Select Capital Corp. He participated in the growth of the Oil and Gas assets from C$450 million in 2001 to over C$4 billion in 2006. In addition Mr. Thompson served as President of Strategic Energy Fund a private and public investment fund. While there, he oversaw the growth of that fund from $20 million to C$280 million over the last 4 years.

2/9 Eddie Bauer Holdings (EBHI - NASDAQ)

Eddie Bauer Holdings, Inc. announced the resignation of its President, CEO and Board member, Fabian Mansson. Howard Gross, a member of the Board, was named Interim CEO as the Board conducted a search for a permanent CEO. Gross has over 35 years of experience in the retail apparel industry, having served as President and CEO of Limited Stores and Victoria's Secret Stores, as well as CEO of the Hub Distributing, Millers Outposts, and Levi's Outlet Stores divisions of American Retail Group, Inc.

2/14 Solectron Corporation (SLR - NYSE)

President and CEO Michael R. Cannon resigned effective immediately, to join Dell in the newly created position of President, Global Operations. Solectron’s Chief Financial Officer Paul Tufano was named interim CEO while a global search was to be conducted.

2/26 Biomet (BMET - NASDAQ)

Jeffrey R. Binder was appointed President and Chief Executive Officer and a member of Biomet’s Board, replacing Daniel P. Hann, who had served as Interim President and Chief Executive Officer. Binder is a 15-year veteran of the orthopedic medical device industry, most recently in senior management roles at Abbott Laboratories.

Surprising News - Two Quarters of C-level Declines

Corporate management turnover has been increasing in public companies for some time. Early 2007, unlike the same period in 2006, has not however, shown a dramatic increase in C-level turnover. To the contrary, first quarter totals indicate a continuation of a surprising C-level slowdown that first appeared in the fourth quarter of 2006. The slowdown took place in many key categories. 2007's first quarter totals have been below the high turnover figures Liberum registered for the same quarter in 2006. The first quarter 07' slowdown coincides with the decline Liberum first noticed for three key categories (overall C-level turnover, CEO changes and CFO changes) in the fourth quarter of 2006 as compared with the same quarter in 2005. The declining trend has continued into the first quarter of 07'.






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