Sub-prime Credit Crisis Takes Another Executive

American International Group, inc. AIG (NYSE), the insurance behemoth, has found itself added to the list of financial related firms who due to the impact of the sub-prime credit crisis was forced to announced a major tunorver of one its finance related executives. Yesterday AIG disclosed according to Crain's New York,

a fourth-quarter loss of $5.29 billion, or $2.08 per share, compared with earnings of $3.44 billion during the same period in 2006. The loss was due primarily to $11.12 billion worth of pre-tax losses in the Manhattan’s based company’s credit default swap portfolio.

Today as a direct consequence of AIG's loss, the company announced that Joseph Cassano, the head of the firm's financial products unit will be stepping down. According to a story by Hugh Son on Bloomberg,

Cassano co-founded the business in 1987 and built it into a unit providing financial guarantees on more than $500 billion of assets at year-end, including $61.4 billion in securities with ties to U.S. subprime mortgages. He will be replaced on an interim basis by William Dooley, 54, a senior vice president of the New York-based insurer's financial services businesses.

The real question is whether there are more management changes to come from AIG and if so, where? Stay tuned.

For more:

Financial Week

Best Buy Promotes Four Key Executives

Best Buy BBY (NYSE) continues to sharpen its focus to stay ahead of the competition. Yesterday the company announced a number of top management changes. Best Buy promoted four senior executives to new, expanded roles. All four appointments become effective March 2. The changes were as follows:

• Barry Judge is the company’s new chief marketing officer;
• Michael Vitelli will be the executive vice president of the company's customer operating groups;
• David Morrish will be the executive vice president of connected digital solutions, and;
• David Berg will be the executive vice president of international strategy and corporate development.

As Circuit City continues to flounder, Best Buy works hard to stay near the top and find ways to improve its sales and operations.

Office Depot's CFO To Leave

Michelle Leder of footnoted.org has done it again. By examining a company's SEC filings she has come up with "news". Earlier today Ms. Leder put out a blog on her examination of Office Depot's 10k. Yesterday Office Depot ODP (NYSE) announced the departure of its CFO, Patricia McKay. In the company release the firm stated,

Office Depot is announcing that its Executive Vice President and Chief Financial Officer, Patricia A. McKay, is leaving the Company effective March 1, 2008. Charles E. Brown, the Company's President, International, has agreed to assume the role of acting Chief Financial Officer following McKay's departure. Brown was Office Depot's Executive Vice President and Chief Financial Officer from 2001 to 2005. Office Depot plans to begin its search for a permanent Chief Financial Officer immediately and will announce a successor when this process is completed.

Commenting on McKay's departure, Steve Odland, Office Depot's Chief Executive Officer, said: "Pat has made valuable contributions to the Company since joining the management team in 2005. We thank her for her tireless work and dedication to the Company. We also wish her all the best in her future endeavors."

Ms. Leder started her blog as follows (a far more informative take on the situation than what was contained in the company's press release):

Yesterday, Office Depot ODP Announced disappointing fourth quarter results, and mentioned, almost in passing that CFO Patricia McKay, was leaving at the end of the week. We’re sure this sudden departure had nothing — absolutely nothing — to do with a disclosure in the 10-K that the company filed yesterday:

We are subject to a formal order of investigation from the SEC, in connection with our contacts and communications with financial analysts during 2007, as well as certain other matters, including inventory receipt, timing of vendor payments, certain intercompany loans and the timing of recognition of vendor program funds.

Office Depot demonstrates the importance of management change. Stay tuned.

For more:

Reuters
Financial Week

CEO Watch - Philip J. Schoonover, Circuit City, Update 1

Circuit City CC (NYSE) the troubled electronics retailer has come under increased pressure again for a change at the top. Activist retail investor, Mark J. Wattles of Wattles Capital Management has said he's seeking to replace Circuit City's CEO Phil Schoonover. Wattles owns over 6% of the company's stock. According to a Bloomberg story in the Houston Chronicle Wattles,

...sent an e-mail requesting a meeting with Schoonover to discuss strategy at the retailer. He said he was rebuffed and referred to investor relations.

Wattles, the founder of Hollywood Entertainment Corp., has mounted the most public challenge to Schoonover.

According to a press release from Circuit City the company,

confirmed receipt of notice from shareholder Wattles Capital Management, LLC that it intends to nominate five directors for election to Circuit City's 12-member board of directors at the company's 2008 Annual Meeting of Shareholders. In accordance with Circuit City's bylaws, unless the board selects another date, the meeting will be held on June 24, 2008

It is difficult to believe that over time Wattles will not prevail in his attempt to make major management changes at the firm. The real question is whether it is too late. Stay tuned.

For more:

Chairman Watch - Chairman's Seat At Société Générale Gets Hotter, Update 2

Daniel Bouton, the Chairman of Société Générale who has managed so far to survive the troubles at the bank, just received some major political pressure. According to a piece in The International Herald Tribune, French President, Nicholas Sarkozy,

said in a newspaper interview published Tuesday that it was wrong for the head of Société Générale to escape responsibility for the trading scandal at the bank...

"I just don't understand the Société Générale situation," Sarkozy was quoted as saying in an interview with Le Parisien. "When the chairman of a company experiences a disaster of this magnitude and he does not assume the consequences of this, that is not normal."

"For someone to make €7 million a year does not shock me," Sarkozy said. "But on one condition: that he assumes his responsibilities. That's what the problem is with Daniel Bouton."

It is difficult to believe Bouton can weather this type of political pressure. Stay tuned.

For more:

France 24
Financial Times

Metabolix Hires New CEO

Metabolix MBLX (NASDAQ) a biotechnology company that went public in 2006 is working to make biodegradable plastic products. On February 25, Metabolix announced it would replace its interim CEO, Jay Kouba, PhD a member of the board. Dr. Kouba took over as interim CEO after the long time CEO, James Barber (began in 2007), resigned from the firm back in May 2007. At the time of James Barber's resignation in May 2007, the company's stock first showed signs of improvement but over time dropped back down. A few months after Barber resigned, the company's CFO, Thomas Auchincloss Jr. Starting March 17, 2008, Richard P. Eno will replace Dr. Kouba as interim CEO, Kouba will remain the company's chairman. According to the company's February 25 press release,

Richard Eno has more than twenty five years of professional experience in the chemicals and energy business. He has held operating roles or led clients through challenges in nearly every aspect of these industries, including: corporate strategy development, technology management and commercialization; sales and marketing; organizational design and optimization; cost reduction and profitability improvement; and transaction support. Most recently, Mr. Eno served as Vice President, Leader Global Oil & Gas Sector at CRA International (formerly known as Charles River Associates), a leading provider of management consulting services and economic and financial expertise to global companies. At CRA International, Mr. Eno helped lead the substantial growth of CRA's Chemicals and Petroleum Practice over the last five years. Prior to joining CRA, he was at Arthur D. Little (ADL) from 1990 to 2002, and became a Vice President in its Chemicals Practice. He was elected to lead ADL's Chemical and Energy Vertical consulting activities, marketing and positioning it for its eventual sale to CRA International in 2002. Before ADL, he had seven years experience in a variety of roles in research, operations and project management for Chevron Corporation. Mr. Eno holds a Bachelor of Science Degree in Chemical Engineering from Cornell University, a Masters in Business Administration from the University of Houston and is a Chartered Financial Analyst.

Eno's chemical and financial related background appears to be a good fit for Metabolix specifically at this critical juncture in the firm's development. Metabolix calls its key product a Natural Plastic. Besides the development of Natural Plastics, Metabolix is also working on a process to use switchgrass to produce Natural Plastics and a biomass feedstock to be used to make ethanol. All the firm's products are considered "green" and could have long term financial potential if successful. For the moment, the company's main focus remains its joint venture with ADM on the development of Natural Plastics. ADM and Metabolix currently produce only a small amount of the Natural Plastics at a pilot plant. Both firms are in the process of building a full scale plant that is expected to begin production sometime in 2008.

Keep a close eye on what strategic and business moves Eno takes over the next number of months. Watch what happens when its plant goes into full production.

For more:

Boston Business

Former Children's Place CEO Files Complaint

Ezra Dabah, the former CEO of troubled children's retailer (see earlier blog post) and the largest shareholder of The Children's Place PLCE (NASDAQ), continues to pressure the company. Dabah who was previously forced out as CEO has been seeking with the help of a private equity investor to buyout the firm. A Business Week story last Friday talked specifically about Dahah's latest move, the filing of a complaint with the SEC.

Dabah requested that the company hold its annual meeting within 45 days of his filing the complaint. The meeting is currently scheduled for June 27. The last meeting was held June 22, 2006. "There is no reason to delay the annual meeting for another four months," Dabah said in the filing with the Securities and Exchange Commission.

Stay tuned as the company's saga grows.

For more:

Dealscape 3/24
Reuters
Dealscape

Recommened Reading - When Should CEOs BE Fired?

Thomas J. Neff, Chairman of Spencer Stuart US, the global executive recruiting firm, had a worthwhile piece in Business Week. The February 19, article entitled, When Should CEOs be Fired? should be read by anyone interested in CEO changes and their impact on companies.

Activist Shareholders Push out Another CEO

Duckwall-Alco Stores DUCK (NASDAQ), a struggling rural retailer, announced the immediate resignation of president and CEO Bruce Dale, who had joined the company in 2oo5. SVP and CFO Donny Johnson was appointed interim CEO until a permanent replacement is found. Dale's resignation comes three days after Raymond French and Strongbow Capital who together hold over 14% of Duckwall-Alco voting stock in an SEC filing said,

... they intended to put up nominees at the upcoming annual meeting “to replace certain members of the board” – including chairman, Warren Gfeller – and wanted director Royce Winsten named chairman.

They also said the board has not taken satisfactory steps to improve shareholder value and that the makeup of the board should change in order for shareholders to receive a "reasonable return on their investment."

As the retail related market continues to reel under the pressures of a weakening economy, more and more pressure is being placed on top executives to perform. The increased pressure is often particularly forceful from large shareholders who find their investment values shrinking. Expect more changes at the firm.

For more:

Witchita Eagle 3/6
Press Release
MSN Money
CNBC
Houston Chronicle

More Management Changes At Motorola

Motorola's MOT (NYSE) latest management change, the selection of a new CFO has done little to ease concerns about the company. Yesterday, Motorola announced the selection of Paul Liska as its new CFO. Liska replaces Tom Meredith, the acting CFO who was put in the position upon the retirement of David Devonshire on April 1, 2007. Liska was a private equity specialist who was previously a partner at Ripplewood Holdings and Mid Ocean Partners. He was also the former CFO of Sears Roebuck and was involved in the 2003 sale of the firm's credit card business to Citibank. He is definitely an interesting choice when you consider that Motorola has been rumored to be seeking the sale or splitting of its mobile handset business. Liska has the credentials to be quite helpful in this type of undertaking.

We will just have to wait and see how Liska and Motorola's newest CEO, Greg Brown work together to solve the numerous difficulties facing the company. According to the Wall Street Journal,

Brown has known Liska for a decade.

Keep a close eye on Liska as he jumps aboard March 1, and tries to make sense of the problems and possible opportunities facing Motorola.

For more:

Barron's blog
Dealscape
Mobile Burn
TheStreet.com
Bloomberg
BloggingStocks
Silicon Alley Insider
Chicago Tribune

Chairman Watch - Marcel Ospel, UBS, Update 2

As the pressure builds UBS finally manages to slightly open a valve without really letting out much steam. According to a story by Warren Giles and Elena Logutenkova on Bloomberg,

UBS AG said it would reduce Chairman Marcel Ospel's next term of office to one year from three after Europe's largest bank by assets reported a record loss.

...Shareholders will vote on re-electing Ospel and two other board members to shortened terms at the annual general meeting on April 23, Zurich-based UBS said in an e-mailed statement today.

No question too little, too late but it is step in the right direction. Stay tuned.

For more:

Financial Times (2/22)
Times Online
Financial News
Market Watch
Reuters

Update - Sharper Image

Last week the Sharper Image SHRP (NASDAQ) (see blog) forced its CEO out, Steven Lightman, and replaced him with Robert Conway a founding member of retail turnaround firm Conway, Del Genio, Gries & Co. Just a week later the company filed for chapter 11 bankruptcy. In a short statement, Sharper Image said it would continue to operate while it reorganizes the company.

For more on the change:

Mercury News
Bloomberg
St. Louis Business Journal
Business Week

Gap CEO Continues to Consolidate His Control

Glenn Murphy the recently appointed CEO of clothing retailer, The Gap continues to make his own stamp on the firm. Earlier today, it was announced the president of its Old Navy brand, Dawn Robertson, who had only been with the firm since 2006 would be leaving immediately. The company also announced that Tom Wyatt, president of Gap Inc.’s Outlet division, would become acting president of Old Navy while a search is conducted for a permanent replacement.

Old Navy whose brand had become stale had already begun to make great strides at changing its image with the public. Under Dawn's leadership Old Navy recently began a new logo and was about to launch a whole new line. According to a piece by Amy Merrick in the Wall Street Journal ,

Gap described the immediate departure of Ms. Robertson, 52 years old, as a mutual decision between her and the retailer.

"It became clear to Glenn and Dawn that a leadership change was necessary at the brand," said Stacy MacLean, a company spokeswoman. She said Ms. Robertson and Gap executives were unavailable to comment.

A longtime department-store executive who had been managing director of the Australian chain Myer, Ms. Robertson had been described by some as being an uneasy fit at Gap's San Francisco headquarters. She arrived at Gap less than 16 months ago, hired by Mr. Murphy's predecessor, Paul Pressler. Mr. Pressler himself left the company three months later, in January 2007.

Investors need to keep a very close eye on what Old Navy does next and more importantly, what Murphy plans for gap in its entirety.

For more:

Gap Press Release
Reuters

MBIA Turns Back the Clock - Former CEO Returns

MBIA MBI and MBE (NYSE), the embattled bond insurer, turned back the clock and asked its former CEO, Jay Brown to return to help right the ship as the company becomes further ensnared in the sub-prime credit crisis (see letter Brown sent to shareholders). Brown's return seems to follow a recent trends where former CEOs are more and more being asked to return to floundering companies they left as CEO (e.g., Michael Dell, Dell, Howard Schultz, Starbucks). Brown's return is not exactly comparable to the previous two examples. This particularly the case when one considers the difficulties MBIA continues to face and the impact its difficulties can have on the financial markets.

Brown previously served as the company's CEO for five years. He left his position back in 2004 and was replaced by Gary Dunton. According to a story by Christine Ritchie in Bloomberg,

(Dunton) has resisted pressure to restructure the Armonk, New York-based company, will leave, MBIA said.

Brown on the other hand has made it clear he would consider a different tack. According to the Bloomberg story, Brown said,

"The market is telling us something,'' ... "The marketplace is saying it doesn't work well to have two stores selling these products under one roof.''

Brown will be tasked with restructuring and reviving MBIA, which places its AAA stamp on $673 billion of debt. The loss of that rating would cast doubt on rankings of all debt the company guarantees, potentially sparking higher borrowing costs for municipalities and leading to losses for banks that relied on the guarantees to bolster the value of subprime securities.

There is no question, MBIA had to make a change at the top. Bringing back Brown at least opens the firm to needed change. It is difficult to assess whether the firm would have been better off bringing in someone totally from the outside. Time will tell. Keep a close eye on all the players.

For more:

WSJ Deal Journal (2/21)
Forbes
Seeking Alpha
New York Times
CNN Money
Houston Chronicle
CEP News

Chairman Watch - Marcel Ospel, UBS, Update 1

Drip, drip, drip... As the (huge) write-offs keep coming slow and furious, it only makes sense that some sacrificial lamb needs to take it on the chin at the top of UBS's corporate hierarchy. That should be Ospel. So far, Ospel (see earlier blogs), the bank's chairman, continues to remain ensconced at the top despite the declining fortunes of the bank. Yesterday's latest drip of more bad news must be eating away at the foundation holding Ospel in place at the top.

Stay tuned. UBS has limits just as everyone else, they are just much bigger.

For more:

Bloomberg
National Post
Reuters
Times Online
International Business Times
Financial Times

Sharper Image Slide Continues - Turnaround Specialist Appointed New CEO

Activist shareholders managed to help remove short-lived CEO, Steven Lightman from his position at catalog firm, The Sharper Image SHRP (NASDAQ). Lightman, who came to The Sharper Image back in March 2007, has been unable to stop the company's continuing slide. He was originally appointed after sales at the firm continued to slid under the company's founder Richard Thalheimer. The board appointed Robert Conway, a founding member of Conway, Del Genio, Gries & Co as Lightman's replacement. The board made the announcement earlier today.

Sharper Image's board has been led by its chairman, Jeremy Levin. Levin, a turnaround specialist himself, heads up JW Levin Partners and came to his position as part of a dissident group of shareholders unhappy with the company's performance and management. The Sharper Image has been facing numerous problems for some time now. They risk the possibility of being de-listed and even worse many people are concerned there might be little hope for the company to make a comeback.

Keep a close eye on both Levin and its new CEO, Conway. Maybe they have something up their sleeve.

For more:

CNN Money
Businessweek
Wall Street Journal (sub. req)
MSN Money
Houston Chronicle

El Paso Electric CEO Leaves Suddenly

El Paso Electric's EE (NYSE) CEO, Ershel Redd, who was only appointed to the post back in May 2007, is leaving his position immediately. The company's board of directors made the announcement today. The board stated Redd was departing to pursue other business opportunities. The board asked asked J. Frank Bates, Executive Vice President and Chief Operating Officer, to serve as interim CEO.

The suddenness of the announcement and the lack of a successor begs for further information. While only a guess, it is very likely that Gabelli Funds had a role in the sudden and unexpected announcement. According to a recent SEC filing, the funds acquired a 5.3 percent stake in the company. They must be looking to make some major management changes.

Keep a very close eye on who the company picks as CEO once its search is completed and watch for possible moves by Gabelli Funds.

For more:

Press Release

Is AIG's CEO, Martin Sullivan in Trouble?

Is AIG's AIG (NYSE) CEO, Martin Sullivan at risk to lose his job? Yesterday's surprise announcement (see 8k filing) that its auditor, Pricewaterhouse Coopers LLC, found "material weakness" in AIG's accounting for credit-default swap contracts translated into a huge drop in the company's stock. According to a story by Hugh Son and Jesse Westbrook in today's Bloomberg doubts are being raised by some concerning Sullivan's leadership.

"It is incomprehensible that yet once again, this company, its board, its CEO and CFO, and its independent auditors are saying the company doesn't have adequate controls," said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission and now on the board of Guidance Software Inc. and the Colorado Public Employees' Retirement Association. "These people should all be held accountable."

The speculation on Sullivan's status at AIG seems premature for the moment. We will just have to wait and see. Stay tuned.

For more:

Portfolio.com
Reuters

Happy Story - CEO of Hasbro Plans to Resign While on Top

Hasbro HAS (NYSE) CEO, Al Verrecchia, who has been with the firm for forty three years has decided to step down as CEO while still on top. This type of story does not happen often lately, so I decided to make note. Verrecchia will become chairman. He will be replaced by Brian Goldner, the current COO. The changes will take place May 22, the date of the company's annual shareholder meeting. Verrecchia's announcement comes with the news that the company's profits rose 24 percent. Hasbro's sales climbed 16 percent to $1.3 billion. Even better than the numbers, Hasbro managed to avoid the huge lead-paint fiasco (recall) that plagued its competitor Mattel, Inc. for the last number of months.

It's good to see some positive news.

For more:

Bloomberg

Recommended Reading - Corpocracy by Robert Monks

Jeff Nash wrote a piece in today's Financial Week praising well known shareholder activist, venture capitalist, attorney and founder of International Shareholder Services, Robert Monks' latest book, Corpocracy: How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine -- And How to Get It Back. Nash writes,

... Mr. Monks is targeting CEO pay in a big way. In his new book, Corpocracy, he blames weak boards, inefficient government agencies such as the Securities and Exchange Commission (a “structure in shambles,” he argues) and the Department of Labor (“whose regulative approach could be taken out of a Joseph Heller book”) and, of course, CEOs themselves.

“The illusion,” Mr. Monks writes tartly, “is that we have a system of checks and balances that oversees executive compensation and allows market forces to flow through fairly to the paycheck. The reality is that CEOs in essence pay themselves and do so in ways that need not be disclosed or approved by anyone.”

For those interested in corporate governance the book should be worth a read, check it out.

For more:

Bloggingstocks

Recommended Reading - What Hurd Did to Make HP So Profitable

Connie Guglielmo wrote an insightful piece for Bloomberg, entitled, Hurd Rebuilds Hewlett-Packard by Debating Every Dime. Liberum Research has always used Hurd's appointment to lead HP, after Carly Fiorina was forced to resign, as an example of management change that made a difference. Guglielmo captured the management change at HP in her article opening when she wrote:

Mark Hurd asked managers how they would build the perfect company in five years when he took over the top job at Hewlett-Packard Co. in 2005. He also said he would scrutinize every cent they spent to get there.

"What we want to do is develop a culture that says, `I want to debate every single dime,''' Hurd said. ``I'm not willing to believe that everything we spent in the past was efficient.''

To read the whole story click here.

CEO Watch - Alcatel Lucent, Patricia Russo, Update 2

Alcatel-Lucent CEO, Patrica Russo, continues to walk on thin ice. Despite her efforts to revive company earnings and sales results have been lacking. How much longer can the board and shareholders keep her at the top. Scott Morris in a piece for TheStreet.com wrote,

The Paris telecom-equipment maker posted an adjusted quarterly loss of $73 million, or 3 cents a share. While that was an improvement over the 36-cent pro forma loss in the year-ago quarter, it was well below the profit of 15 cents analysts surveyed by Thomson Financial were expecting.

For the fourth quarter, sales were up 18% from a year ago to $7.6 billion, but for the full year, the top line of $25.7 billion was a 2% decrease from 2006 levels. Analysts expected $7.3 billion in sales for the fourth quarter and $24.8 billion for the full year.

In story in today's Bloomberg, Rudy Ruitenberg wrote that Alcatel-Lucent,

...reported the biggest quarterly loss since its creation in 2006 and scrapped the dividend after cutting the value of a wireless-networks unit.

The loss swelled to 2.58 billion euros ($3.74 billion) in the fourth quarter from 615 million euros a year earlier...

Russo will definitely remain on the CEO Watch list unless she can find a real solution to the company's problems. Keep a close eye on the firm, this cannot continue.

For more on the company's problems:

Reuters
Barrons
Times Online
Financial Times
Business Week
International Herald Tribune

Scorned CEO Striking Back?

Ezra Dabah, the former CEO and still major shareholder of The Children's Place PLCE (NASDAQ) (approximately 17%), appears to be ready to make good on previous statements he planned to make a bid for the company. According to Crain's New York Business Dabah who was forced out as the company's CEO back in September 2007 (see earlier blog) recently sent a letter to the SEC,

revealing his intentions to offer, along with Golden Gate Private Equity Inc., $24 per share in cash for Children's Place.The letter seeks the board's permission to bypass certain Delaware shareholder acquisition laws that could otherwise preclude Golden Gate's participation in an offer.

The offer would be a 35% premium over Wednesday's closing price of $17.78. As of Dec. 13, Mr. Dabah owned about 5 million shares, or 17.2% of total shares outstanding. The total value of the potential offer is based on 24.1 million outstanding shares Mr. Dabah doesn't already own.

This is all happening at the same time that the company released a surprising same store sales report for January which saw a 6% increase over same month in 2007. The increase was especially surprising, considering the troubled retail market and the turmoil the company has been undergoing for the last number of months. To complicate matters, The Children's Place also recently received a Nasdaq delisting notice regarding its failure to hold its annual stockholder meeting by Feb. 3. The Company noted its request for an extension and noted the delay in filing their annual report as the reason for the delinquent meeting.

It's hard to sort through it all. Is the scorned CEO looking to get his revenge or is this just a smart move? Keep a close eye on the firm.

Update to Management Problems Facing International Rectifier

International Rectifier IRF (NYSE) has turned a page in its management problems which came to a head back in October (see earlier blog). Earlier today the company named Oleg Khaykin as its new president and chief executive, effective March 1. Kayhlin succeeds Donald Dancer, who has served as acting CEO since Aug. 30, 2007. Dancer will remain with the company supporting Khaykin in his new role. Khaykin was most recently the chief operating officer of Amkor Technology AMKR (NASDAQ).

We will just have wait and see what Khaykin can do for the firm.

Recommended Reading - Carl Icahn To Start a Blog, WSJ

According to a story by Kaja Whitehouse in today's Wall Street Journal (sub. req.) Carl Icahn, the hedge fund investor,

said yesterday he is looking to start a blog to highlight what he sees as management problems at public companies, including those he hasn't invested in.

I anxiously wait to read the new blog.

January 2008 Management Turnover Continues to Climb

Yesterday Liberum Research released its key management change statistics for January 2008. Executive turnover for the first month of 2008 continued to remain high. The trend for the month followed the same turnover pattern Liberum registered for the last two months of 2007. While the numbers were not extraordinarily high, they illustrated a continuing level of high turnover within the top executive ranks of public companies. Liberum expects executive churn at the top to continue to remain high for the next number of months.

C-level, CEO and CFO turnover all individually registered increases for January as compared with January 2007. The turnover increases for the month as compared with January 2007 were as follows: 6% for C-level totals, 12% for CEOs and 4% for CFOs. Below you will two charts that break down CEO and CFO changes by status and market cap.

CEO Watch - Hector Ruiz, CEO AMD, Update 4

AMD's CEO, Hector Ruiz, continues to remain firmly in place at the top of the company despite his continuing weak management (see previous blogs). Todays' Seeking Alpha contained a piece by Mark Millman, entitled AMD: A Dog Chasing its Tail. Millman posited,

AMD (AMD) continued to disappoint investors in the forth quarter, losing $1.77 billion in that single quarter. AMD's problem stems from its management team's inability to differentiate the company in the microprocessor marketplace - both mainstream and embedded microprocessors. Their inability to forecast and manage product run rates will plague the company with continued poor financial performance. They cannot spend themselves to health with acquisitions without executing on the vision that the acquisition brings. They have yet to utilize the value that ATI brings to AMD.

While Millman never specifically focused on Ruiz, maybe he should have. I still believe Ruiz's tenure should come to end.

Continue to keep a close eye on the company.

Recommended Reading - Schering-Plough CEO, Fred Hassan Reputation at Risk

Bill Berkrot, a Reuters reporter, in today's Los Angeles Times wrote a story entitled , Vytorin Puts A CEO in a Pinch, The fallout can tarnish the reputation of Schering-Plough's SGP (NYSE) Fred Hassan. Hassan who is considered the white knight who brought Schering-Plough back after coming aboard in 2003 now,

...finds himself at the center of a firestorm involving the cholesterol drug that fueled the company's reversal of fortune. The furor over Vytorin threatens the reputation of the drug industry's golden boy and, some say, his job. Schering-Plough and Merck & Co., partners on Vytorin, have been on the defensive since mid-January, when preliminary data of a long-completed study were finally released. The mixed results and the time lag led to accusations that the companies hid or intentionally delayed them to protect the cash cow that accounts for about 70% of Schering's profit.

For the full story on the problems Hassan and Schering Plough face read the story.

For more:

CNN Money (Feb. 11)

Altus Pharmaceutical CEO Resigns

Altus Pharmaceuticals Inc. ALTU (NASDAQ), a biopharmaceutical company focused on the development and commercialization of oral and injectable protein therapeutics for patients with gastrointestinal and metabolic disorders, today announced the resignation of its president and CEO, Sheldon Berkle. Berkle's resignation was announced with no stated explanation. He had been CEO of the company for two and a half years. The board appointed Chairman Dr. David D. Pendergast to serve as the interim CEO. Dr. Pendergast who has been a member of the board since 2006 was only appointed chairman back in early November 2007.

Pendergast recently retired as President of Human Genetics Therapies at Shire Pharmaceuticals plc where he had been responsible for the discovery, development, manufacture and commercialization of protein therapeutics. According to a CNN Money story his interim appointment was applauded by Cowen and Company analyst, Eric Schmidt who in a note to investors,

... expressed enthusiasm that Pendergast will be taking the helm, predicting he can implement a turnaround at Altus. "Given that Altus's track record as a public company has been poor and that management credibility has suffered as a result, we believe most investors will welcome today's news," said Schmidt.

The analyst kept an "Outperform" rating on the company's shares, saying he thinks Altus' pipeline drugs are significantly undervalued. He kept his price target at $5.60. In July, the Food and Drug Administration dealt the company a setback by revoking orphan drug status for Altus' pancreatic insufficiency treatment. A rare condition, pancreatic insufficiency occurs when the pancreas fails to secrete the sufficient chemicals and enzymes for digestion. Orphan drug status is granted to drugs being developed to treat such conditions and comes with market exclusivity and development aid.

Altus has experienced what might appear to have been a number of setbacks over the last few months. For example, back in December,

Genentech ended a collaboration (with Altus) on a human growth hormone drug candidate, and wondered if there was something wrong with the product.

Many analysts offered different reasons for the unexpected decision by Genenetech, some positive and some negative. The real question remains whether the company has some solid potential drug candidates in its pipeline and whether Pendergast, or at some point in the future a new CEO, can manage to turn things around and get the company back on the right track.

Stay tuned.

Heelys, The Wheeled-Sneaker Maker, CEO Resigns

Friday, February 1, Heelys Inc. HLYS (NASDAQ) CEO, Michael G. Staffaroni resigned from the company. While the company looks for a permanent CEO, Ralph T. Parks who was named to the company's board earlier in the week, was appointed interim CEO. Parks, a former president and CEO of FootAction USA has had extensive years of experience in the footwear industry.

Heelys, which for a while went through a story book rise, has now come down to earth and has been suffering from declining sales, growing inventories and a weak stock price. Dallas Magazine ran a story in November 2007 that examined Staffaroni's plans to get the shoemaker back on top and also presented the unique story of how this company evolved so quickly and went public in 2006 . In the story Jay Johnson wrote,

... one sign of this uncertainty was Heelys’ precipitous stock decline Aug. 8, when it lost nearly 50 percent of its value in a single day, falling from $21.99 to $11.42 per share. And until everyone can figure out exactly which box to put Heelys into, the Carrollton company’s stock will likely continue to experience as many ups and downs as a kid at a skatepark.

The company has continued to experience problems since the dramatic drop in its stock back in August. Controversy continues to face the company. Many analysts view the firm's main product as a fad and see little hope for long term revival of the firm, while others see potential for a revival if the company manages to finds an appropriate corporate strategy.

Heely's really needs to find a special CEO who would be capable of turning the firm around. It appears to be a tall task. Stay tuned and keep a close eye on Parks and who the company selects to be its permanent CEO.

For more:

Investopedia 3/6
Reuters
CNN Money
Trading Markets
Blogging Stocks

Recommended Reading - In Praise of the Decisive CEO, NY Times

Sunday's, February 3, 2008, Business Section of the New York Times had a review by Stephen Kotkin of Noel M. Tichy and Warren G. Bennis' latest book Judgment. The authors sing the praises of decisive executives. According to the authors winning C.E.O.s,

... affirm, frame and relentlessly narrate an apt story line about the company. They also pick very good people, and fire their blunders fast. Strategy matters, the authors note, but forming the team comes first.

And crises test not snap-decision prowess but rather prior preparation. The best C.E.O.’s gear up to make a major call before it becomes necessary, or impossible, to do so. Malcolm Gladwell is wrong, they say: judgment is a process, not an intuitive blink.

Compelling stuff, enriched by nuanced attention to even a good decision’s sometimes unpredictable aftermath — and the need for “redo loops.” But the authors’ well-told, if scattershot, stories often do not illuminate the line between great and mundane judgment.

For those interested in leadership qualities particularly as they relate to business, the book sounds like a worthwhile read. I have not had the opportunity to read the book yet, but the review makes for a compelling case to take a look.

Speculation on CEO Candidates for Sears

As discussed in an earlier blog, Eddie Lambert, the hedge fund manager and chairman of Sears, is working to find a replacement for Alwyn Lewis who recently resigned as Sears' CEO. Earlier today Crain's Chicago Business briefly discussed three individuals mentioned as possible candidates to head up Sears.

The article indicates the following three are:

Allen Questrom,partner, Lee Equity Partners LLC; chairman, Debs Shop Inc.;
Millard “Mickey” Drexler, chairman and CEO, J. Crew Group Inc. and;
Vanessa Castagna, former chairwoman, Mervyn’s LLC; former top executive at Penney and Wal-Mart Stores Inc.

Keep a close eye on who Lambert manages to snag. I suspect there are others under consideration. Any of the the above three would surely require a real commitment from Lambert on what backing he/she would get before taking on this monumental task.