Management Turnover as Change Agent

Tuesday, April 29, 2008

CEO Watch - Philip Schoonover, Circuit City, Update 3

As Circuit City CC (NYSE) continues to resist Blockbuster's BBI (NYSE) efforts to merge, the electronics retailer also continues to resist attempts by Wattles Capital Management to change a portion of the board.  To complicate the already difficult situation, a new fly has appeared in the ointment.  While Wattles Capital Management owns just over 6% of Circuit City stock and has continued to put increasing pressure on the firm's management, HPK Investments, who owns just over 9% of the stock has turned activist as well.  When HPK first invested in Circuit City the firm considered their investment as passive.  Just yesterday, the passive nature of HPK's investment changed.  The investment firm filed a new 13D.  In the filing HPK stated,
... On April 28, 2008, HBK Capital Management sent a letter to the Issuer encouraging the Issuer to allow Blockbuster to perform due diligence in connection with Blockbuster's proposal to acquire all of the outstanding shares of Common Stock of the Issuer and to commence good faith negotiations with Blockbuster regarding its proposal. In addition, HBK Capital Management urged the board of directors of the Issuer to create a competitive bidding process in
order to maximize shareholder value...
Circuit city's CEO, Philip Schoonover, now finds himself in an even more precarious position. Pressure is growing from all sides.  It is hard to imagine he can survive with the situation continuing as it is right now. 

Stay tuned.

For more:

Monday, April 28, 2008

CEO Watch - Robert Fornaro - AirTran

As the airline industry continues to reel under skyrocketing fuel prices and a weakening economy, AirTran  AAI (NYSE) appears to be another carrier at risk or so might be the company's CEO, Leonard Fornaro.  In a recent Atlanta Journal Constitution article,
AirTran Airways reported a $34.8 million loss during the first quarter as record fuel costs prompted the discount carrier to stomp on the brakes and suspend its growth plans for late 2008 and 2009.
The company's stock performance has been abysmal.  It is possible Leonard, an untraditional airline CEO, might come under pressure with regard to his position despite his recent efforts to sell a number of the firm's airlines to get additional cash.  

According to a USA Today story by Marilyn Adams back in 2004,
Leonard, 60, has been climbing the airline industry's ladder his whole life. Unlike many airline executives who are groomed at Ivy League schools and rise through the elite ranks of finance, Leonard came up through operations — the engines-and-rivets side of the industry.

In previous jobs at Northwest, American and Eastern, he learned the business from the inside. At Eastern, where he was president in its final years, he also learned what happens when costs and labor-management hostility spin out of control. But from watching things go so wrong, Leonard learned how to do many things right.
Airline stock watchers or investors in AirTran should keep a close watch on the company and the moves it makes. It is a difficult time for airlines in general and AirTran will need to walk a tight rope to handle the current situation.

For more:

Friday, April 25, 2008

Recommended Reading - Positive News From Detroit

Bill Koenig wrote a story in today's Bloomberg entitled, Ford's Alan Mulally May Repeat Boeing Success at Automaker (Update 1).  With the surprising news that Ford F (NYSE) actually showed a profit of $100 million for the first quarter, a result well-beyond Wall Street's expectations, Mulally may actually be succeeding in his efforts to turn the automaker around.  It is still far too early to declare victory but hope is a real possibility.  With car quality up, expenses down, now Ford needs to focus on fuel economy and marketing. We will just have to see.  

For more:

Recommended Reading - Merrill's New CEO Gets Kudos From NY Post

Paul Tharp in a story in today's New York Post praised John Thain, Merrill's new CEO, for his efforts to right the Merrill ship.  Take a look, Tharp makes a number of valid comments.

Friday, April 18, 2008

Credit Crunch Phase Two CEO Changes?

In my previous blog, I recommended David Weidner's Market Watch story examining the shaky circumstances the CEOs from GE, WAMU and Wachovia face with regard to their long term status at their respective firms. This morning's, Deal Zone from Reuters mentions the possibility that Fred Goodwin, The Royal Bank of Scotland's highly respected CEO might also be at risk for his job.  According to Adam Pasick of Deal Zone,
Royal Bank of Scotland is set to announce a rights issue to raise as much as $20 billion next week, an industry source told Reuters ...
... It could also mark the end of an era for the bank’s well-respected chief executive, Fred Goodwin, whom analysts and shareholders say would face an uphill struggle to push through a hefty capital increase and remain in the job.
While I think Goodwin might manage to stay in place, we may be in store for a new round of CEO and CFO changes as the credit crisis continues to take more bites out of earnings.  Stay tuned.

For more:

Recommended Reading - From CEO heroes to zeros

David Weidner's April 17 column on Market Watch entitled, From CEO heroes to Zeros examines three well known CEOs who he thinks have been over-rated and may deserve to be put out to pasture. Specifically, he examines Jeffrey Immelt, GE, Kerry Killinger, Washington Mutual and Ken Thompson, Wachovia. While I am do not view the position of these three CEOs in the same way as Mr. Weidner, the piece is a very worthwhile read.

Thursday, April 17, 2008

CEO Watch - Daniel Bouton- Société Générale, Update 3

It's official, with a fair amount of water under the bridge, Société Générale, the French bank that made headlines after a $7 billion trading scandal, announced Daniel Boutin would step aside as the bank's CEO.  Boutin will remain non-executive Chairman.  He will be replaced by Frédéric Oudéa, the chief financial officer.  

Rumors continue that more changes are to come.

For more:

CEO Watch - Jeffrey Immelt - General Electric

As nearly everyone knows by now, General Electric GE (NYSE) surprised the financial community and shareholders last week when it announced an earnings shortfall.  Even more surprising was the fact that the company's CEO, Jeffrey Immelt, according to The New York Times, had been quoted on March 13 at which time,
... he assured investors the company was on track to meet its profit targets. And in December, he told analysts that G.E.’s goal of earnings growth of at least 10 percent in 2008 was “in the bag.”
For a company GE's size and importance this was a dramatic slip up and raised a real credibility issue for Immelt to contend with.  The analyst community used the earnings shortfall as an opportunity to turn on Immelt and GE.   The New York Timers also reported in the same piece,
“There is no doubt that this is a historic event,” said Steve Tusa, an analyst with JPMorgan Chase. “The company has to convince investors that something is going to change.”
The negative news on GE has forced me to include Immelt on my CEO Watch list but I remain very skeptical that his status as CEO is currently in serious trouble.  I did, however, feel there was far too much negative news on GE's and Immelt's overall performance to ignore what has been going on. 

As the news filtered out on the earnings shortfall there were numerous other negative assessments put out and covered in the financial press.  Calls were again made for GE to begin seriously considering the sale of certain assets to help the company and make it more efficient and amenable to investors growing concerns.  At first, piling on the negative circumstances continued when well known former GE CEO, Jack Welch, was initially quoted in a USA Today story as well as others in which he said in an interview,
...he would "get a gun out and shoot" his successor, Jeff Immelt, if he allowed GE to miss earnings targets again.  "I'd be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now," Welch said on CNBC, a cable station owned by GE. "Just deliver the earnings. Tell them you're going to grow 12% and deliver 12%."
Welch then went on to say,
"Here's the screw up: You made a promise that you'd deliver this and you missed three weeks later," Welch also said. "Jeff has a credibility issue. He's getting his a— kicked. He apologized."
Welch after sleeping on his comments found a way to retract much of what he said.  According to a story earlier today by Nancy Moran and Rachel Layne for Bloomberg,
"In an effort to put GE's first-quarter earnings in context, I really stepped in it,'' Welch told CNBC. "Much to my shock and horror'' the comments "about the performance of GE and CEO Jeff Immelt were interpreted to mean the exact opposite than what I intended. Nothing is worse than having a predecessor perceived as commenting negatively on a successor."
I could go on and on about what analysts and shareholders are thinking and making known but for now, keep a close eye on GE and its numerous operations.  Something is bound to happen.

For more:

MSNBC (video)

Tuesday, April 15, 2008

Recommended Reading - Motorola's Search for Handset CEO

Scott Moritz wrote a recent story for Fortune, entitled, Motorola's Hunt for a Miracle Worker, The Wireless giant's handset business needs a genius to turn itself around. The story outlines a number of possible choices that might be considered for the position. The task ahead for whomever is chosen and decides to take the position is monumental. Below are some of the names Moritz indicated have floated to the surface. Moritz provides more details in his article.

> Anssi Vanjoki, the new markets chief at Nokia (NOK)

> Steve Altman, the president of Qualcomm (QCOM, Fortune 500).

> Dan Akerson is a former top executive with MCI, Nextel, XO, and now at Carlyle Group.

> Ed Breen ran General Instruments, which was purchased by Motorola in 2000.

> Mike Zafirovski is the one-time No.2 at Motorola who's now trying to turn around Nortel (NT).

> Ron Garriques, the former Motorola handset chief who fled to Dell (DELL, Fortune 500) during Razr's fall from popularity.

> Bill Nuti, a turnaround artist who left Cisco to revive Symbol Technologies.

> Ben Verwaayen, the former Lucent chief operating officer who's just spent six years modernizing British Telecom.
If you are interested in Motorola or the industry check out the story.

Monday, April 14, 2008

What is Jim Keyes, Blockbuster's CEO up to?

The news that Blockbuster had previously approached Circuit City back in February about a potential acquisition and after being ignored, Blockbuster appears to be ready to go hostile has resulted in a predominance of criticism from the financial and business communities.

The most common response one reads or hears is twofold; why would two struggling retailers with different businesses wish to merge and how can Blockbuster whose stock has been pummeled manage to finance such an acquisition?

Check the satirical spin on the situation from Jack Flack of He seems to have brought some insight to the situation.

While I do not typically comment on potential acquisitions, I have a slightly different take on the situation specifically from a management change perspective.
Blockbuster's CEO, Jim Keyes, a former successful CEO at 7 Eleven, is anxious to find a way to rely on his talents as a successful merchandiser to turn Blockbuster around. Unlike his critics, who right now are many, he is thinking like the former CEO he was back at 7 Eleven. He believes he can find a way to turn the fortunes of both companies around as one firm. We will just have to see how this situation plays out.

For more:

Recommended Reading - The Iger Difference - Renaissance at Disney

Richard Isklos, Editor at Large for Fortune Magazine, recently wrote an article examining the new reign of Robert Iger at Walt Disney DIS (NYSE).  When Iger was first promoted to take over from Michael Eisner as CEO of Walt Disney skeptics were everywhere.  The results under Iger's tutelage, however, have so far proved them wrong.  The piece is a good read and explains how a new CEO can make a real difference at a company.  Take a look.

Friday, April 11, 2008

CEO Watch - Hector Ruiz, AMD, Update 5

Could it be that the clock on Hector Ruiz's reign as CEO at AMD has begun ticking again?  Earlier today AMD, the on-again off-again struggling semiconductor manufacturer, announced that its well-respected Chief Technology Officer, Phil Hester has resigned.   Hester is one of other top executives who have left over the last year as the company struggles against its long-time competitor Intel and the market itself.  According to a CNN story,
The decision to leave was Hester's and was not associated with AMD's (NYSE:AMD) recently announced job cuts, the Wall Street Journal reported, citing a company spokesman. The company does not plan to appoint a replacement for Hester.
Some experts might interpret the resignation a result of the firm's failure to get to market a number of new products that have been anticipated for some time now.  The real question is how long can Ruiz stand above all these problems without the responsibility weighing down his shoulders?  Keep a close eye on this. 

For more:

Tuesday, April 8, 2008

Update - Morgan Stanley's CEO Appears to Win Board Re-election Despite Pension Fund Resistance

According to a story by Francesco Guerrera of the Financial Times,
John Mack, Morgan Stanley’s chairman and chief executive, looks set to defeat opposition from a number of pension funds and win a comfortable re-election to the investment bank’s board at Tuesday’s shareholder meeting.
As I discussed in an earlier blog, Mack has been under increasing pressure from a number of pension funds to give up his dual role as CEO and Chairman. The pressure came as a direct consequence of the financial risks the company was exposed to under Mack's reign as regards to the sub-prime mortgage business. Morgan was recently forced to incur large recent write-offs as a result of the risks.

Should Mack win the vote, as it now appears likely, his position will be strengthened.

Another take:

Monday, April 7, 2008

EV3 Slump, Jettisons CEO, Hires Replacement

EV3 EVVV (NASDAQ), the Minnesota based medical device manufacturer focused on endovascular technologies for the minimally invasive treatment of vascular diseases and disorders, announced the resignation of its CEO, James Corbett and his immediate replacement Robert Palmisano.  Corbett, who had been CEO for four years was in charge of the firm when it first went public back in 2006 and was also responsible for the firm's most recent $1.3 billion acquisition of Fox Hollow Technologies.  In one of today's press releases, the company attributed some of the firm's recent poor financial results to,
... a slower than anticipated rebound in U.S. atherectomy following the integration of the ev3 and FoxHollow sales organizations. In the interim, the company is withdrawing the first quarter and full-year 2008 earnings and revenue guidance previously provided on January 7, 2008. At that time, ev3 said guided first quarter adjusted earnings of $0.08 per share and expected net sales to be $107 million or greater. ev3 also expected its fiscal year 2008 adjusted earnings to be $0.50 per share on sales of $500 million or greater.
The company went on to lower its next quarter guidance.  The real issue, however, has been the company's performance for a significant period of time. Unlike many of its competitors, EV3 has been performing well below the S&P 500.  For some time now the company has shown unimpressive growth in its net income and poor overall performance of its stock.  Back in February of this year the company even lost its chief medical offer, John Simpson. 

EV3 has put a great deal of emphasis on its newly appointed CEO, Robert Palmisano. Palmisano was previously the CEO of  Intralase Corporation.  According to the company's press release,
Mr. Palmisano brings more than 20 years of experience in the pharmaceutical and medical device industries to ev3. He most recently served as President and Chief Executive Officer of IntraLase Corp., a company that designs, develops and manufactures ultra-fast femtosecond laser technology for use in ophthalmology, which was acquired by Advanced Medical Optics, Inc. in April 2007. He has served on the Advanced Medical Optics Board of Directors since April 2007 and on the Osteotech, Inc. Board of Directors since March 2005.
While Palmisano's credentials are impressive, they may not be enough to turn around the fortunes of EV3.  One additional positive qualification he brings to the table is his ability to sell and company at a premium price.  Down the line, that talent may become very important.

Keep a close eye on the specific moves Palmisano takes after a brief honeymoon.  Make sure to monitor what happens in may when the company plans to issue new guidance.

For more:


Friday, April 4, 2008

John Mack, Morgan Stanley's CEO and Chairman, Faces New Pressure To Give Up Dual Role

John Mack, CEO and Chairman of Morgan Stanley, just found the pressure increase a bit more on his status as dual CEO and Chairman.  Back on March 13, I wrote a blog that referred to a story by Jed Horowitz of Dow Jones/Wall Street Journal on pressure being applied by the CtW investment group that would force Mack to give up his dual role.  Earlier today in a story by Christine Harper, Bloomberg reported,
The California State Teachers' Retirement System withheld votes for eight Morgan Stanley board members, including Chairman John Mack, because the company has underperformed both the market and peers.

... CalSTRS, the second-largest U.S. public pension fund, is the first shareholder to publicly withhold a vote for Mack after the firm reported its first-ever quarterly loss last year amid writedowns related to subprime mortgages. Morgan Stanley has urged shareholders to support Mack, 63, saying he "moved quickly and aggressively to address the issues.''
The company's annual meeting is scheduled for April 8th.  Stay tuned

For more:

Wednesday, April 2, 2008

CEO Watch - Philip Schoonover, Circuit City, Update 2

Circuit City, the embattled electronics retailer, (check my earlier blogs) continues to face pressures from numerous sides. Chris Wattles of Wattles Capital Management, a major shareholder in the firm (approximately 6.5% of shares) has remained a thorn in Schoonover's side for some time.  Today he made a new call for the CEO's head as well as a number of other changes.  In a letter to Circuit City's board of directors Wattles stated,
We are confident that, with the right senior management team, the right strategy and the right focus, Circuit City can overcome its operational problems and turnaround its struggling business. WCM's primary goal is to help restore investor faith in Circuit City and unlock the Company's significant unrealized value by pushing for the following immediate

    -- Replace the current Chairman and CEO with a seasoned executive capable
       of restoring credibility with employees, vendors and stockholders;
    -- Focus on the "customer experience" and strategies for making the
       current stores more productive;
    -- Begin addressing the actual issues facing the Company and drive revenue
       growth, rather than focusing on cost-cutting strategies and "spin"
    -- Focus on the most immediate and least capital-intensive opportunities
       to improve the health of the business; and
    -- Develop and articulate a deliverable promise for the new "The City"
       brand that works within the realities of the current store footprints.
While Wattles' pressure is unlikely to result in getting Schoonover's head in the near-term, the current CEO's timeframe for success appears to be shrinking.  Continue to keep a close eye on how Circuit City responds to Wattles' pressure and the firm's shrinking profits and options for turning the company around. 

Activist Hedge Fund Barington Capital Successfully Pressures Dillard's

After a short fight with management, yesterday Barington Capital appeared to get the better of Dillard Inc.'s DDS (NYSE) management.  On March 20th Women's Wear Daily wrote,
Back on March 19, Barington Capital Group, the well-known activist hedge fund, notified Dillard's Inc.  that it planned to nominate four people for election to the retailer's 12-member board. Barington represents a group of investors that controlled over 5 percent of the company's Class A stock. According to Barington, the move was being initiated because of a lack of confidence in Dillard's current board to improve shareholder value. Barington's nominees included James Mitarola, the chairman, president and chief executive officer of Barington; Charles Elson, a corporate governance expert and professor; Nick White, a former Wal-Mart Inc. executive, and Eric Salus, a former senior executive with Federated Department Stores.
Yesterday Dillards announced that it had reached an agreement with Barington Capital Group. According to a story by Lance Turner and Mark Friedman for Arkansas Business,
Per the agreement, one of the four people Barington said it wanted on Dillard's board - Nick White, president and CEO of White & Associates and a former executive vice president and for Wal-Mart Stores Inc. - will be among a new group of four nominees that Dillard's is recommending shareholders elect.

The other nominees are:

James A. Haslam, III, CEO of Pilot Travel Centers LLC
R. Brad Martin, former chairman and CEO of Saks Inc.
Frank R. Mori, Co-CEO and president of Takihyo Inc., former president and CEO of Anne Klein Inc. and former CEO and founding Partner of Donna Karan International
The new slate of nominees does not include Mitarotonda, who was among the four nominees Barington Previously Said It Would Nominate to the Dillard's board.

On Wednesday, Mitarotonda said Barington has had "positive discussions" with Dillard's CEO William Dillard II and representatives of the retailer, which "resulted in an outcome that we felt was favorable for all of the shareholders."
Dillards has expressed its happiness with the overall agreement but when you look closer it is obvious Barington Capital managed to get most of what it wanted.  As part of the agreement the company agreed to,
... a review of Dillard's real estate portfolio, to see "whether the company's real estate assets and capital are being optimally deployed to prudently build the most value per share for long-term owners."
That includes plans to close underperforming stores, cut unnecessary costs and "subject all future commitments for new stores to strict return on capital requirements that will be set by the board and management."
Dillard's management of its real estate portfolio has been a key point of contention with Mitarotonda...
Activist shareholders continue to place growing pressure on management and often times succeed in their attempts to change management.  Sometimes the changes are for the better and sometimes not.  There is no question, Dillards needed some changes.

Time will tell.

For more:

Tuesday, April 1, 2008

Chairman Watch - Marcel Ospel, UBS Update 3

It's finally official. I have been predicting the UBS Chairman Marcel Ospel's demise for some time now. He could hold on no longer. With UBS' latest huge write down the news finally came that Ospel will be stepping down. He will be replaced by Peter Kurer, the bank's general counsel. According to a story by Elena Logutenkova for Bloomberg,
UBS AG, battered by the biggest writedowns from the collapse of the U.S. subprime mortgage market, reported a 12 billion-franc ($11.9 billion) first-quarter loss and said Chairman Marcel Ospel will step down.
For more:

Times Online
The Wall Street Journal
The Economist
International Herald Tribune
The Financial Express