First Quarter and March Executive Turnover Totals Reach Turning Point?

As March has come to an end and the first quarter of 2011 is behind us, the United States economy appears to have turned a corner. Executive turnover has seen a real jump in the overall totals in March 2011 for the first time in over three years. This jump coincided with the significant drop in United States unemployment and the continuing growth in the number of jobs being created. According to the Bureau of Labor Statistics which released March’s latest employment figures,

Nonfarm payroll employment increased by 216,000 in March, and the unemployment rate was little changed at 8.8 percent, the U.S. Bureau of Labor Statistics reported … Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.

Not enough time has gone by, however, to predict these specific positive changes in the economy will continue. The possibility for new shocks to the economy such as oil prices, commodity prices, wars and unrest abroad as well as other unforeseen events continue to restrain possible growth in the overall economy and to make some investors weary.

The last four years have seen continuing dramatic declines in executive turnover and large increases in overall unemployment. While executive turnover jumped significantly in March, the totals for the first quarter of 2011 were far more sanguine and actually declined from the same quarter in 2010. When the 2011′s first quater turnover numbers are compared with the previous fourth quarter of 2010, however, the number totals were quite different and far more positive.

Liberum contends the slow level of executive turnover over the last number of years relates to the fact that corporate boards have been reluctant to change top leadership during tough economic times except in situations where the firm in question has performed so poorly that a top executive change was essential or if a major strategic change change in strategy was needed. Below are some illustrative statistics of the declining turnover in top executive ranks of public companies. As we entered the new year, we finally saw some positive news with regard overall employment in the US Economy.

Liberum expects that as the economy continues to recover, the level of executive turnover will continue to rise. Both the pent up demand for new top executives and the possibilities for new job opportunities will account for growing executive turnover. Also boards will be more willing to make changes as the economy continues to grow.

Below is a simple chart outlining the quarterly declines as registered through Liberum’s Management Change Database for 2008 through 2011 (first quarter) for CEO, CFO and overall C-level turnover. The first quarter of 2011 dramatically illustrates the recent change in turnover when the totals are compared to the previous fourth quarter of 2010. The trend line is beginning to change.

Investors should keep a close eye on what happens with executive turnover during April and May.

RealNetworks CEO Leaves in Midst of Turnaround

In what many analysts consider a surprise, Bob Kimball, RealNetworks' CEO and a real force in turning the troubled company in a new direction after little more than one year has abruptly resigned. So far, Kimball has not really commented on his move. According to the firm's press release outgoing CEO Kimball stated:

I took on this role to lead a restructuring and transformation of RealNetworks into a more lean, efficient and effective business and we have completed that phase of RealNetworks’ transformation. Over the past year we have simplified our business, removed more than $70 million in annualized operating expenses and created an entirely new, award-winning product called Unifi. We are delivering on our promise to build products people love. All this work has set the stage for Real to embark on its next phase with a clean bill of health and a strong foundation.

After 12 amazing years at Real, it is time for me to find new challenges and opportunities. I want to thank the Real team for their incredible work over the past 15 months – we’ve come a long way in a short time and I look forward to watching their success in the coming years.

In the meantime, until a permanent CEO is selected, RealNetworks appointed Executive Vice President Mike Lunsford to serve as interim CEO. The move change in leadership comes at a delicate moment in the firm's turnaround. Kimball who had been with the firm for over a decade before becoming its CEO replaced Rob Glaser, the company's founder. While in his leadership role Kimball according to a story by Brier Dudley for The Seattle Times,

The move comes as Real enters an intense several years that will test its plan to operate as a smaller company more focused on phone companies and other business customers, as well as games and consumer products.

During Kimball's tenure, the company also developed a new online media service that may compete with upcoming products from Google and Apple. But Real's stock has bobbed below $4 for most of Kimball's time as chief executive.

During 2010, sales fell 29 percent to $401.7 million and the company reported an operating loss of $34.5 million. Its gross margin improved to 64 percent, up from 60 percent the year before, when it lost $237.2 million.

All indications point to the firm finding a new CEO from outside the firm. Investors should keep a close eye on the company as it continues to find its footing.

Thinking Outside the Box is Not Always Best - Sears

Eddie Lambert, the once famed investor, who has been struggling for the last number of years trying to turn his controllinginvestment in Sears into something positive, just announced, after a three year search, the appointment of another new CEO. Lambert’s selection of Lou D’Ambrosio, a former IBM executive and CEO of Avaya, is another suspect out-of-the-box selection that has many people scratching their heads. D’Ambrosio an effective high-powered executive with substantial CEO and management experience primarily in the telecom and tech fields has no experience in retail. A lack of retail

experience would seem to be imperative for an organization like Sears. While D’Ambrosio has been working with Lambert and Sears as a consultant he is now going to be in charge. What can Lambert be thinking?

According to an article by Jeannine Poggi for TheStreet.com,

In a letter to investors, Lampert said D’Ambrosio is the right man for the job due to his “information and technology background, leadership style and experience in leading and transforming a Fortune 500 company.”

D’Ambrosio led Avaya as it went private, “delivering attractive returns to its shareholders,” Lampert wrote. This could be interpreted that Lampert’s real goal for Sears is to take the company private, not to bring it back to retail dominance.

Analysts are wondering once again what Lambert really has in mind. He claims to be relying on D’Ambrosio’s tech expertise to help the firm online and his previous expertise in taking Avaya private, two valid points but the firm remains a major brick and mortar retailer, so it is difficult to see how this appointment would be truly effective. In an ABC News Story more questions were raised about the CEO selection.

Many analysts say the move to a bigger online presence is a good one. They also believe D’Ambrosio could help Sears with mobile technology as more shoppers buy products from cell phones.

But Sears also has one of the largest brick-and-mortar footprints in North America, and one of the least productive. That makes D’Ambrosio a misguided choice, said Credit Suisse analyst Gary Balter and other analysts.

“While Sears has played the financial game well, and has smartly invested in the Internet, the store experience remains one lacking due to underinvestment in the basics of retailing,” Balter said.

Investors should keep a very close eye on Sears and its new CEO to try and get an idea what they might have up their sleeve. So far, it does not look that promising.

Ranbaxy CFO Exits Adding To Firm's Management Changes

Ranbaxy Laboratories RANBAXY.BO, the Indian based but Japanese majority owned generics pharmaceutical firm, just the other day lost its long time employee and current CFO, Omesh Sethi. Sethi announced his resignation from the firm without any explanation. The resignation comes approximately six months after the firm lost its CEO, Atul Sobti, back in August. Ranbaxy, one of the largest generic drug manufacturers and the largest by sales in India, has been beset with a number of problems. The company come under increased scrutiny and ultimately an import ban on a number of its generic drugs by the United States FDA back in 2008 after it was discovered there were a number of manufacturing defects at its plants. According to an article in Bloomberg,

The Food and Drug Administration in the U.S., the world’s largest drug market, in 2008 blocked the import of more than 30 generic medicines from two Ranbaxy factories in India because of manufacturing defects. There is no evidence the drugs are harmful though the violations may lead to defective products, the FDA said at the time.

The firm also lost its original CEO not long before Atul Sobti was hired. According to The Economic Times of India,

The departure of the CFO follows exit of other top senior executives which began with promoter and CEO Malvinder Singh's abrupt resignation in May 2009. A year later, his replacement Atul Sobti also stepped down citing differences with the Japanese firm in running the company.

The problems at the firm were complicated by the fact that control of the firm was moved to Japan after Daiichi Sankyo, one of the largest pharmaceutical company's in Japan, took a 64% controlling interest in the firm. The continuing management turmoil at the firm appears to relate to Daiichi Sankyo's approach for the firm. There was little dispute back in August when the firm's CEO, Atul Sobti resigned. He had major differences with Daiichi's approach to management and strategy. Investors need to keep a close eye on the firm. Ranbaxy has been making great strides to resolve the manufacturing problems that resulted in the U.S. import ban. So far, the firm still does not have a CEO permanently in place.

2010 Continues to See Major Declines in Executive Turnover

The last four years have seen continuing dramatic declines in executive turnover. Even as the U.S. and other economies appear to be moving out of the great recession/financial crisis executive turnover has continued to decline while overall general unemployment has remained extremely high.

• For 2008 CEO turnover declined nearly 10%, CFO turnover declined 14% and overall C-level (as defined by Liberum Research as board of directors, CEOs, CFOs down to corporate VPs) turnover declined nearly 15% as compared with 2007 totals. The number totals continued to decline even more precipitously for 2009. CEO turnover declined 27%, CFO turnover declined 36% and overall C-level turnover declined 30% as compared with 2008′s already low levels. The numbers would be even more stark if compared with 2007.

• The executive turnover totals continued their dramatic decline throughout 2010. Annual 2010 CEO turnover declined 22%, CFO turnover declined 13%, C-level turnover declined 29% from 2009′s totals.

CEO Watch - William C. Weldon, Johnson and Johnson, Update #2

Back in late September we examined for the second time the problems William Weldon, Johnson and Johnson’s JNJ (NYSE) CEO, faced after firm encountered a spate of major over the counter drug recalls. Johnson and Johnson under Weldon’s leadership has not done a great job in handling these problems and for that matter, continues to find itself facing new problems. Just recently one of the firm’s subsidiaries had to recall one of the firm’s over the counter antacid products, Rolaids. Up to this point the board has appeared to support Weldon but we finally have seen some action in this area. Earlier this week J and J, as reported in the Wall Street Journal, announced some management changes that have increased the battle for Weldon’s succession. According to the Journal,

J and J, New Brunswick, N.J., named Alex Gorsky, head of the medical devices and diagnostics unit, and Sheri McCoy, who heads the pharmaceutical unit, as vice chairmen of the executive committee and members of the office of the chairman, effective Jan. 3, 2011.

The race to succeed Weldon had previously appeared to be narrowed to Gorsky and McCoy in September when Colleen Goggins said she planned to step down as head of J and J’s third major unit, the consumer healthcare business. The consumer unit has been beleaguered by a series of product recalls due to quality lapses.

Johnson and Johnson must find new ways to get its house in order. Despite good financial results the continuing recall problems could ultimately have a very adverse impact on the firm going forward. Stay tuned as succession plans appear to be moving full steam ahead.

Against the Grain - Pfizer CEO Resigns Unexpectedly

Jeffrey Kindler, Pfizer’s PFE (NYSE) CEO for the last four years, announced his resignation on Sunday. The firm announced that Kindler would be replaced with longtime employee and executive, Ian C. Read. Kindler’s weekend resignation announcement has been interpreted by many as an ouster. Pfizer has been languishing for sometime under Kindler’s tutelage. This has all been happening while many of the other big pharma companies have been doing quite well. Despite a major reorganization and tremendous acquisitions (2009 acquisition of Wyeth Drugs) while in charge, Kindler, a lawyer by trade with a focus on sales, has found himself under pressure from shareholders and apparently the board. While in charge, Kindler saw a number of research related failures with regard to potential blockbuster drugs and has been in charge as major patented drugs will see their protection expire shortly, e.g., Lipitor.According to the company’s press release Kindler was quoted on the change as follows,

My nearly nine years at Pfizer and, particularly the last four and a half as CEO, have been extremely exciting and rewarding. I feel our team can proudly boast of some transformational accomplishments. However, the combination of meeting the requirements of our many stakeholders around the world and the 24/7 nature of my responsibilities, has made this period extremely demanding on me personally. Now that we are about to complete a full year of operating Pfizer and Wyeth together, with our world-class team fully in place, I have concluded the time is right to turn the leadership of the company over to Ian Read. Ian is an outstanding and experienced pharmaceutical executive who I know will make the next phase of the company’s future a successful one. He is more than ready to take on these responsibilities and I am excited at the opportunity to recharge my batteries, spend some rare time with my family, and prepare for the next challenge in my career.

The sudden change at Pfizer seems to make a great deal of sense. The appointment of Read, an in-house executive with vast experience, is the right type of change for such a large company that needs to get back down to basics on all its different business fronts. Keep a close eye on the firm as we move forward. Read is already in charge.

InfoSpace Fails to Meet Wall Street Expectations - CEO Leaves

InfoSpace INSP (NASDAQ), which was originally formed back in 1996, has gone through a number of transformations over the years. Prior to the Dotcom bust, the company was a high flier, after the bust the firm came way back down to sea-level. The company operates a number of online search services that rely on metasearch technology. InfoSpace primarily serves content providers and a significant portion of its business is focused on the mobile space. Just recently, the company released its earnings for the third quarter which was disappointing and held an earnings call (Earnings Call transcript via Seeking Alpha). Shortly after the Earnings Call its CEO, William J. Lansing stepped down after only 21 months in the position (see the 8k). The company immediately selected William J. Ruckleshaus, a member of the firm’s board and a former CFO of AudienceScience and SVP at Expedia, to serve as the firm’s interim CEO until a successor could be found for Lansing.

Some people have looked at Ruckleshaus’ selection as an attempt by the firm to pursue more acquisitions (see a piece by John Cook on Seattle’s Tech Flash). I’m not quite as optimistic as Mr. Cook. Investors should keep a close eye on the firm and the steps Ruckleshaus takes over the next few months and also who the firm ultimately chooses to take over as the new CEO.

Quarterly Executive Turnover Continues to Decline While Overall Unemployment Remains High

Executive turnover has continued to decline throughout the economic and financial crisis and even as the recession ended according to the official proclamation by the National Bureau of Economic Research. Liberum Research’s latest quarterly turnover numbers for CEOs, CFOs, Board of Directors and C-level executives (defined to include CEOs, board of directors, CFOs, COOs, down to VP level) continued to show a drop in turnover for all key categories for the third quarter of 2010. The declining trend in executive turnover has continued since the first quarter of 2008 for all key executive turnover categories (see the CEO, CFO and C-level graphs below for quarterly turnover comparisons). While the first three quarters of 2010 continued to show significant declines in executive turnover, particularly when compared with the first, second and third quarters of 2009, we are beginning to see the overall executive turnover declines slowing when the quarterly figures are compared with each previous quarter of 2010.

• Third quarter 2010 CEO changes dropped 27%, CFO changes dropped 8% and overall C-level changes for the third quarter dropped 32% respectively when compared with the third quarter totals for 2009.

• The drop in changes for the third quarter of 2010 was much smaller when compared with the second quarter totals for 2010 - the drop was 21% for CEOs, 7% for CFOs and 6% for overall C-level changes.

While monthly executive turnover numbers have been smaller since early 2008, the investment opportunities they represent are still quite significant. Below Liberum put together three graphs representing the total executive related changes (CEOs, CFOs and C-level changes) by quarter for 2005 through the third quarter of 2010.

HP Selection of New CEO Slammed by Analysts and Market

Yesterday’s long awaited announcement on who would replace Mark Hurd as Hewlett Packard’s HPQ (NYSE) CEO went down with a thud. The selection of Leo Apotheker, a former short lived CEO of SAP, was not hailed by the market nor many analysts. I am on the other side of the fence on this appointment. I think HP’s board has come up with a surprisingly excellent choice.While Apotheker was not very successful while CEO at SAP he faced a great deal of opposition within the organization and more than likely learned what he would need to do to be successful a second time around. SAP’s culture did not fit his needs for change. He should be able to make more change at HP than he was able to accomplish at SAP.

HP’s board appears to have gone strategic in its appointment. Its decision to go outside the firm for its selection should in the long run work out. Apotheker has the right background to help HP move into the software side of the industry in a big way without seriously jeopardizing its current bread and butter businesses. Who knows he might even move to go for an acquisition of SAP or some kind of alliance. If he can manage to keep many of the key players currently at HP and work with them to get the firm’s overall strategy right, he has a great chance at being very successful. He is a strategic thinker and he understands technology.

Shareholders and investors need to give him time to get up to speed. Stay tuned this latest selection may turn out to be a really winner despite the conventional wisdom.

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