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MSN Money - The nation’s worst CEOs

Execs grab headlines for soaring profits or sordid crimes, but rarely for wretched performance. Here are three who’ve run great companies into the ground.

By Jon D. Markman

In the late 1990s, investors deified corporate chief executives. In the first few years of the 2000s, CEOs were vilified. And now, it seems, they are pretty much ignored—seldom appearing on financial television programs or news magazine covers anymore unless theyíre in handcuffs. They are the forgotten souls of Wall Streetís remodeled machine.

But that doesnít mean that the overpaid and underachieving heads of many public companies arenít just as lame as ever. It simply means that weíve gotten complacent about the hardships they cause shareholders when they pursue bad strategies, bad communications, bad hiring, bad products and bad marketing—and then blame their problems on the weather, world politics or traders.

Who are the worst chief executives out there at the moment? You could probably name the CEO of every company youíve lost money on. But a handful should be at the top of every capitalist cynicís list.

AT&T’s David Dorman
Letís start with David W. Dorman of AT&T (T, news, msgs). This one is almost too pathetic to make fun of. Though itís true he inherited a junkyard dog of a company from the overrated prior chief executive, C. Michael Armstrong, he hasnít done a thing to improve Ma Bell in the past two years. With such an immensely well-known brand name and legendary research and development team, you would think that Dorman could make his company synonymous with the global growth of networking as a way of life.

Yet he appears to be pushing the company ever deeper into the background, outsourcing its wireless business in an expensive deal with Sprint, losing the price wars on bundling home wire line and broadband services to the more aggressive Baby Bells and the formerly bankrupt MCI, making its long-distance plans more ridiculously complex than ever, experimenting with a high-quality-but-high-cost enterprise strategy, pursuing Internet-based telephony too slowly and timidly—and now, through no fault of its own, losing its local phone service connection in the recent court battle over FCC unbundling rules.

Since Dorman, who was once a Bell system wunderkind, has taken the reins, the value of AT&T shares have sunk about 60%—which has been kind of a cool feat, since they had fallen about 60% in value in the three years prior to his installment. The stockís 5.8% dividend is a nice start on a return, but Dorman needs to find a way to grow the business—not just cut expenses—to keep capital losses from making the yield immaterial. Revenues have been down every year since 2000, and earnings-growth trends are negative.

Hewlett-Packard’s Carly Fiorina
Itís fashionable these days to suggest that Hewlett-Packard (HPQ, news, msgs) CEO Carly Fiorina is a genius for improving results slightly in the past couple of quarters, but letís be frank: Sheís not. Not even close. Under her egotistical direction, a company that was once a paradigm of Silicon Valley entrepreneurship has simply failed to make any progress at enhancing shareholder value. It is now trading at the same value as it did in 1995. Almost 10 years of marking time.

Fiorinaís reign at Hewlett—combined with that of the CEO just before her—makes a great case study of exactly what not to do. They took a company that was fantastic at doing one thing (printers), and made it a company that is increasingly marginalized at that one thing, and truly lousy at everything else. Her stubborn, ill-conceived purchase of fading, unprofitable computer giant Compaq has utterly failed to deliver on its promise of making shareholders richer with a soup-to-nuts strategy. The printer business still brings in the majority of the earnings of the entire entity.

And yet because Fiorina decided to pick a fight with Dell (DELL, news, msgs) in the personal computer business, Dell has turned the tables and made a strategic decision to return the favor. Dell has steadily released a very nice suite of new low-cost devices made by a variety of partners and, to make matters worse, it has slashed prices on ink—the most profitable part of the printer trade. ìIf Hewlett is not profitable in personal computers, and itís not profitable in mainframe computers, and itís not profitable in services, and their printer business is being hollowed out by Dell, then whatís left?î asks Bret Rekas, a hedge fund manager in Minneapolis. ìIíll answer that: nothing.î

Hereís a stat for you: In 1995, Hewlett-Packard posted $38 billion in sales and earned $2.5 billon. In 2003, it posted $73 billion in sales and earned the same $2.5 billion. Thatís not progress. Thatís running harder to stay in the same place. Hewlettís new focus on digital imaging is great. It would probably do the company a world of good for Fiorina to do the math on one of her flagship financial calculators and admit her mistake with Compaq. She should sell off or just write down the purchase, and return the company to its roots as a smaller, duller but more profitable and innovative designer of digital imaging solutions.

Here’s the rest.


Posted by SPN on 06/11 at 10:32 AM in Blogging

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