Let’s take a trip down memory lane to 2012. Remember those days? “Fifty Shades of Gray” was the top-selling book, even though many people refuse to admit to owning the kinky classic. And who could forget some of the classic songs of the year, such as “We are Young,” by the band Fun, and “Sexy and I Know It,” by LMFAO — try as you might.
For corporate America, 2012 was also a big year when many top companies welcomed new chief executives.
Two well-liked CEOs, McDonald’s (MCD) Jim Skinner and IBM’s (IBM) Sam Palmisano, decided to call it a career, paving the way for Don Thompson and Ginni Rometty to succeed them.
The drama at Sears Holdings (SHLD) also continued — as if it ever stopped. And in early 2013, former technology executive Louis D’Ambrosio resigned as CEO of the once-venerable retailer because of family health issues. The Sears board decided that the right person to become the retailer’s fifth CEO in 7 years was Edward Lampert, who just happened to be the company’s largest shareholder.
Now that some time has passed, it’s evident that MCD, IBM and SHLD picked the wrong person to lead their companies. These CEOs have all talked a good game about improving their businesses but have failed to achieve the results investors were expecting. Allow me to elaborate.
Sears Holdings (SHLD)
Ever since Lampert engineered the disastrous 2004 merger between Sears Holdings and Kmart, the hedge fund tycoon claimed he knew more about retailing than people who have been in the industry for years. At the time, Lampert was quoted as saying, “The idea is to make the stores more competitive while staying focused on the customer.”
Well, of course that never happened.
Under Lampert’s leadership, SHLD has tried to sell everything that wasn’t nailed down. Lands End and Sears Auto have been spun off but there are only so many rabbits SHLD can pull out of a hat. Its strategy is the corporate equivalent of someone pawning the family silver to pay his or her bills.
Things have recently gotten so bad for the Hoffman Estates, Ill. company that it now has to turn to its billionaire CEO to stay afloat. It recently announced plans to raise as much as $625 million through an unsecured loan and warrants. Lampert and his hedge fund will purchase half the warrants to ease worries about the chain’s creditworthiness ahead of the important holiday season.
The stock gained more than 20% on the news. But it’s not necessarily an encouraging sign. SHLD has had to raise money three times in a month.
To his credit, Lampert has never sugar-coated SHLD woes and his shareholder letters are often bluntly amusing. It’s a pity Lampert can’t see that he is the wrong person to lead the company and, given his ownership stake, it’s unlikely that the company’s board won’t point that out to him.
CEO Tenure: Edward Lampert named CEO February 28, 2013
Share price then: $44
Share price now: $36
Difference: -22%
IBM (IBM)
Following IBM’s recent disastrous quarterly earnings results, CEO Ginni Rometty promised that the company would become more nimble in response to the fast-changing market. When I heard these vows, my first reaction was to ask what she had been doing for the past few decades. The answer is that she has been at IBM.
Rometty began her career with the Armonk, New York-based company in 1981 and has played an integral role in creating the business model that has recently begun to unravel. Prior to the top job, she was the head of sales where I am sure she got an earful from Fortune 500 companies unwilling to pay steep prices for commoditized technology such as servers.
She also was part of the leadership team at IBM’s Services business and was responsible for the integration of PricewaterhouseCoopers consulting arm, which it acquired in 2002 for $3.5 billion. For a while it was a cash cow for IBM, but that’s no longer the case. Like the rest of IBM’s divisions, it posted declines in the past quarter as corporate America decided that IBM’s advice wasn’t worth the money.
Rometty is talking up a cloud computing push for the next phase of growth. Given her background, why didn’t she push IBM in this direction years ago when it was still a nascent idea? Now, it seems like IBM is playing catch-up in a fiercely competitive market. If I was on IBM’s board, I would find it hard to believe that one of the people who helped create the mess the company is in now would be the right person to clean it up. It’s time for new blood at IBM.
CEO Tenure: Ginni Rometty became CEO on Jan. 1, 2012
Share price then: $163
Share price now: $164
Difference: None
McDonald’s (MCD)
CEO Don Thompson has a Horatio Alger-like personal story that is certainly inspiring. But his leadership of the iconic burger chain has been lacking.
The Oakbrook. Ill.-based company has moved from one McDisaster to another in recent years, including its recent ugly quarterly results. Remember Mighty Wings and Angus Third Pounders? They were among the many flops MCD tried adding to its already bloated menu. Franchisees have complained about rising fees and shrinking profits. Millennials and health-conscious consumers are avoiding the chain entirely. No wonder MCD recently posted it worst monthly sales decline in more than a decade.
During MCD’s recent earnings conference call, Thompson spoke about new initiatives such as allowing customers to get their food prepared the way they want. The chain calls it “Create Your Taste” and it plans to roll it out to three locations next year. He also is adding more regional items menu items. Wall Street analysts are skeptical that either initiative will do much for MCD’s bottom line since neither is particularly innovative.
Of all the CEOS I have profiled here, I am most surprised that Thompson still has his job.
CEO Tenure: McDonald’s CEO Don Thompson became CEO July 1, 2012
Share price then: $88
Share price now: $93
Difference: 6%
Jonathan Berr does not own shares of the aforementioned stocks.
