Do you think General Electric (NYSE:GE) should have fired its CEO? GE’s board did, letting John Flannery go after just 16 months in the job. On Flannery’s watch, GE stock lost 52% of its value and was booted off the Dow Jones after more than 100 years on the index.
Although Flannery made a lot of moves to right the ship, the board felt Lawrence Culp Jr., a current GE board member and former CEO of Danaher (NYSE:DHR), another industrial conglomerate, was a better fit because of his corporate turnaround experience.
There are many reasons why CEOs get fired. Going too slow. Going too fast. Excessive spending. Bad acquisitions. Inappropriate conduct. The list goes on. The reality is that GE should never have put Flannery in the top job in the first place.
“I would have preferred for GE to have hired an outsider to come in and take a fresh look at its business,” I wrote in July 2017. “Instead, the company chose to promote from within.”
You have to credit the GE board for pulling the plug before its stock fell into single digits, like Sears (NASDAQ:SHLD). With Culp in the driver’s seat, it’s got a shot. Are there any other S&P 500 CEOs that ought to be fired? I can think of seven names.
Martin Flanagan, Invesco (IVZ)
Invesco (NYSE:IVZ) stock is down 40% year-to-date through Oct. 10. Since Martin Flanagan became the asset manager’s CEO on Aug. 1, 2005, Invesco’s stock has gained just 46%, well behind the S&P 500’s 126% performance.
In late September, news broke that it was close to buying Oppenheimer mutual funds for $5 billion. Martin Flanagan continues to make acquisitions, yet its revenues and profits continue to go sideways.
“The company has made a number of acquisitions in recent years besides Guggenheim, including European ETF provider Source and robo-adviser Jemstep, but they have increased leverage without transforming the company’s prospects,” Reuters reported in September. “Operating income was unchanged in 2017 from three years earlier even as assets grew by 18 percent, and the firm’s operating profit margin declined by 2 percentage points, to 39.4 percent. Debt stands at more than four times EBITDA.”
Martin Flanagan made Invesco bigger, but he hasn’t made it better over his 13-year tenure as CEO. Otherwise, IVZ stock would have performed far better during his reign.
A change is overdue.
Michael Polk, Newell Brands (NWL)
Newell Brands (NYSE:NWL) stock is down 39% year-to-date through Oct. 10. Since Michael Polk became the consumer products company’s CEO on July 18, 2011, Newell’s stock has gained 12%, well behind the S&P 500 at 112%. Earlier this year, I called Newell a stock that might surprise in 2018. My rationale was that its integration of Jarden, although going slower than expected, would ultimately pay dividends.
Instead, the company found itself in a proxy fight in March with activist investors Carl Icahn and Starboard Value that saw five directors leave the board including Martin Franklin, who built Jarden into a massive business before selling to Newell in 2017.
Polk’s been busy selling non-core assets to reduce the number of brands it owns. Clearly, Franklin didn’t like the direction the CEO was taking.
If GE can fire Flannery after just 16 months, it stands to reason that Newell’s board, although dysfunctional, should be able to do the same. A 12% return over seven years, in my opinion, is not extraordinary leadership.
Doug Parker, American Airlines (AAL)
American Airlines (NASDAQ:AAL) stock is down 39% year-to-date through Oct. 10. Since Doug Parker became the airline’s CEO on Sept. 27, 2005, Newell’s stock has gained 185%, well ahead of the S&P 500 at 129%.
My call for Parker’s job is the most contrarian of the seven CEO picks on my list because he has done an excellent job delivering for shareholders.
However, after merging America West with U.S. Air in 2005 and then U.S. Air with American in 2014, the airline industry is heading into a period of turbulence — higher oil prices, rising interest rates, low availability of talent, low-cost competition — where profits aren’t going to be nearly as easy to come by.
Analysts expect the airline’s third-quarter profits to be 15% lower as canceled flights as a result of Hurricane Florence and higher fuel costs. Although lower profits are the norm for the entire industry at the moment, it might be a good time to move out of the CEO chair and become executive chairman.
Bernardo Hees, Kraft Heinz (KHC)
Kraft Heinz (NASDAQ:KHC) stock is down 26% year-to-date through Oct. 10. CEO Bernardo Hees became the CEO of H.J. Heinz in April 2013. Since Heinz acquired Kraft Foods in July 2015, its stock has lost 28% of its value, well behind the S&P 500, which is up 34% in the same period.
Bernardo Hees might have done wonders as a young up-and-coming CEO at Burger King, but when 3G Capital’s lieutenant took charge of Heinz and then acquired Kraft for $55 billion, he loaded the merged entity with a massive amount of debt.
Ever since investors have been wondering when Hees would strike next. A failed $143 billion offer for Unilever (NYSE:UL) back in February has made investors restless, knocking its stock into the mid-$50s, well below where it traded during the Unilever discussions.
Unfortunately, the 3G game plan is a tired one. Fire lots of employees, reduce the number of plants operating, cut overhead, and increase margins. Rinse and repeat.
At some point, you have to grow the business organically because too many acquisitions in a rising interest rate environment will kill your business faster than you can say Kraft Dinner.
Kraft Heinz needs a CEO who knows how to grow organically because significant acquisition opportunities don’t come around very often.
Jim Hackett, Ford (F)
Ford (NYSE:F) stock is down 25% year-to-date through Oct. 10. Since Jim Hackett became the car company’s CEO on May 22, 2017, Ford’s stock has lost 19%, well behind the S&P 500, which is up 17% in the same period.
In the job for 16 months, which is about the same time as Flannery, you have to wonder if the Ford board is second-guessing Hackett’s hiring. I didn’t think it was the right move then and I still don’t think he’s the right person for the job.
The company has become way too reliant on the F-Series of trucks, it has almost no vision for its car business, and is late to the game when it comes to electric vehicles. “There’s really no visibility about their strategy,” said CFRA Research auto analyst Garrett Nelson recently. “There are also no real catalysts on the horizon.”
In a move right out of the 3G Capital playbook, Ford is planning mass layoffs to offset the loss of more than $1 billion in profits due to higher tariffs. Morgan Stanley (NYSE:MS) estimates that more than 24,000 pink slips could be on the table as part of Jim Hackett’s $26 billion restructuring.
While cuts might help on the bottom line, innovation is the only thing that’s going to get Ford out of its rut. Hackett’s not the innovator I had in mind.
Mary Barra, General Motors (GM)
General Motors (NYSE:GM) stock is down 18% year-to-date through Oct. 10. Since Mary Barra became CEO on Jan. 15, 2014, the car company’s stock has lost 18%, well behind the S&P 500, which is up 51% in the same period. I have to admit that this pick is the hardest of the bunch because I genuinely believed that Barra was an excellent choice for CEO back in 2014.
An engineer by training, a GM lifer, and a woman to boot, I really thought she’d turn GM into a well-oiled machine.
“Barra was the first woman to lead a major automaker, but her hiring was a big deal not just for women, but the auto industry as a whole,” I wrote at the time. “Women have earned the right to be running major corporations like GM; her hiring was a signal to others that your new CEO doesn’t always have to be a man.”
Even Warren Buffett thought she was the right person for the job. He probably still does considering that he still owns 51 million GM shares. Unfortunately, for whatever reason, investors refuse to give GM stock its due despite the fact Barra’s increased earnings per share by 50% since taking over almost five years ago.
Like Doug Parker at American Airlines, I think it would be smart for her to become executive chairman bringing in an outsider to shake things up a little because there’s no question GM has become a more valuable company than Ford.
Ginni Rometty, IBM (IBM)
IBM (NYSE:IBM) stock is down 4% year-to-date through Oct. 10. Since Ginni Rometty became CEO on Jan. 1, 2012, the tech company’s stock has lost 23%, well behind the S&P 500, which is up 118% in the same period.
“It’s no surprise that Palmisano is stepping down. This year, he turned 60, the traditional retirement age for IBM chief execs,” Wired reported in October 2011. “In June, citing people familiar with Palmisano’s thinking, The Wall Street Journal reported that the company was in the midst of mapping out a succession plan.”
Rometty’s been nothing short of a major disappointment since taking the job. At age 60 and the company’s turnaround plan well underway, it’s time for her to step aside and let someone younger take control.
“Ginni Rometty’s reign has been expensive for everyone but her. It’s time she sucks up her pride and moves into the Executive Chairman position and lets somebody else run with the football,” I wrote in January. “That, more than anything, will help cure what ails IBM stock.”
Until Rometty gives up control, regardless of the progress you think she’s made, IBM stock is dead money in my opinion.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.