Recessions are no good, no fun, and we are for all practical purposes in one.  The government numbers just aren’t yet there.  But if you are a CEO that was in trouble, a recession could end up becoming your best friend as far as the keeping your job that you are under pressure over.

Take Advanced Micro Devices (NYSE: AMD) for example.  It is no secret that we have been calling for Hector Ruiz to get the axe as CEO of AMD.  We could go on and on about the blunders this company has made.  But in a slowing economy Ruiz might just be able to say that he can guide the company through the hard times better than when everyone else was doing well.  After all, it isn’t solely Ruiz’s fault that a slowdown in the sector and the broad economy is hitting and a slowdown could even mask under-performance to plan even in the graphics side of AMD.  He might even now have an excuse to be able to back away from those projections that no one believed last month at the analyst day. 

Symantec (NASDAQ: SYMC) is another example.  We actually like CEO John Thompson and understand that he’s well liked and he definitely has a great resume.  But we recently called him as a CEO that may want to just keep the Chairman role and bring in a replacement CEO.  The problem here is that this stock got slaughtered after his huge  Veritas acquisition ruined the stock trajectory.  Then after the huge sell-off the stock has never recovered even with more small deals.  The stock is now half of its pre-merger glory days and has been just dead money.  If this slowdown gets too bad we aren’t even sure the $15.00 post-merger lows will hold.  But this company was already expected to have low growth now and Thompson might actually escape the Turk if the economy can be blamed for an inability to act like a growth stock.  Maybe a slower economy even gives him the excuse to trim down the number of jobs that Wall Street would have liked to have seen as a post-merger opportunity.

A slowing tech environment might actually even save Alcatel-Lucent (NYSE: ALU) CEO Patricia Russo, if you can imagine it.  2006 to 2007 were the years of Cisco Systems as John Chambers was in the sweet spot with a full end to end offering.  The combined Lucent and Alcatel hasn’t gone well but as telecom and communications spending is still there the company might actually be able to claim that its offerings might be more attractive on price even if the entire solutions aren’t packaged quite as well as Cisco.  It seems hard to make the call here, but Cisco has run into what Wall Street sees as some peaking issues itself, and it could give Russo the out she needs to be able to say, "See, even the best in the business is in trouble."  Earnings warnings affect even good companies in bad times.

Circuit City (NYSE: CC) CEO Philip J. Schoonover might have been praying for a recession as early as last Spring when the real troubles started pounding the company.  Almost no retailer does well in a recession and he could say that Wal-Mart and Best Buy are simply more powerful. Even if this company is technically a retail play, it does sell technology products as its mainstay and if technology slows down more than other areas of the economy this could be the excuse Schoonover can use to keep from changing his name to Scootover.  It might even justify the boondoggle of the employee firings in favor of the $8.00/hour employee model that took away anyone who knew more technology nuances than elsewhere.  A recession would even allow him to have an excuse for warning of a loss in the Holy Grail retail fourth quarter holiday season. 

The truth is that we believe all of these CEO’s need to go, will need to go, and almost certainly must go.Recession or no recession.  Excuses or no excuses.  But troubling timescan save many managers from the noose.  Look at how many CEO’s of banksand other lending institutions that would otherwise have been lynchedby shareholders for unthinkable drops to the tune of 30%, 50%, and evenmore in a sector where many stocks never saw more than a 20% drop intheir share prices in any single year.  The current environment gavethe managers the ability to say "everyone believed" and "it wassystematic" and "we aren’t in as bad of shape as the others" and soon.  We still believe that a CEO exit at each of the above would merita win for the remaining bullish hopefuls that still own stock in thesecompanies.  But a succession plan is mandatory. 

A recession will also give the whole panel of turnaround stocksthe excuses they need to keep from turning back around.  In fact, thesecompanies usually need plenty of business around that can be grabbed tobe able to get their houses back in order. 

We issued a guideline as to the reasoningthat must be present for Wall Street to demand a CEO exit viaresignation, firing, or mere demotion; and the reason cannot be shareprices alone.  A recession can give managers a lot of room to hide,even if they don’t deserve it.  Recessions can mask many errors whenevery public company is struggling to keep earnings positive and out ofthe red rather than when stockholders can demand 10% annual growthperpetually.  Misery loves company.

Jon C. Ogg
January 16, 2008

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.  Join our open email list to see further in-depth coverage of management issues, IPO’s, spin-offs, restructuring, and more.

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