Shareholders put their trust in the chief executive officer to direct the company to better fortunes. At some point, however, a CEO can do more harm than good. The telltale signs the CEO may be at that point are declining profits and falling stock prices. Every year, 24/7 Wall St. editors review a set of publicly traded corporations to identify the CEOs who should leave their companies — via retirement, firing, or shifting to non-operational roles inside their company.
24/7 Wall St. considered two groups: S&P 500 companies and post-2010 high-tech IPOs with valuations of at least $1 billion. In the first category, a CEO had to hold office for at least three years to to be considered. In the second, the CEO had to be in his or her job for two years.
Some groups of companies were completely excluded because the industries they are in have weakened significantly due to outside forces. The most obvious are energy sector companies. We also excluded companies that have completed major mergers, acquisitions or divestitures in the last year. Hewlett Packard, which split into two companies last November, is among this group.
Click here to see the CEOs that have to go in 2016.
We examined stock performance over one, two, and five years. CEO compensation was based on a three-year number as of the last proxy.
Finally, the editors used some judgement beyond raw data. CEOs who have repeatedly failed to successfully execute their own primary strategies made this list — even if shares in another S&P 500 or post-2010 IPO company dropped more.
1. Sears (NASDAQ: SHLD)
CEO: Edward Lampert
Year started: 2013
One year stock price change: -55.1%
Annual compensation: $5.7 million
Eddie Lampert was the architect behind the merger that created Sears Holding. In an $11 billion deal, Kmart took over Sears in 2005, forming the third largest retailer in the country. One of his goals was to sharply cut costs by combining overlapping operations of the two companies. Lampert’s hedge fund ELS Investments still controls Sears Holdings with a 53.2% position. After the company cycled through several CEOs, Lampert took the job himself in 2013. Sears reported $53.0 billion in revenue in 2007. By last year, revenue fell to $31.2 billion. The company, which lost money in each of the last four years, continues to shrink rapidly. In its last reported quarter, revenue fell to $5.8 billion from $7.2 billion in the same quarter of the previous year.
2. IBM (NYSE: IBM)
CEO: Virginia Rometty
Year started: 2012
One year stock price change: -18.9%
Annual compensation: $19.3 million
105-year old IBM is one of the greatest conglomerates in U.S. history. The company created some of the most important tech products of all time, including the mainframe computer and PC. The company has been battered by falling demand for large computers, a poor showing in the enterprise software and consulting business, and a weak move into the cloud computing market. IBM reported $103.6 billion in revenue in 2008. Revenue last year was $92.2 billion, and has continued to decline in 2015. Ginni Rometty has been CEO for four years. Rometty has repeatedly told shareholders the company will soon become dominant in cloud computing, mobile, and social media. Instead, it appears the company is having more trouble dealing with the changing tech landscape than Rometty is willing to admit.
3. Xerox (NYSE: XRX)
CEO: Ursula Burns
Year started: 2009
One year stock price change: -31.6%
Annual compensation: $22.2 million
Carl Icahn has finally managed to achieve what many Xerox investors were hoping would happen for a long time. Following pressure from the billionaire shareholder, the company announced it is breaking in two. This breakup is essentially undoing CEO Ursula Burns’ 2010 purchase of Affiliated Computer Systems for $6.4 billion. At the time, the plan was to transform Xerox from a hardware and copier company to an IT consulting company. Xerox’s performance has been downhill since. The company is in such deep trouble that the Icahn plan did not lift the company’s stock price. It trades near its 52-week low, which puts it down 32% for the period. Revenue of the company Burns created hit $22.6 billion in 2011. Last year, revenue was $18.0 billion, and it continues to drop rapidly. Burns may not have a role in either of the two new companies.
4. Zynga (NASDAQ: ZNGA)
CEO: Mark Pincus
Year started: 2007-2013, 2015
One year stock price change: -10.8%
Annual compensation: $33,308
Zynga was in trouble from its first day as a public company. Its 2011 IPO was priced at $10 per share. It closed its first day of trading lower, at $9.50 per share. Zynga was one of the hot social media company IPOs along with Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR). Shortly after the IPO, Wall Street briefly warmed to Zynga’s position as a game provider first and foremost. The stock, however, is currently down 80% since the IPO. Co-founder Mark Pincus held two critical jobs at Zynga: chairman and CEO. Pincus relinquished the CEO job in July 2013, but took back the job in April 2015. Pincus’s largest problem is that Zynga has been a one-trick pony. Farmville was its only wildly successful game, and the company did not manage to replicate the success of Farmville with other titles. For a hot social media company, Zynga is dying. Revenue in the last reported quarter fell to $186 million from $196 million in the same period the year before.
5. Valeant Pharmaceuticals (NYSE: VRX)
CEO: J. Michael Pearson
Year started: 2008
One year stock price change: -51.6%
Annual compensation: $10.3 million
Long-time Valeant Pharmaceuticals International Inc CEO Michael Pearson is credited for turning the company around via a massive shopping spree — but he has been under fire recently. The company makes a number of major drugs that target areas such as weight loss, vitamin deficiency, and depression. While revenue has soared from $1.2 billion in 2010 to $8.3 billion last year due to the many acquisitions, the deals have also left the company with a heavy debt load. More seriously, Valeant has been in the hot seat over rocketing drug prices and due to its relationship with specialty mail order pharmacy company Philidor. Philidor has been accused of charging customers for higher-priced drugs rather than cheaper generics among other questionable practices. Valeant management already appeared in front of a congressional hearing together with the so-called “pharma-dude” Martin Shkreli. The controversy around Philidor also triggered allegations of accounting fraud. In January, the company announced it may restate past financial results due to improper revenue recognition practices with Philidor. Valeant shares are down 70% from their 2015 peak. Although Pearson has been on a medical leave of absence since December, it is time for the Valeant board to fire the long-time CEO.
6. Twitter/Square (NYSE: TWTR, NYSE: SQ)
CEO: Jack Dorsey
Year started: 2006-2008, 2015/2009
One year stock price change: -63,4%, -24.5%
Annual compensation: N/A, N/A
The time has come for Jack Dorsey — who holds two public company CEO jobs — to do the right thing. Dorsey is Square’s co-founder, chairman, president and CEO. He also took the job of managing the deeply troubled Twitter in July. It has become obvious that Twitter is going to be the much more demanding job. Both stocks have slid lower since Dorsey re-joined Twitter. Twitter’s shares plunged 63% in the last year, and Square’s dropped 24%. Moving out of the Square CEO job is the appropropriate decision because no one can run two deeply troubled companies — and Twitter is the more desperate of the two. By the time Dorsey is pressured to vacate his role as CEO of Square, it may be too late as many of the growth opportunities for Twitter will have passed. Twitter’s user-based growth has stalled, and many advertisers do not consider it a valuable marketing tool. Square, a mobile processing company, has more immediate prospects, as indicated by Visa’s investment. Dorsey has yet to do harm and he can still do good, but only at one company — and his talents would better serve Twitter.
7. SunEdison (NYSE: SUNE)
CEO: Ahmad Chatila
Year started: 2009
One year stock price change: -94.5%
Annual compensation: $7.7 million
Ahmad Chatila has been president and CEO of renewable energy company SunEdison (SUNE) since March 2009. Spinoffs and company restructuring have created some controversy, and the company is apparently very low on cash. An effort to raise capital in January resulted in the company’s stock becoming severely diluted. The company’s shares are down 95% from its 52-week high. As liquidity and business model concerns persist, the big question now is whether SunEdison can still make it — even with a new leader. With David Einhorn’s hedge fund Greenlight Capital winning a board seat and several senior officials already forced out, Chatila may begin to feel the pressure from the board. A 95% share price drop is often enough of a bad mark for any CEO. That the company is also closing plants in Malaysia and Texas are just more red flags.
8. American Express (NYSE: AXP)
CEO: Kenneth Chenault
Year started: 2001
One year stock price change: -31.6%
Annual compensation: $22.8 million
Kenneth Chenault has been chairman and CEO of American Express (AXP) since 2001. It is worth noting that he has made some good decisions for the company in the past. The company’s stock price, however, has been on the decline in recent months. The company has spun off several units over the years, and for the most part, this has hurt AmEx. The stock closed 2015 at $69.55 — down 26% for the year, and analysts expect another decline in 2016. Among the events that have damaged Amex the most is the loss of its position as exclusive credit card for Costco. Amex also recently lost its branded card deal with Fidelity. Recently, AmEx announced a management reorganization with an unknown number of job cuts, as well as a $1 billion target in cost cuts over the next two years. The company’s problems are exacerbated by the fact that many retailers do not use AmEx. With the rise of Visa, Mastercard, PayPal, Apple Pay and a myriad of other forms of competition in card processing and card issuance, the time for a new transformational CEO for the digital age has arrived. With Chenault turning 65 this year, it is time to hand the baton over and let a new CEO move the company beyond its present problems.
9. Staples (NASDAQ: SPLS)
CEO: Ronald Sargent
Year started: 2002
One year stock price change: -45.3%
Annual compensation: $12.4 million
In a world moving fast beyond traditional offices, office retailers have been hurting. But Staples CEO Ronald Sargent’s proposed merger with Office Depot, rather than offer a lifeline to the beleaguered chain has become a burden and may set the company’s normal operations back indefinitely. To avoid being labeled a monopoly and earn government approval for the transaction, Staples may have to give up some of its critical operations. The cost of such a severe restructuring may well be too high for shareholders. It now seems that the right move would have been to acquire OfficeMax or Office Depot before those two merged in 2013, when the FTC and Department of Justice were less likely to intervene. Sargent has been CEO of Staples since 2002. He led the several billion dollar Corporate Express buyout in 2008. Sargent might opt to, or be forced to, remain chairman and allocate the CEO role to someone else. Whether Staples wins approval of the Office Depot deal or not, a lot of time and effort has been expended — and the risky work of integration has yet to begin.
10. Bed Bath & Beyond (NASDAQ: BBBY)
CEO: Steven Temares
Year started: 2003
One year stock price change: -37.1%
Annual compensation: $19.1 million
Now that its growth has slowed, Bed Bath & Beyond (BBBY) needs help immediately. Steven Temares has been CEO since 2003. He seems to have the backing of the two co-chairmen and co-founders, Leonard Feinstein and Warren Eisenberg, and he may very well be protected from outside pressure. Bed, Bath & Beyond needs to thwart competition from Amazon, Wal-Mart and other in-store and online retailers. It needs to revitalize its brand and its store design, as margins continue to drop and sales have stalled. Temares has been part of the company’s leadership almost throughout its entire history as a public company. It seems logical and practical for Temares to stay on as a board member, but something big needs to happen here.
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