A man-made disaster triggered the worst of last year’s ForbesCEO screw-ups
list, when BP chief Tony Hayward committed a series of public gaffes in the wake of the April 2010 Gulf oil spill, and then resigned the following October. This year, forces of nature created the backdrop for the boss behavior we deem the worst: Masataka Shimizu, head of the Tokyo Electric Power Co., known as Tepco, largely disappeared from public view after the devastating March 11 earthquake and tsunami set off the worst radiation release since Chernobyl. Subsequently, reports surfaced that senior Tepco engineers had known for years that five of the company’s ten nuclear reactors in Fukushima prefecture had a dangerous design flaw. But the company failed to make upgrades, dooming the reactors to a series of meltdowns and explosions when the 45-foot tsunami hit. Following the disaster, Shimizu made few public appearances, checking himself into a hospital for a week. He resigned in May.
To put together our list, we consulted two professors at Kellogg School of Management, Daniel Diermeier and Harry Kraemer; Yale School of Management professor Jeffrey Sonnenfeld; a list provided by Sydney Finkelstein, who teaches management at the Tuck School of Business at Dartmouth; and Richard Levick, who runs Levick Strategic Communications, a crisis communications firm in Washington, D.C.
Finkelstein calls William Weldon, the CEO of Johnson & Johnson, the “Tony Hayward of 2011,” for presiding over a two-year string of product recalls which Finkelstein maintains are “a direct result of Weldon’s emphasis on cost-cutting.” International consumer and environmental groups have been pressing J&J to remove two potentially cancer-causing chemicals from baby products, including Johnson’s Baby Shampoo. Though the chemicals have been eliminated from products in several other countries, including the U.K and South Africa, J&J has yet to alter its baby products in the U.S., saying it would reduce or remove the chemicals over the next two years. “[Weldon] seems to talk the talk, but what can he make actionable?” asks Finkelstein.
Rupert Murdoch also makes the list, for his regrettable handling of the phone-hacking scandal at his News of the World British tabloid. Finkelstein calls Murdoch’s style “management by hubris.” After the scandal broke last summer, Murdoch dragged his feet on accepting responsibility for employees who hired a private investigator to hack into the voicemail of missing 13-year-old Milly Dowler. The investigator deleted messages, giving the murdered girl’s family false hope that she was alive and checking messages. As the ensuing investigation revealed widespread hacking and involvement by police and politicians, Murdoch preserved the job of Rebekah Brooks, head of his British operations and News of the World editor when the hacking took place, even as he shut down the paper and hundreds of employees lost their jobs. (Brooks finally resigned in July, two days before her arrest). Murdoch failed to get ahead of the scandal, instead allowing news reports to surface in competing papers. “The strategy was one of containment rather than one of correction and cleansing,” notes Sonnenfeld.
Finkelstein says Michael Lazaridis and Jim Balsillie, co-CEOs of BlackBerry maker Research in Motion, were “unable to do anything right in 2011.” While facing relentless competition from Apple’s iPhone and iPad and Google’s Android devices, RIM’s PlayBook tablet sold poorly, as did its many handset models. In October, RIM endured a three-day network outage. Shares in the Waterloo, Ontario company have tumbled more than 70% this year. Most recently, RIM announced it would delay an eagerly awaited product revamp until late 2012. “Balsillie and Lazaridis seemed paralyzed all year long,” says Finkelstein. “Their entire model is in question,” adds Diermeier.
Many CEO watchers say Reed Hastings’s flip-flop decisions at video rental
company Netflix, deserve a spot on our list. In July, Hastings told the company’s 24.6 million subscribers they would be hit with a 60% price hike. Then in September, he abruptly announced that he would split the company in two, and customers would have to sign up separately for each, with the DVD mail-in service flowing through a new company called Qwikster and streaming video coming through Netflix. “Result,” says Finkelstein, “the company image shifted from beloved small rebel to ripping off its customers.” In November, Netflix abandoned the plan to split, but kept the price hike and said it would continue to emphasize streaming. Netflix lost some 800,000 subscribers and its stock tumbled to a recent $71 from a high of $304 in July. “It was a completely bungled affair,” says Kraemer of Kellogg. Not everyone thinks Hastings’s move was disastrous however. Crisis communications specialist Levick believes that Hastings may have communicated his strategy poorly, but he made the right move in upping the price and focusing on streaming. “He realized he had to jump into the future,” says Levick.
Few management specialists defend Léo Apotheker’s 11-month tenure as CEO of Hewlett Packard. The former head of German software maker SAP made a series of decisions that drew fire from analysts and drove HP’s stock down 47%, including an $11.7 billion purchase of a British software company, cancellation of the TouchPad tablet just months after it was introduced and a proposed sale of the company’s core PC business. As Finkelstein puts it, “basically a laundry list of mistakes and incompetence.” Finkelstein says that the hiring of new boss, former eBay CEO Meg Whitman, “may or may not turn out to be a wise move.”
One CEO scandal that’s still unfolding: Jon Corzine’s disastrous stewardship of bankrupt brokerage firm MF Global. A former U.S. Senator, former Democratic governor of New Jersey and ex-head of Goldman Sachs, Corzine directed the firm to make a $11.5 billion bet on European debt, and then failed to recognize the bonds on its balance sheets, instead burying them deep in financial statements or excluding them entirely. Regulatory agencies and Congress are investigating what happened to $1.2 billion in customers’ money, and former workers, who were compensated in part with now-worthless stock, have filed a class action against Corzine and other firm directors and executives. Corzine resigned as CEO shortly after MF Global declared bankruptcy in late October.
Brian Moynihan of Bank of America also deserves to be on our list. In late September, the bank announced it would charge many customers a $5 monthly fee to use their debit cards. Already a target of the Occupy Wall Street movement, the bank was pilloried by consumers still angry that it got a government bail-out. An online anti-Bank of America petition started by a 22-year-old got 300,000 signatures. President Obama called the fee “not good business practice.” In early November, the bank said it would cancel the fee. According to Levick, the company is woefully out of touch with its customers, failing to weave social media into its communications strategy. If it had, it would never have considered the fee. The company’s stock has fallen from a high of $15 last January to $5.
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Story by Susan Adams