Looking around the wreckage of some of the big cap companies it is not hard to find a few CEOs who probably need to go back to business school. Wall St. would like to see them at Harvard so they would get the best education possible, but the school in Cambridge might not let them in.
First on the list is Hector Ruiz of AMD (AMD). He already has a PhD, but it may be the money order kind that you can get through the mail. Ruiz has effectively taken AMD from a high-margin chip company which had the technology to compete with larger rival Intel (INTC) to a sad shadow with big debt and small margins. He engineered the buy-out of graphics chip company ATI, which has been a disaster of their first order. Less than two years ago AMD traded at above $42. It now sits at under $10.
James Tobin, the CEO of Boston Scientific (BSX), should get a return ticket. The company has a solid medical device operation. Then Tobin decided to get into a bidding war for Guidant and ended up with a balance sheet with almost $9 billion in debt. When the company's core cardiac stent business started to crater due concerns about safety, the firm had no cash for dry powder. His handsome job has taken the shares from $27 two years ago to just above $12. Now, he is selling off he company in piece to raise dough.
The list would not be complete without Gary Pruitt of newspaper company McClatchy (MNI). He can't be blamed for the problems in the industry, but he is responsible for doubling down his bet that newspapers would do well by buying Knight-Ridder. His company now sits on over $3 billion in long-term debt. MNI shares are down close to 70% this year compared to peer Gannett (GCI), which is off about 40%.
Jerry Yang of Yahoo! (YHOO) has not been in his job for long, but the portal's stock is down 20% over the last five weeks while Google is up about 5%. Yang has failed to do the one thing he could do quickly, which is cut costs. The company's ad revenue is growing more slowly than the industry as a whole and that is not likely to change. Yahoo! has too high a cost base given its future prospects. P&L 101.
James Crowe, the head of Level 3 (LVLT) sits on a promising company. LVLT has about 50,000 miles of IP-network. In a period when data, voice, and video are running wild on the internet, the firm should be doing well. But, Crowe likes to make an acquisition a month. No one can tell whether the company is coming or going. It is constantly in the midst of trying to integrate this or that new business. Operating profits are weak for a company with so much debt. The shares were at $6.80 earlier this year. Now, on a good day they may break $3.50.
It is almost too easy to put Angelo Mozilo of Countrywide Financial (CFC) onto the list. But, he sold so much stock before his company's shares collapsed that he can afford it. CFC stock has been as high as $45 over the last year, but now trades at under $11. Mozilo made one of the great bone-headed errors that B-School professors say to guard against--never assume that your business will go up forever and guard against the day your industry dynamics move against you.
John Mack is Mr. Wall St. He has run almost every investment bank in the US and Europe. When Morgan Stanley (MS) kicked out Phil Purcell, Mack was brought in to fix the place. Since he walked back in the door almost three years ago, MS shares are off 5% while the S&P is up 25%. Shares in Goldman Sachs (GS) are up 120% over that period and Lehman (LEH) is up 40%. Mack decided taking on more risk was a sure fire way to improve earnings. It worked for about two years. He decided to knock-off president Zoe Cruz, but that will only take the spotlight off of him for a few days.
The list could be longer, but admissions for the Spring term are light. Even these people may have trouble getting in.
Douglas A. McIntyre
