HR & Management
Some of the worst executives to ever be hired
11 min read
04 March 2015
In February it was found that JP Morgan had hired the son of China's commerce minister, Gao Jue. However, his recruitment has led to an investigation focusing on the Foreign Corrupt Practices Act, which restricts giving foreign government officials a business advantage. This is but one example of why you should take care with the recruitment process. But what happens when you hire the wrong executive?
In an email, JP Morgan human resource recruiter Danielle Domingue said: “Jue did very poorly in interviews – some MDs said he was the worst business analyst candidate they had ever seen – and we obviously had to extend him an offer.”
And when cuts came along, they saved his position as well. Had the “worst candidate ever seen” been pushed into an executive position, then it could have yielded negative results for the company.
Take Robert Nardelli, for example, who was CEO of Chrysler and Home Depot.
In ‘Strategic Movement: Competitiveness and Globalization, Cases, Volume 2‘, Michael Duane wrote: “Home Depot’s corporate culture has changed drastically as a result of Nardelli’s leadership style.”
Duane suggested that his military background may be the reason why “under Nardelli, each executive and store director was responsible for various financial targets, and if these targets were not met, they were immediately terminated.”
Needless to say, 97 per cent of top executives were removed and replaced while he reigned as CEO. There was also the fact that Nardelli managed to turn most of his workforce into part-time staff. Sure, it saved Home Depot a lot of money, but it also caused a lot of headache for the company.
Read more about bad hires:
- What is the cost of a bad hire?
- Hiring someone like Ched Evans would be toxic for business
- Don’t settle for a bad hire
“The advent of new technology had a big impact on corporate culture, and ultimately customer service,” said Duane. “Nardelli believed that by implementing automated checkout lines, customers would be able to pay for their purchases quickly and save time. This innovation would also cut down on employee hours, and checkout personnel would no longer be used.
“However, this plan backfired when the automated checkout machines malfunctioned more often than they worked correctly, and the few employees who were not laid off as a result of the innovation experienced a significant amount of stress due to having to fix the machines and answer customer questions at the same time.
“This frustration was mirrored by customers who were unable to find sales associates when they had specific questions. In addition to significant corporate culture problems, Home Depot’s financial statements were beginning to show signs of trouble for the home improvement giant.”
During his tenure at Home Depot, from 2000 to 2007, investors criticised him for earning $225 while the company’s stocks plummeted. At this crucial time, their chief competitor, Lowe, managed to gain market share.
He even gained a lovely $210m golden parachute when he was pushed out.
Of course, that same year he was hired as the CEO of Chrysler, which also suffered the same fate.
He finally sought a government bailout in early 2009, but, amazingly, when he was offered $750m, Nardelli rejected it because it limited executive pay and then flew off in his private jet.
Chrysler went bankrupt that year His name has now, unfortunately, become synonymous with “worst CEO”.
Read on for Richard Fuld and how he almost crashed the US financial system…
What about Richard Fuld, CEO of Lehman Brothers? That should ring some bells. He was responsible for the largest bankruptcy in US history, not to mention the near-collapse of the nation’s financial system.
Known as the “Gorilla of Wall Street”, he steered Lehman into the depths of subprime mortgages.
Myriad investigations suggested: “the crisis revealed that under Fuld’s watch, Lehman executives toyed with the company’s finances to make that leverage look better than it really was using what some Lehman employees called an ‘accounting gimmick’ called Repo 105, according to the official bankruptcy report by Anton Valukas of the law firm Jenner & Block.
“The tactic allowed the company to characterise a short-term loan as an asset sale and then use the money from that false sale to cut debt. By doing so, Lehman appeared to have less debt and more cash, giving investors a false impression of the bank’s financial health.”
Fuld’s 10.8m shares of the company that may have once been worth more than $900m, became worthless, suggested a study by Harvard University Professor Lucian Bebchuk.
Read more about what happens when CEOs “go bad”:
- The 10 most controversial resignations
- Can a bad CEO kill a good business?
- 4 of the most dramatic accounting scandals in history
And when your reign as CEO only last for months, you know something has definitely gone wrong. That was the case with Yahoo’s Scott Thompson.
Similar to Gao Jue’s case, he ended up not having the right qualifications. He lied about having a degree in computer science from Stonehill College… a place that had yet to offer such a course when he was there.
Thompson actually had a degree in accounting. The real problem was the way he handled it when he was caught red-handed!
The New York Times revealed that “When the activist shareholder Daniel Loeb confronted Yahoo’s directors with the possibility that the recently hired chief executive, Scott Thompson, might have falsified his résumé by claiming to have a computer science degree, their initial reaction was disbelief.”
“Scott is a forthright, no-nonsense, straightforward personality and a likeable guy,” one director said.
However, 11 days later, his credibility with the board was ripped to shreds.
“Loeb and two of his allies had landed the board seats he’d been agitating for since starting a proxy fight earlier this year, and Thompson was out, despite his last-minute revelation that he was battling thyroid cancer,” The Times wrote.
“The board’s decisions reveal how what at first seemed a small and improbable allegation from an annoying dissident shareholder turned into a major crisis, thanks largely to Thompson’s own evasions and missteps. In the end, the board had little choice but to sever ties with its chief executive of only five months and largely give Loeb what he wanted.”
What about Gerald Ratner and Stephen Elop? Read on for more…
From Gerald Ratner, who famously described his company’s products as “crap”, to Nokia’s Stephen Elop, who mused about his corporation standing on a “burning platform”, there are many CEOs who have come to wish that they’d minded their words more carefully.
“I had worked so hard for so long, making millions of pounds for shareholders and creating thousands of jobs for a company loved,” Ratner had said. “Now it had all suddenly been taken away from me. And not for doing something criminal. I hadn’t embezzled, I hadn’t lied, all I had done was make a joke in a speech to the Institute of Directors, saying some Ratners products were ‘crap’.”
“In the weeks and months that followed, I kept thinking that people would forget about the speech, that they’d stop calling me ‘Mr Crapner’ – but I was wrong. Sixteen years on, the phrase “doing a Ratner” is still slang for a massive error of judgment.”
It’s easy to see why. He single-handedly destroyed £500m of shareholder value due to his speech in 1991.
He said: “We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, ‘How can you sell this for such a low price?’, I say, ‘because it’s total crap’.”
A book titled “Operation Elop”, proposed: “By many measures Elop is one of the world’s worst – if not the worst – chief executives.”
“When Elop started (in 2010) Nokia’s smartphone sales were growing. Elop’s job was to plug the holes. No explanations needed. He failed on his own,” said authors Pekka Nykänen and Merina Salminen. “The burning platform memo has become a legendary example of how a CEO can destroy everything in just one stroke.
“Elop’s role can be summarised accordingly: he failed in his attempts to save Nokia. He made monumental mistakes – but all in good faith. He took massive risks by placing all of his eggs in one basket (the Windows Phone platform).”
Then there’s former BP chief executive, Tony Hayward. Here is the man who told the Guardian that the Gulf is a “very big ocean” and the Today show that he’d “like his life back” after unleashing an environmental – not to mention corporate – catastrophe of epic proportions.
In a Real Business article, Michael Hayman quotes Warren Buffet as saying “It takes 20 years to build a reputation and five minutes to destroy it. If you think about that, you will do things differently.”