The Seven Habits of Spectacularly Unsuccessful CEOs Hall of Shame

Which CEOs would be in the Hall of Shame for exhibiting the 7 Habits of Spectacularly Unsuccessful CEOs?


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Why Narcissistic CEOs Kill Their Companies

Whether you're an employee, an investor, or a CEO yourself, you need to read about these 2 recent academic studies of how and why Narcissistic CEOs can kill their companies.

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Will the US Tax Code Be a Boon to Foreign-Based VC-Backed Start-Ups?

Because of the US tax code, expect a bubble in M&A for foreign-based public and private companies in the next 3 years. Yesterday's Skype deal by Microsoft was only the beginning.

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Don’t Tell Mom, Cisco’s Board is Dead Asleep

John Chambers has got to go as Cisco CEO. For the last 4 years, he's been paid $56 million while the stock has dropped 35%. Here's what shareholders should do.

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Video: What's Next For Cisco?

Contributor Eric Jackson says that stock sad sack Cisco Systems has a tough future. Even buying a bunch of smaller competitors are no guarantee of making this elephant dance.

Tue 02/15/11 14:58 PM EST -- Eric Jackson

Stocks in this video: BCSI | RVBD | APKT | FFIV | MSFT | CSCO

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What Can Save Cisco?

By Eric Jackson02/10/11 - 03:15 PM EST

I participated in TheStreet.com's live blog last night covering Cisco's(CSCO) earnings call. It was a fun event. I particularly enjoyed watching peoples' reactions change as the call got well underway.

When Cisco's earnings report first came out, it looked like a "beat." Consensus called for earnings per share of $0.35 on revenue of $10.3 billion. The company reported earnings of $0.37 per share on revenue of $10.4 billion.

Initial responses from the majority of the live blog's participants -- most of whom appeared to be long the stock -- was positive. Cisco's shares briefly (maybe for about 30 seconds) traded in the green after yesterday's close. However, it didn't take long for the stock to start heading south -- quickly and steadily.

There was no mention of guidance in the initial earnings press release. Earnings season, however, definitely has a "show me" quality to it. The market seems to place even more weight on guidance than it does on whether current-quarter expectations are met (and God help any company that doesn't meet them).

Once revealed, Cisco's guidance was definitely tepid. The company forecasted earnings per share of $0.35 to $0.38 for the coming quarter. Analysts expected the company to guide to $0.40 per share.

Another cause for concern was the continued sag in gross margins, which were down to 62.4%. Wall Street was looking for gross margins of 63.3%.

As I mentioned on the live blog last night: though I have no position in Cisco, I interpreted yesterday's results as a big reason to sell the stock in the afterhours session. Often, if a stock sees a big, earnings-inspired move in afterhours trading, that move (up or down) gets extended further the next day when regular trading resumes. Deserved or not, that's just the way it's gone, whether it's Netflix(NFLX_) on the upside or Cisco here.

Shares of Cisco held above $20 during conference call last night but have been below $20 all day today.

When the call began, I was struck by a couple of things. First, John Chambers wouldn't shut up. He talked for a long time before he passed the ball to the CFO. Then, before taking questions, Chambers came back and talked even longer than he did the first time. The Q&A session didn't start until 50 minutes into the call. I think the endless droning worried analysts. If you keep talking about how everything is fine, it usually means everything's not fine.

.......

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Bartz's Pay Package Egregious

09/16/09 - 07:00 AM EDT

By Eric Jackson

YHOO , MSFT

Yahoo!(YHOO Quote) CEO Carol Bartz didn't get the "boatloads of cash" for her shareholders from Microsoft(MSFT Quote) as she vowed in May, but she'll take home a boatload of cash herself out of Yahoo! for her work in 2009.

A review of her total compensation plan reveals that Bartz is on track to make $20 million to $30 million this year in cash and stock (depending on if the share price rises 13% by December and stays there for the rest of the year or not); and $187 million for her first four years on the job, assuming the stock can get back to $25 by then.

In last week's Activist column, we shined a spotlight on the large amount of insider selling which has occurred at Yahoo! in the past two years (based on our study of the Securities and Exchange Commission filings leading to other media reports on this topic), including Bartz dumping $2 million in shares in March and June.

Since that column appeared, Bartz, Yahoo!'s PR SWAT team and Bartz' defenders have claimed that there was "no story here," as these were "routine" share sales made to pay taxes on generous Restricted Stock Unit (RSU) grants. Bartz went so far as to say "I didn't sell anything" on television and there have also been vague references to her shares being "reacquired" again. They have not - as the actual Form 4 SEC filings show. They state only "disposals" of $2 million in Yahoo! shares, which of course immediately lower the company's earnings per share.

Contrary to what any PR flak says, these kinds of tax-related share dumps when RSUs vest may be common at lower levels of the company, but they are not at the highest level, where executives have more than ample means to pay their taxes out of their own pockets. Bartz made $45 million in 2007 alone just from exercising her Autodesk(ADSK Quote) options, so she could have easily scratched together $2 million to pay the tax man if she'd wanted to hold on to her Yahoo! shares.

It turns out that, when you start to peel the onion around Bartz' CEO employment contract, there are many interesting details which Bartz would likely not want discussed. Prior to negotiating with Yahoo! for the top job, Bartz hired an unnamed financial advisory firm to help her. Later, when the deal was done, she got Yahoo!'s board to agree to Yahoo!'s shareholders paying "up to $150,000 for advisory fees" for her use of that savvy firm (which is outrageous and she should immediately reimburse Yahoo! shareholders for that with interest).

That negotiated agreement is a good one for Bartz, as this analysis shows. Making reasonably conservative assumptions, Bartz should get $187 million for her planned four years of work at Yahoo!

One small part of that agreement is something Yahoo! calls the "Make-Up Grant." Because of "forfeiture of the value of equity grants and post-employment medical coverage from" leaving her old executive chairman job at AutoDesk, which has one-fourth of the market cap of Yahoo!, Yahoo!'s board said she was due $10 million.

As part of that grant, she'll get $2.5 million in cash this year and 639,386 RSUs (or shares). The cash and shares vest at a rate of 25% quarterly in 2009. By the end of this year, those shares and cash will be worth about $12.5 million (not the $10 million grant date fair value; see this breakdown for more detail .

Yahoo! states later that they are providing "post-employment medical coverage for Bartz, her spouse and eligible dependents" on top of her grant, so that should not be linked to the value of the "Make-Up Grant." Therefore, the only thing to be made up for is the value of her unexercised AutoDesk equity options.

Yet when you go back and review the unexercised options she possessed in the 2008 AutoDesk proxy statement and the ones she subsequently exercised and sold in share sales through the rest of last year, I calculate Bartz' value of her unexercised equity grants at far less than $10 million.

On the date her Yahoo! employment agreement was announced (Jan. 15, 2009), AutoDesk was trading at $16.14. That means, her remaining 250,912 $11 strike price, her 36,420 $8 strike price, and her 993,056 $14.40 strike price unexercised options had a fair value on the date she took the Yahoo! top job of $3.3 million -- not $10mm.

This major "Make-Up Grant" discrepancy between what Yahoo! chose to award Bartz and what it appears -- according to her AutoDesk SEC filings -- she was in fact walking away from should be explained to shareholders immediately.

Setting this problem aside, Bartz -- like any other employee who gets RSUs -- has to pay tax on stock grants whenever she receives them. To pay the tax, Bartz must make a choice to write a check to the government from her personal account to cover this or sell part of these Yahoo! shares from the RSUs. In the first and second quarters, Bartz sold $2 million in Yahoo! stock to pay her taxes. It's very likely she'll do this again later this month and in December, when the rest of her "Make-Up Grant" shares vest.

Which brings us to the core problem: given her leadership role at Yahoo! and given her generous Yahoo! compensation and sizable wealth she's amassed from her time at AutoDesk, why would she dump Yahoo! shares instead of paying her tax bill herself? It sends the wrong message to employees and shareholders that she wouldn't be kicking and screaming to keep every last Yahoo! share in her possession.

I think there's a simple answer to this question: Carol Bartz is used to getting generous tax gross-ups from companies she works for and likely she (or her high-priced advisors) negotiated this in as part of the deal.

A tax gross-up is when an executive wants to receive a certain amount of compensation award or benefit but knows they'll have to pay taxes on it. Rather than pay that tax bill themselves, the executive asks the company to bump up the value of the award in the amount of any taxes they would otherwise have to pay. They end up getting the amount of money they want tax-free -- with taxes paid for by the company's shareholders rather than the executive.

For an example, let's go back to the 2008 AutoDesk proxy statement : "During fiscal 2007, Ms. Bartz's other compensation included post-employment health and dental benefits with an actuarially determined present value of $631,986 plus a $421,324 tax gross-up, and a Company gift for appreciation of years of service as CEO costing $67,500 plus an associated $33,889 tax gross-up." Have you ever heard of a gross-up on a gift for years of service?

Tax gross-ups are completely unacceptable and any well-governed company doesn't allow them. If you make money or a benefit of some kind, you should pay tax on that -- not the shareholders who gave you the benefit in the first place. To use one of Bartz' favorite words, tax gross-ups are stupid.

Bartz has clearly become used to tax gross-ups at AutoDesk and likely she or her high-priced advisors were thinking of this "Make-Up Grant" in the same way. They might have negotiated her $3.3mm fair value (as of mid-January 2009) unexercised AutoDesk options into a $10mm make-whole grant from Yahoo! That's a tax gross-up and then some.

Yahoo!'s compensation committee is to blame here. First, they pay Terry Semel over $570 million for his six years as CEO; then, they award Bartz a four-year $187 million pay package with up to $30 million in year one; then, they see their ineffective incentive plans lead to Yahoo! insiders selling $233 million in stock over the past two years versus insider purchases of only $103,000. Now, we learn of these discrepancies in the reasoning for different elements of Bartz' pay.

Where is Carl Icahn in all this? It turns out he was right at the negotiating table when all this went down. His colleague, Frank Biondi, has served on Yahoo!'s compensation committee since joining the board in September 2008. He directly oversaw the design and approval of Bartz' pay plan, which, in my view, wasn't in the shareholders' interests.

Of course, Bartz is at fault here too. She's gotten too used to high pay and tax gross-ups over the past few years -- both for herself and for CEOs she has socializes with.

Examine this table below for a comparison between the average annual total compensation for several popular tech CEOs vs. ones in Bartz' social network. Bartz doesn't suffer fools -- or CEOs who don't bank a lot of coin.

Popular Tech CEOs
CEO	Most Recent Avg. Annual Total Compensation
Eric Schmidt, Google	$500,000
Jeff Bezos, Amazon.com	$1.3mm
Steve Ballmer, Microsoft	$1.3mm
Steve Jobs, Apple	$1
Carol Bartz' Network of CEOs by Employment or Directorship
CEO	Most Recent Avg. Annual Total Compensation
John Chambers, Cisco	$11mm
Paul Otellini, Intel	$12mm
Dan Warmenhoven (Ex-CEO), NetApp	$5.7mm
Carl Bass, AutoDesk	$7mm
Carol Bartz (when Executive Chairman), AutoDesk	$4.5mm

Source: Company proxy statement SEC filings

Several things should be done to fix this mess:

• To avoid these questions about her commitment, Bartz should put some skin in the game. I think she should buy stock in Yahoo! that represents a significant chunk of her net worth. I would suggest at least half the value of her 2007 exercised options from AutoDesk or $23.5 million. This is not that large relative to the upside she should make from her 4 years at Yahoo!
• Bartz should immediately pay back the $150,000 to Yahoo! shareholders for her financial advisors who helped her negotiate a $187 million four-year deal for her.
• The Comp Committee (Art Kern, Ron Burkle, and Frank Biondi) should all resign off the board. Enough is enough.
• Someone else from Yahoo!'s board should explain why Bartz' $3.3 million in unexercised AutoDesk options had to be "made up" for by Yahoo! shareholders to the tune of $10 million.
• Yahoo!'s board should also provide much more transparency on Bartz' employment contract. For example, what cash flow and total shareholder returns targets does she exactly need to hit in order to receive her 4 times base salary annual bonus and other equity grants and options. If shareholders can't trust the details around the "Make-Up Grant," why should they trust the board's decisions on these other compensation matters?
• Yahoo! should change their comp plans going forward for all executives and directors so that base and target bonuses are quite low -- even lower than the often cited "peer group." How will they attract people? Load up the incentives on the back-end. And, instead of having those incentives be triggered by 20 consecutive trading days at a certain stock price level (as Bartz' are), require that the stock stay there for two years (with clawbacks in case it drops back done). This will eliminate short-termist thinking.
• Finally, Bartz should refrain from going on TV in the future saying she "didn't sell anything" after she has sold $2 million in shares.

At the time of publication, Jackson had a net long position in Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Yahoo!'s Bartz Provides Hope

06/24/09 - 09:03 AM EDT

YHOO , MSDT , GOOG , CSCO , INTC , COST , BRK.A

Eric Jackson

Yahoo!(YHOO Quote) holds its annual meeting Thursday and, unlike the previous two meetings, I'm not attending this year. It's not that I think the company is doing such a great job; it's that I sold all my shares in Yahoo! last September after being dismayed by the poor decisions being made by the board and senior management despite the company's many assets.

I didn't hold out much hope that the board would make the necessary changes to get the company back on track, after listening to it justify turning down Microsoft's(MSFT Quote) buyout offer last year and ignoring the high number of protest votes cast against the re-election of several directors in the prior two years.

But I do have to give the Yahoo! board credit in one regard: It hired a great CEO in Carol Bartz, and I believe she is doing all the right things since she came aboard to turn this company around. If she is allowed to execute the turnaround path she's on (and, really, why wouldn't she be although I wouldn't put it past Yahoo!'s board based on its track record?), Yahoo!'s stock has a much better chance of outperforming Google's (GOOG Quote) in the next two years, even if Google's operating performance and search dominance continue apace.

With Bartz, what's not to like about her turnaround focus? I went back to the "Plan B" I put forward -- with the support of other retail investors -- to Yahoo!'s board in early 2007 and it appears that a majority of these changes have now happened or are in the process of taking place. It also was refreshing to hear Bartz say recently that she agreed with the "Peanut Butter Manifesto" -- an internal Yahoo! memo that went public in late 2006 that called for much greater focus and simplification of overlapping efforts at the company.

Bartz hasn't let what I believe is a poor board of directors get in her way. For this reason, I was intrigued by her comments on Sunday to the Stanford Business School's Director's College. Bartz was full of opinions on what makes for a good board, with as many barbs tossed in the direction of sleepy directors as shareholder activists. The highlights were published by Barron's and offer a refreshingly candid viewpoint of a CEO on the topic of what makes boards work.

Here's where I think Bartz is right and where she's off-base.

Where she's right:

1. Getting a board of "high achievers" to work together well is tough.

Take any big company board and you'll find a gold-plated list of directors. These individuals haven't been asked to serve because they've been great team players. Typically, they've accomplished a lot. Throw six to eight "doers" into a room and ask them to get a task done as a team and they'll lurch around because no one has been appointed the clear leader and they all have an inherent bias to "jump in" and "fix" the situation. Throw into the mix that this is a team that only meets six times a year and you have a situation where a rhythm for working together never has a chance to develop.

In my view, without clear board leadership -- perhaps because there is no independent chairman, no lead director, or weak ones -- the pecking order of the group gets determined by a combination of who is favored by the CEO, board tenure, or dominant personality. Those factors don't translate into the most effective board discussions and decisions.

2. "We should have less middle-aged white guys."

Bartz pointed out that this narrow demographic makes up the vast majority of boards today. She spoke in favor of more diversity, but "not necessarily more women." (In fact, she discussed how one board tried to recruit her earlier in her career because it was "probably just looking for a skirt.")

I agree with her that it shouldn't matter if a director is named Jane, or John, or that he or she is this type or that type of person. What matters most is how that person will contribute to board meetings behind closed doors. The person needs to have a solid base of business and industry experience to knowledgeably examine and debate issues. Beyond that, diverse viewpoints can lead to better decisions if they help better analyze decisions. Unfortunately, Sarbanes-Oxley or stock exchange requirements define terms like "board independence" which lead to "middle-aged white guy" boards or diverse boards lacking sufficient industry experience.

3. Industry experience is a "must have" for any director.

Directors without industry experience are going to be less involved at board meetings. They are not going to want to make a comment or ask a question that might make them appear stupid. As a result, you can have an impeccably "independent" collection of directors surrounding insiders on a board, without any ability to advise or question those insiders about the business. This does no good for anyone -- unless those directors are well-paid and could care less about adding value or the insiders prefer lapdog directors.

"Industry experience" shouldn't limit directors to those who spent the majority of their careers working in that industry, but they must know enough about that industry to add value to any board discussion.

4. Have three hours of nothing planned at board meetings.

Bartz warns against the perils of over-structured and over-managed meetings. In my opinion, this is a common problem most boards have in which there is no opportunity to really debate issues, because too many "business updates" and "issue approvals" have been scheduled. Sometimes, the most valuable parts of board meetings happen during the unstructured discussions which occur in smaller side meetings or over lunch. There is great value in unstructured time during these meetings (although you must guard against the flip side of too much endless loop discussions resulting in no decisions).

Here's where I think Bartz is off-base:

1. "'Shareholder activism' is a simple but stupid concept."

What I think she's getting at in this comment is that she believes no two shareholders are the same. Everyone wants something a little different. At the Yahoo! annual meeting last August, people lined up to comment on, among other things, how (a) the board and management oversaw poor performance and inexplicably turned down the now-generous looking Microsoft offer, (b) Yahoo! didn't do enough to further human rights in China, (c) Yahoo!'s management had been unfairly criticized, and (d) Yahoo!'s fantasy sports content was fantastic and they should "keep it up."

Bartz was implying that anyone claiming to be a "shareholder activist" is really misrepresenting his own vested interests and those of the larger group. In my view, Bartz has a clear idea of where she wants to go as a manager and doesn't like anyone -- whether it's an incompetent director or misguided shareholder -- getting in her way. Sure, shareholders are a "big tent" -- just like political parties -- but they all follow certain universal truths, such as wanting to see the stock price go up (whether you're in a union, a pension holder, or an employee). She shouldn't paint activists with one brush, just as she goes out of her way to remind us that commentators shouldn't call her "old" because she's 60.

2. Get more current executives to serve on boards.

Bartz's solution to the "middle-aged white guy" problem is to get more executives from other companies to serve on boards. This would not only include CEOs but other senior talent coming up through the ranks that would bring more youthful perspectives with industry experience. I worry that these executives are already too overloaded by their day jobs and, although they'd likely want to add a few directorships to beef up their resumes, they would find it difficult keep up with the needed prep work, travel and participation in board and committee meetings.

These more youthful members of a board might also find it difficult to sit on the Cisco(CSCO Quote) board (as Bartz did when she met Jerry Yang) and challenge John Chambers, for example, about assumptions he was baking into next year's budget. In some ways, Sue Decker is a cautionary tale of the solution Bartz is proposing to the problem of narrow boards.

Decker, the former Yahoo! president, never really was able to get the company turned around successfully and yet kept piling on more board seats, including Intel(INTC Quote), Costco(COST Quote) and Berkshire Hathaway(BRK.A Quote)). As a Yahoo! shareholder during her tenure, I wished she'd never taken on any outside board seats and simply done her job, the remains of which Bartz is now trying to clean up.

From where I sit, Carol Bartz is doing all the right things as an operator of Yahoo! I hope she also will transpose many of her good ideas on corporate governance to the Yahoo! board, which could sorely use them.

Note: A new shareholder rights group called the Shareowner Education Network will be launched in Washington on Thursday, backed by some of the largest pension funds in the country. It will support issues such as promoting a shareowners bill of rights, mutual fund reform and proxy voting education. What's different about this group is that it's particularly focused on education and engaging retail shareholders as a group on these issues.

At the time of publication, Jackson was long Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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