When a CEO holds a press conference and a company’s stock price goes down 20% that CEO needs to go. This should be a basic rule enforced by the Securities & Exchange Commission. After all, capitalism is emotionally detached and doesn’t tolerant value destruction.
The Board of Hewlett-Packard followed this rule of thumb when it ousted Leo Apotheker after his disastrous announcement on August 18th that the company was getting out of the PC business. Hewlett-Packard’s stock dropped $5.91 on August 19th, exactly 20%.
By the same measure, Reed Hastings, the CEO of Netflix, should have been sacked by now. His plan to raise prices by splitting the Netflix service into DVD and digital subscriptions led to wholesale cancelations and a stock price collapse of 38% in five trading days in mid-September. Perhaps he has been spared him because the market was embarrassed that the stock had been trading at more than 50x earnings before the announcement.
Dan Hesse, on the other hand, has presided over an unmitigated financial disaster since taking the reins at Sprint on December 18, 2007. Sprint’s stock has dropped 80% versus a decline in the S&P 500 of 20%. Sprint’s shareholders have lost $33.5 billion of market value.
During the same period, Mr. Hesse, representing the majority owner of Clearwire, has also destroyed a promising 4G network franchise. Instead of leveraging this unique asset, he has squandered it in endless negotiations and shifts in strategy. The Clearwire shareholders have lost $3 billion of market capitalization or seen their shares decline 89% during his reign.
Following Sprint’s disastrous Q3 earnings call, after which the stock dropped 20% and Clearwire shares dropped 32%, Sprint’s Board needs to take action. The Sprint management is clearly overpaid – more than $10 million per year for the top five executives – for a team whose only claim to fame is value destruction and strategic missteps.
Looking at the Sprint Board, the question is which one of these retired or busy CEO’s has the energy or guts to show Mr. Hesse the door? Looking at the roster, I am not filled with hope.
Robert R. Bennett, age 52. Principal of Hilltop Investments, LLC, a private investment company. Gordon M. Bethune, age 69. Retired Chairman and Chief Executive Officer of Continental Airlines, Inc. Larry C. Glasscock, age 62. Retired Chairman of the Board of WellPoint, Inc., a health benefits company. James H. Hance, Jr., age 66. Chairman of the Board of Sprint Nextel. Mr. Hance serves as a Senior Advisor to The Carlyle Group. V. Janet Hill, age 63. Principal, Hill Family Advisors. Frank Ianna, age 62. Chief Executive Officer and Director, Attila Technologies LLC, a Technogenesis Company incubated at Stevens Institute of Technology. Sven-Christer Nilsson, age 66. Owner and Founder, Ripasso AB, Ängelholm, Sweden, a private business advisory company. William R. Nuti, age 47. Chairman of the Board, Chief Executive Officer and President of NCR Corporation, a global technology company. Rodney O’Neal, age 57. Chief Executive Officer and President of Delphi Automotive LLP, a global supplier of mobile electronics and transportation systems.