Story first appeared on USA Today -
For every Sergey Brin, there is a Michael Dell. While the Google co-founder and CEO made his company one of the most valuable in the world with its shares trading near an all-time high, Dell has laid waste to his namesake. Dell and financial supporters offered to buy the company for $13.65 a share, 40% lower than what it was worth when Dell returned to the company as CEO in early 2007.
Investors who bought Dell shares a year ago have taken a haircut of more than 20%. Dell's failure is not unique. He belongs to a group of founders of large public companies that showed great promise but were ultimately wrecked by poor decisions, legal problems, and a lack of innovation.
Perhaps the greatest hallmark of founders who ruin their companies is that they appear to look out mostly for No. 1 rather than the interests of the company and its shareholders. For starters, they accept excessive compensation.
Steve Jobs of Apple, earned $1 in salary and bonus in 2010. By contrast, Aubrey McClendon, who was recently ousted as CEO of Chesapeake Energy, made over $100 million in 2008, and remarkably large sums in the years since then. Some of his other actions, such as allegedly borrowing against assets that he co-owned with Chesapeake, raised concerns of conflict of interest.
Martha Stewart recently received a new contract from her company, Martha Stewart Living Omnimedia, which has lost money four years in a row. Under the arrangement, she will continue as founder and chief creative officer at the firm until 2017. That is in addition to the more than $20 million she made over the three years that ended in 2011.
Dov Charney, who drove the company he founded, American Apparel, to the brink of bankruptcy in 2011, made $11.6 million that year. Michael Dell, who in 2010 settled Securities and Exchange Commission charges that he helped misrepresent Dell's financials, made more than $21 million during the company's last three combined fiscal years.
A more complex measurement of these founders' performance is their lack of vision to transform their companies as the markets in which they operate change. None have shown the foresight Brin did when he moved Google beyond search and into mobile operating systems. And his company is also the dominant force in online video.
Dell did not drive any comparable revolution at his company, which never stepped aggressively into the new age of personal computing— tablets and smartphones. The same holds true for Mike Lazaridis, the co-founder of BlackBerry, which did not transform its market share in the corporate smartphone industry into a lead in the consumer sector.
Richard M. Schulze, who was the founder, largest shareholder, and de facto head of Best Buy oversaw a period in which the retailer failed to move into e-commerce quickly. In the meantime, Amazon has nearly bulldozed Best Buy under.
The most often damaging problem with founders is that they cannot be pushed out. Martha Stewart owns the controlling interest in her company. Groupon founder Andrew Mason and two other shareholders control that company. Schulze and Dell own commanding portions of the shares in the companies they founded.
24/7 Wall St.'s review of large, U.S. publicly traded companies included an analysis of company financials, as well as share price changes over time. We reviewed company documents filed with the SEC to identify voting share of the founders. If that could not be determined, we used the founder's total share ownership. In Dell's case, the voting share reflects his ownership before the completion of the company's pending leveraged buyout.
Eight Companies Ruined by Their Founders:
1. Dell, founded 1984
Founder: Michael Dell, 13.97% voting share
Dell started his company when he was 19 years old. By 2001, the company he founded as a college student was the largest computer systems provider in the world. In 2004, Dell resigned as CEO but returned to the position in February 2007. By then, the company had already begun to lose its appeal with consumers in the competitive PC business. Despite Dell's return, the company continued to struggle in its core business. Dell's worldwide PC market share fell from 15.9% in 2006 to 10.7% in 2012. Consumers' growing preferences for tablets and smartphones over PCs and regulatory scrutiny have hurt the company. In 2010, the SEC fined Dell $100 million, and Michael Dell $4 million, alleging the company engaged in accounting fraud intended to mislead investors about financial performance. On Feb. 5, Dell reached a deal with a group of investors that included Michael Dell to go private for $24.4 billion, the largest leveraged buyout since the 2008 financial crisis.
2. Chesapeake Energy, founded 1989
Founder: Aubrey McClendon, under 1% voting share
McClendon, Chesapeake's CEO since he helped co-found it has become known for his lavish compensation packages and extreme bets on his company's performance. In 2008, McClendon lost much of his personal fortune after borrowing money to buy massive stakes in Chesapeake. McClendon was paid $100 million that year. Between 2009 and 2011, McClendon's earned more than $57 million in total compensation. In April 2012, Reuters reported that McClendon had again borrowed a large amount of money, in this case, $1.1 billion, using his stake in the company's natural gas and oil wells as collateral. Reuters also discovered McClendon was running a $200 million hedge fund from within company headquarters that speculatively traded in "the same commodities Chesapeake produces." Within weeks, McClendon gave up his position as chairman due to concerns over potential conflicts of interest. He is scheduled to resign as CEO April 1.
3. Martha Stewart Living Omnimedia, founded 1997
Founder: Martha Stewart, 86.7% voting share
Stewart's company continues to struggle while she remains chairman. Stewart's audience is aging and the company relies too much on it's print magazine revenue. Stewart's image took a serious hit in 2004, when she was found guilty of conspiracy, obstruction of justice, and making false statements to a federal investigator after she was indicted for insider trading. Although Stewart launched a high-profile "comeback" campaign after her release from prison, her efforts have not paid off for the company. It has not turned an annual profit since 2007. The company's stock price is down more than 58% the past five years. Part of the problem is executive turnover. There have been at least five CEOs and five CFOs since the company's start. Many executives argue that Stewart's excessive involvement has hampered their ability to make change. The sixth CEO, Lisa Gersh, announced in December that she was leaving the company after serving in the position for just five months. Despite the company's struggles, Stewart was paid more than $21 million between 2009 and 2011.
4.BlackBerry, founded 1984
Founder: Mike Lazaridis, 5.7% voting share (outstanding shares)
Lazaridis co-founded BlackBerry, formerly known as Research In Motion, in 1984 and served as co-CEO of the company, alongside Jim Balsillie, through January 2012. The two pioneered the smartphone revolution. Lazaridis, however, failed to prepare BlackBerry for the upcoming competition from consumer-facing rivals. Among the largest mistakes marking the end of Lazaridis' tenure were the failed BlackBerry PlayBook tablet, a four-day global service outage — which left phones unable to browse the Internet or access emails and texts — and a focus on business professionals even as iPhones and Androids absorbed market share. In the third quarter of 2012, BlackBerry's worldwide market share of mobile device sales, by operating system, was just 5.3%, down from 11% in the third quarter of 2011, according to Gartner research firm.
5. Countrywide Financial, founder 1968
Founder: Angelo Mozilo, less than1.5% voting share
Mozilo, former Countrywide CEO, became the face of the subprime mortgage mess after that market collapsed. Under his watch, his company began financing mortgages to high-risk borrowers, which during the housing boom drove the company's spectacular growth. In 2006, Countrywide financed about 20% of all mortgages in the U.S., more than any other mortgage lender in the country. But the company fell apart when the housing market tanked and borrowers defaulted on their high-interest loans. Countrywide was eventually sold to Bank of America in 2008 for $4 billion, with Mozilo forced out a few months later. The company faced a barrage of lawsuits, arguing that Countrywide had used deceptive practices to get people to apply for mortgages they could not afford. Mozilo's integrity was also called into question when it was reported that several government officials and politicians, such as then-U.S. Sen. Chris Dodd, received favorable mortgage deals simply by being "friends of Angelo." In 2010, Mozilo settled an insider trading charge with the SEC for about $67 million. He is permanently banned from serving as an officer and director of a public company, under the terms of the settlement.
6. Groupon, founder 2008
Founder: Andrew Mason, 19.5% voting share
Mason, Groupon's quirky founder and CEO, has stumbled repeatedly the past couple years. His company, which provides discounts and daily deals online, had to revise its financial reports in August 2011 after regulators and analysts took issue with its accounting methods. Groupon issued another revision to its financials in early 2012 as the company overstated its 2011 profit by more than $20 million. Because of these problems, along with general concern that the daily deal fad — the company's core business — may be slowing, the stock price has been declining. It is now roughly a quarter of its initial public offering price of $20 a share, with the company's market capitalization at $3.3 billion. It didn't have to be this way. In 2010, Groupon rebuffed Google's offer to buy the company for up to $6 billion. There has been talk that Mason isn't mature enough to run a company of this size. For instance, he was criticized for drinking beer at the company's annual meeting and for his public gaffes commenting on why it turned down buyouts.
7. American Apparel, founded 1989
Founder: Dov Charney, 43.3% voting share
Charney started and ran American Apparel from his dorm room at Tufts University in the late 1980s. Twenty years later, in 2008, the apparel company had more than 6,700 employees and 197 stores worldwide. But provocative ads and rapid expansion did little to address problems plaguing the company. In 2009, the Immigration and Customs Enforcement agency said that a quarter of workers at the company's downtown Los Angeles manufacturing facility were illegal immigrants. In 2011, two sexual harassment lawsuits were filed against Charney. In December, a former store manager accused Charney of choking him and rubbing dirt in his face. Charney has denied all allegations of misconduct. The company has also struggled to stay afloat financially, running an operating loss in the last 12 months for which financial statements have been released.
8. Best Buy, founded in 1966
Founder: Richard Schulze, 20.24% voting share
Schulze has presided over a company that has struggled to stay relevant in a sector that is increasingly moving online. Best Buy's business has taken a sizable hit from online retailers such as Amazon.com. Some industry experts and analysts point out that Best Buy is increasingly becoming a showroom for electronics consumers — meaning that people go to the store to check out the product and then buy it cheaper online. In the most recent quarter, Best Buy lost $10 million as revenue fell 4% compared to the previous year. The company's share price is approximately one third of what it was five years ago. Schulze also found himself embroiled in a company sex scandal. A Schulze lieutenant, former CEO Brian Dunn, was forced to resign from the company after it was discovered he had an affair with another staffer. The founder received criticism after an internal investigation found that he had knowledge of the affair and did not report it to the board. Schulze announced his retirement from the board shortly after the investigation.
Showing posts with label Smartphones. Show all posts
Showing posts with label Smartphones. Show all posts
Monday, February 11, 2013
Wednesday, August 4, 2010
AT&T, Verizon to Target Visa, MasterCard With Smartphones
Bloomberg
AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said.
The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone, the people said. The carriers have been searching for a chief executive officer.
The trial would be the carriers’ biggest effort to spur mobile payments in the U.S. and supplant more than 1 billion plastic cards in American wallets. Smartphones have encroached on tasks ranging from Web browsing to street navigation and now may help the phone companies compete with San Francisco-based Visa and MasterCard, the world’s biggest payments networks.
“This is definitely a game-changer,” said industry consultant Richard Crone of San Carlos, California-based Crone Consulting LLC. The firm advises card networks, issuers and phone companies. The mobile carriers “are the biggest recurring billers in every market. They are experts at processing payments,” Crone said.
Market Dominance
Visa and Purchase, New York-based MasterCard handled $2.45 trillion, or 82 percent, of U.S. consumer spending on general- purpose cards last year, according to the Nilson Report, an industry newsletter. That dominance has helped fuel profit growth for both companies. Visa’s annual operating income has grown sixfold since fiscal 2005 to $3.54 billion last year. MasterCard’s has surged more than fivefold to $2.27 billion.
Visa fell 1.5 percent to $72.23 at 4:15 p.m. in New York Stock Exchange composite trading and MasterCard declined 3.6 percent to $202.52, the worst performance in the Standard & Poor’s 500 Index.
The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays would be the bank helping to manage the accounts, said the people, who requested anonymity because of confidentiality agreements.
‘Logical Next Step’
AT&T and Verizon Wireless are equal partners in the venture and T-Mobile has a smaller stake, one person said.
Representatives for the carriers, London-based Barclays and Riverwoods, Illinois-based Discover declined to comment on the venture.
“Mobile payments are the logical next step for consumers,” said Mark Siegel, a spokesman for Dallas-based AT&T. Siegel, Marquett Smith of Basking Ridge, New Jersey-based Verizon Wireless, and Peter Dobrow of the Bellevue, Washington- based T-Mobile unit, all said their companies “have nothing to announce.”
At Discover, spokeswoman Leslie Sutton said the company “is always evaluating technology solutions that make things faster, safer and more convenient.” Barclays spokesman Kevin Sullivan said, “facilitating mobile payments is a big part of Barclaycard’s strategy globally.”
The phone companies probably wouldn’t replace the biggest U.S. credit- and debit-card issuers, including JPMorgan Chase & Co. and Wells Fargo & Co., said Gary Townsend, CEO of Hill- Townsend Capital LLC, a Chevy Chase, Maryland-based hedge fund that specializes in financial firms.
Swipe Fees
“What is a cell phone, except a mechanism for consumers to address their lives in whatever way they choose?” Townsend said today in a telephone interview. “There’s certainly no reason if an AT&T account can effectively be carried on a phone that a JPMorgan or a Wells Fargo card can’t be there, too. In fact, the antitrust issues would demand that that be allowed.”
Retailers may be eager to help another network after years of fighting over transaction fees set by Visa and MasterCard. The merchants persuaded Congress last month to approve caps on interchange, or “swipe” fees, for debit transactions and filed a 2005 federal antitrust lawsuit that is still pending. The U.S. Department of Justice is weighing whether to bring a civil lawsuit against Visa for barring merchants from surcharging customers who use credit cards, according to the company.
‘Material, Adverse Effect’
“If we change our rules in these areas, this could cause a material, adverse effect on our business,” Visa said today in a regulatory filing.
Interchange fees on credit and debit cards exceed $40 billion a year and average about 1 percent to 2 percent of every transaction.
The people with knowledge of the carriers’ venture didn’t say how much merchants may be charged per transaction or when the trial will start.
“We have long argued that real competition is missing from today’s payments market,” said Brian Dodge, a spokesman for the Retail Industry Leaders Association, which represents merchants such as Wal-Mart Stores Inc., Home Depot Inc. and Target Corp. “The emergence of a secure and reliable competing network that serves the demand from consumers for mobility payment options and reduces retailers’ costs would be welcomed news.”
‘Tipping Point’
Visa and MasterCard are benefiting as people abandon cash and paper checks for cards and electronic payments, which account for more than half of U.S. consumer purchases, compared with 36 percent in 2003, according to the Nilson Report.
Mobile technology for banking and payments is reaching “a tipping point,” with younger consumers leading the way, Mercatus LLC, a Boston-based consulting firm, said in a June 7 study. More than half of U.S. consumers, and almost 80 percent of those between the ages of 18 and 34, will use mobile financial services within five years, according to Mercatus.
“Rapid and broad-based consumer adoption of mobile financial services is imminent,” as people rely on their phones to manage every aspect of their lives, said Mercatus Managing Partner Bob Hedges, former head of retail banking and payments at Fleet Bank. “Consumers want it to happen.”
MasterCard and Visa have been investing in their own mobile projects. Visa and Richardson, Texas-based DeviceFidelity, have developed technology that can transform phones consumers carry today, including Apple Inc.’s iPhone, into a payment device that can store multiple card accounts, said Bill Gajda, head of mobile for Visa.
Zong, Bling, Boku
“Visa is in discussions with a number of mobile operators around the world,” Gajda said in a July 28 interview. “We continue to believe that the best opportunity to create a secure, scalable, mobile-payment service is by working together, converging mobile and financial networks, and extending the value of electronic payments to the mobile channel.”
In June, New York-based Citigroup Inc. introduced MasterCard PayPass stickers that can be affixed to the back of mobile phones to make contactless payments at about 230,000 U.S. merchants, MasterCard spokeswoman Joanne Trout said in an e- mail.
Startups based near Silicon Valley, California, such as Zong, Bling Nation and Boku Inc., offer alternative payment solutions. Zong users enter their mobile phone numbers to make purchases on the Internet. Bling Nation works with community banks and local businesses, allowing customers to “tap-and- pay” with their devices. Boku lets online gamers buy “digital goods and social experiences,” the company says on its website.
‘Card Is Dumb’
Any new payment system may face barriers that prevent the technology from taking hold in the U.S., the Federal Reserve Bank of Boston said in a May policy paper.
Consumers won’t demand mobile payments “until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so,” the report said.
Merchants would have to spend an estimated $200 per reader, and updating mobile phones with embedded microchips would increase manufacturing costs by $10 to $15 per handset, according to the Boston Fed. That may be worthwhile if accepting mobile payments allows retailers to send rewards and information about promotions to their customers’ phones at checkout.
Contactless, or near-field communication, technology “is no less secure” than today’s plastic cards, according to the Fed. Consumers may also be able to sync their phones to a computer, allowing them to make purchases even if there’s no mobile signal or the battery dies.
“These are important issues if people are to be convinced to rely on this technology as an alternative to carrying a wallet,” the policy paper said.
The wireless carriers have an advantage over Visa and MasterCard in the race to control the U.S. payments market because the phone companies have access to their customers’ mobile numbers and bank account information, said Crone, the industry consultant.
“A mobile device is online, real-time interactivity that changes the customer relationship,” he said. “A card is dumb.”
The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone, the people said. The carriers have been searching for a chief executive officer.
The trial would be the carriers’ biggest effort to spur mobile payments in the U.S. and supplant more than 1 billion plastic cards in American wallets. Smartphones have encroached on tasks ranging from Web browsing to street navigation and now may help the phone companies compete with San Francisco-based Visa and MasterCard, the world’s biggest payments networks.
“This is definitely a game-changer,” said industry consultant Richard Crone of San Carlos, California-based Crone Consulting LLC. The firm advises card networks, issuers and phone companies. The mobile carriers “are the biggest recurring billers in every market. They are experts at processing payments,” Crone said.
Market Dominance
Visa and Purchase, New York-based MasterCard handled $2.45 trillion, or 82 percent, of U.S. consumer spending on general- purpose cards last year, according to the Nilson Report, an industry newsletter. That dominance has helped fuel profit growth for both companies. Visa’s annual operating income has grown sixfold since fiscal 2005 to $3.54 billion last year. MasterCard’s has surged more than fivefold to $2.27 billion.
Visa fell 1.5 percent to $72.23 at 4:15 p.m. in New York Stock Exchange composite trading and MasterCard declined 3.6 percent to $202.52, the worst performance in the Standard & Poor’s 500 Index.
The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays would be the bank helping to manage the accounts, said the people, who requested anonymity because of confidentiality agreements.
‘Logical Next Step’
AT&T and Verizon Wireless are equal partners in the venture and T-Mobile has a smaller stake, one person said.
Representatives for the carriers, London-based Barclays and Riverwoods, Illinois-based Discover declined to comment on the venture.
“Mobile payments are the logical next step for consumers,” said Mark Siegel, a spokesman for Dallas-based AT&T. Siegel, Marquett Smith of Basking Ridge, New Jersey-based Verizon Wireless, and Peter Dobrow of the Bellevue, Washington- based T-Mobile unit, all said their companies “have nothing to announce.”
At Discover, spokeswoman Leslie Sutton said the company “is always evaluating technology solutions that make things faster, safer and more convenient.” Barclays spokesman Kevin Sullivan said, “facilitating mobile payments is a big part of Barclaycard’s strategy globally.”
The phone companies probably wouldn’t replace the biggest U.S. credit- and debit-card issuers, including JPMorgan Chase & Co. and Wells Fargo & Co., said Gary Townsend, CEO of Hill- Townsend Capital LLC, a Chevy Chase, Maryland-based hedge fund that specializes in financial firms.
Swipe Fees
“What is a cell phone, except a mechanism for consumers to address their lives in whatever way they choose?” Townsend said today in a telephone interview. “There’s certainly no reason if an AT&T account can effectively be carried on a phone that a JPMorgan or a Wells Fargo card can’t be there, too. In fact, the antitrust issues would demand that that be allowed.”
Retailers may be eager to help another network after years of fighting over transaction fees set by Visa and MasterCard. The merchants persuaded Congress last month to approve caps on interchange, or “swipe” fees, for debit transactions and filed a 2005 federal antitrust lawsuit that is still pending. The U.S. Department of Justice is weighing whether to bring a civil lawsuit against Visa for barring merchants from surcharging customers who use credit cards, according to the company.
‘Material, Adverse Effect’
“If we change our rules in these areas, this could cause a material, adverse effect on our business,” Visa said today in a regulatory filing.
Interchange fees on credit and debit cards exceed $40 billion a year and average about 1 percent to 2 percent of every transaction.
The people with knowledge of the carriers’ venture didn’t say how much merchants may be charged per transaction or when the trial will start.
“We have long argued that real competition is missing from today’s payments market,” said Brian Dodge, a spokesman for the Retail Industry Leaders Association, which represents merchants such as Wal-Mart Stores Inc., Home Depot Inc. and Target Corp. “The emergence of a secure and reliable competing network that serves the demand from consumers for mobility payment options and reduces retailers’ costs would be welcomed news.”
‘Tipping Point’
Visa and MasterCard are benefiting as people abandon cash and paper checks for cards and electronic payments, which account for more than half of U.S. consumer purchases, compared with 36 percent in 2003, according to the Nilson Report.
Mobile technology for banking and payments is reaching “a tipping point,” with younger consumers leading the way, Mercatus LLC, a Boston-based consulting firm, said in a June 7 study. More than half of U.S. consumers, and almost 80 percent of those between the ages of 18 and 34, will use mobile financial services within five years, according to Mercatus.
“Rapid and broad-based consumer adoption of mobile financial services is imminent,” as people rely on their phones to manage every aspect of their lives, said Mercatus Managing Partner Bob Hedges, former head of retail banking and payments at Fleet Bank. “Consumers want it to happen.”
MasterCard and Visa have been investing in their own mobile projects. Visa and Richardson, Texas-based DeviceFidelity, have developed technology that can transform phones consumers carry today, including Apple Inc.’s iPhone, into a payment device that can store multiple card accounts, said Bill Gajda, head of mobile for Visa.
Zong, Bling, Boku
“Visa is in discussions with a number of mobile operators around the world,” Gajda said in a July 28 interview. “We continue to believe that the best opportunity to create a secure, scalable, mobile-payment service is by working together, converging mobile and financial networks, and extending the value of electronic payments to the mobile channel.”
In June, New York-based Citigroup Inc. introduced MasterCard PayPass stickers that can be affixed to the back of mobile phones to make contactless payments at about 230,000 U.S. merchants, MasterCard spokeswoman Joanne Trout said in an e- mail.
Startups based near Silicon Valley, California, such as Zong, Bling Nation and Boku Inc., offer alternative payment solutions. Zong users enter their mobile phone numbers to make purchases on the Internet. Bling Nation works with community banks and local businesses, allowing customers to “tap-and- pay” with their devices. Boku lets online gamers buy “digital goods and social experiences,” the company says on its website.
‘Card Is Dumb’
Any new payment system may face barriers that prevent the technology from taking hold in the U.S., the Federal Reserve Bank of Boston said in a May policy paper.
Consumers won’t demand mobile payments “until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so,” the report said.
Merchants would have to spend an estimated $200 per reader, and updating mobile phones with embedded microchips would increase manufacturing costs by $10 to $15 per handset, according to the Boston Fed. That may be worthwhile if accepting mobile payments allows retailers to send rewards and information about promotions to their customers’ phones at checkout.
Contactless, or near-field communication, technology “is no less secure” than today’s plastic cards, according to the Fed. Consumers may also be able to sync their phones to a computer, allowing them to make purchases even if there’s no mobile signal or the battery dies.
“These are important issues if people are to be convinced to rely on this technology as an alternative to carrying a wallet,” the policy paper said.
The wireless carriers have an advantage over Visa and MasterCard in the race to control the U.S. payments market because the phone companies have access to their customers’ mobile numbers and bank account information, said Crone, the industry consultant.
“A mobile device is online, real-time interactivity that changes the customer relationship,” he said. “A card is dumb.”
Subscribe to:
Posts (Atom)