How to deal with non performing managers?

Performance of Pfizer stock during the leadership of Hank McKinnell.
In May 2005, I had suggested to the Pfizer Board that it was time to fire Hank McKinnell. The company’s competitor Merck had taken way too long to get rid of Raymond Gilmartin, who put the company in the mess that it is today due to its mishandling of recall of Vioxx. The Pfizer board refused to act till now.

Joe-out, John-in

Merck & Co., Inc. committed a big mistake when it put an insider (Richard Clarke) into the top job instead of finding someone who could bring fresh thinking to the company. The result: no substantive change in strategy. Pfizer Inc. has also done the same. Jeffrey B. Kindler is a company insider and I would not expect any meaningful change.

How to deal with non-performing executives?

First of all, I am very skeptical of boards that are full of pals who just enjoy the prestige and perks but really create no value to the enterprise (I think that there are better ways to reward your pals than to put them on a board). Having said that, even if a board is unwilling to fire a non-performing executive, it is much better to just let this person have a job ban her/him to actually work. A better replacement must do the job. A non-performing executive can destroy even more shareholder value than the (exorbitant) salary paid. Just take a look at the chart at the top to see the damage that McKinnell did to Pfizer (according to Finance 101, the only metric for success in business is shareholder value creation).

And right now there are two other executives that should leave: Terry Semel (Yahoo! Inc.) and Michael Dell (Dell Inc.).

What went wrong with Yahoo?

Comparison of stock performance of Yahoo and Google.
In October of 2005, I wrote about Yahoo! Inc. CEO making fun of Google. I know no one likes competitors but was surprised to see the arrogance. 14 months later it is nice to see how the two companies are doing. Google Inc. has essentially broken all records in revenue, income, and market share (of search traffic). On the other hand, Yahoo continues to lose share in search (one of the most profitable segments of online business, as Google shows) and has several other operational and financial problems.

Yahoo admitted its weaknesses in search a while ago and while I would love to see another search engine, I do not expect that it is going to be Yahoo. During recent days, I have observed further deterioration in search quality there. We also know that MSN (run by my friends at Microsoft Corporation) – a superior search engine compared to Yahoo – has not found its mojo yet.

So what’s wrong with Yahoo? Trying to be too many things to too many people. Search engine is serious business (and the fight with spammers is not for the uncommitted) and if you spend too much time and money or simply redesigning your home page, your priorities are in the wrong place. In fact, if 200 million people were not stuck with their Yahoo email addresses, there would be absolutely no reason to visit Yahoo.

The message: Business is war – take it seriously. Shareholders work hard for their money and you have no right to waste it.