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5 Simple Lessons From the Worst CEOs

A business professor tells Inc. what you can learn from the mistakes of top chief executive officers.

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CEOs make mistakes. But some CEOs make really bad mistakes--so says Sydney Finkelstein, a professor at Dartmouth's Tuck School of Business, who has just released his annual Worst CEOs list. 

Finkelstein's five worst CEOs of 2012 includes (now former) top dogs at Best Buy, Avon, Zynga, and Bankia, in addition to the current CEO of Chesapeake Energy.

The author of 11 business books, including Why Smart Executives Fail, Finkelstein compiles the list based on his own study of these leaders and their companies' performance over 12 months.

While his list consists of CEOs of public companies, perhaps there is a thing or two you can learn.

1. You must adapt.

In addition to failed attempts at global expansion, Brian Dunn, (now former) CEO of Best Buy, reportedly refused to tweak Best Buy's business model. For Finkelstein, that earned him the top spot on his list. 

"No company survives without adapting, yet so many CEOs think they can keep on doing what got them success in the past," Finkelstein told Inc. "Just as investment advisors tell us that past performance is not a guarantee of future performance, the same thing holds in companies. Best Buy simply refused to change, and now it may be too late."

2. Your company isn't your personal cookie jar.

Coming in at number two: Aubrey McClendon, CEO of oil and natural gas company Chesapeake Energy, made headlines when he allegedly borrowed $1.1 billion in undisclosed loans against his stake in the company's wells. 

"The difference between a private company and a publicly traded one is enormous," Finkelstein said. "It is no longer your own company when you go public, even if you still own a majority of the stock. Shareholder rights are enshrined in corporate law, and the disclosure requirement, and expectations, are enormous. Sometimes you're better off staying private, but the need to generate capital to grow, or the desire to cash out some of your sweat equity, does not come free of charge."

3. You can't buckle under pressure. 

Under Andrea Jung (now former CEO), beauty-care company Avon did anything but prosper. According to Finkelstein, one of her biggest mistakes was turning down a $10.7 billion offer from Coty. During her reign, the company also reportedly lost market value-- to the tune of $15 billion. Oh, and then there was the 2008 allegations that the company violated the Foreign Corrupt Practices Act (which bars bribery of foreign officials).

"Pressure to grow can lead some people to go over the line and make a decision that jeopardizes the entire company," Finkelstein noted. "At Avon, global growth led some people to go far over the line and the bribery scandal is the result."

4. Keep your team together.

Amid tumbling stocks and patent lawsuits, Zynga CEO Mark Pincus couldn't hold onto many of his mobile gaming firm's staffers.

"To make the shift from small, entrepreneurial startup to successful, more established business, you need talent from other people, and the ability to attract and retain them," Finkelstein explained. "Pincus had a revolving door at the top. Successful entrepreneurs have to know how to give up some control, to the right people, to grow."

5. Know what you're getting into.

Rodrigo Rato, former chairman of Spanish lender Bankia, is reportedly under investigation for fraud, price-fixing and embezzlement. Bankia reportedly had a profit of €309 million in 2011, but after Rato resigned, it was restated to a €3 billion loss

"Not doing sufficient due diligence on Bankia, he probably didn't understand just how bad a condition the bank was in when he accepted the job," Finkelstein concluded.

Requests for comment were declined by all of the companies, with the exception of Chesapeake Energy, which did not respond to our request. 

 

IMAGE: Photodisc/Getty
Last updated: Dec 17, 2012




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