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Eastman Kodak: How a CEO Destroys an Icon

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Two weeks ago I introduced a new weekly series, the "CEO Gaffe of the Week." Having come across more than handful of questionable executive decisions last year when compiling my list of the Worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week I want to highlight of Eastman Kodak's (OTCBB: EKDKQ.PK) Antonio Perez, a CEO that I could actually make a very good case for being the Gaffe of the Past Decade.

The dunce cap
Without question Mr. Perez drove Kodak into the ground with his stubborn insistence that led the company to take on Hewlett-Packard (NYSE: HPQ  ) in the printing business and completely ignore its decaying film business. Kodak has been late to the party since the get-go of the digital revolution and only recently realized that its digital imaging line is heavily commoditized and only borderline profitable.

It wasn't bad enough that Kodak drew down $160 million on its revolving credit line back in October. Instead, now under the protection of chapter 11 bankruptcy, Kodak walks into bankruptcy court with nearly $1.6 billion in debt and only $900 million in cash on its balance sheet -- although these figures are from its last quarterly report, so who knows how badly things have deteriorated since! Mr. Perez has nearly guaranteed the common shareholder that they will wind up with nothing, much like General Motors (NYSE: GM  ) shareholders wound up with zilch when GM was unable to deal with its crippling debts in 2009.

I would hardly call bankruptcy a forgivable option, but Mr. Perez gets an honorable mention here for comments made by management at his company just three months ago in response to the original rumors that Kodak could declare bankruptcy. They said, and I quote… "[Kodak] has no intention of filing for bankruptcy."

Fail! Fail, fail, fail!!!

To the corner, Mr. Perez
Even back in October, Kodak was considering bankruptcy as a potential option, but it wouldn't come out and tell investors that, because that would have meant Mr. Perez would have had to admit his turnaround plan wasn't working. Instead, Kodak chose, in the face of imminent bankruptcy unless it received cash quickly, to sell a pittance of its licensing rights to IMAX (Nasdaq: IMAX  ) in exchange for a measly $10 million upfront payment and the potential to earn up to $50 million in royalties. With more than 1,100 patents worth potentially more than $1 billion still in its treasure chest, Mr. Perez chose to sit on his hands and let the treasure go down with the ship.

The only solution Mr. Perez had to Kodak's cash crunch was to sue everyone in sight that may have, at one time, infringed on Kodak's patents. The lawsuits focused on specific digital imaging patents and Apple, Research In Motion (Nasdaq: RIMM  ) , and HTC have found themselves on the short-end of Kodak's endless lawsuit list. Not surprisingly, this "sue first, ask question later" approach hasn't worked for Kodak, either.

Mr. Perez effectively took over a company with one foot in the grave and single-handedly buried the rest of it under six feet of debt and underperformance. Even after Kodak reemerges from bankruptcy, I'm not convinced it'll be worth your giving it the time of day.

Do you have a CEO you'd like to nominate for this dubious weekly gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination and you just may wind up seeing your nominee in the spotlight.

Also, if you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report, "11 Rock-Solid Dividend Stocks." This report contains a wide-array of companies and sectors that are likely to keep your best interests in mind regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of General Motors and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.

Read/Post Comments (10) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 20, 2012, at 11:28 PM, prginww wrote:

    It was not only, Mr. Perez, the CEO but all his cronies that sat along him in the board of directors who ran this company under. We, the shareholders, supposedly are the owners of the company but the "old good" boys club that eat and ship beverages while directing the affairs of the company are only interested in filling their pocketbooks and certainly laugh at us. Do our proxy votes ever count for anything? I don’t think so. Directors, all of them, make a ton of money for attending a few board meetings during the course of the year (in my humble opinion, directors retainers are astronomical. I don’t want to comment of the worthless CEO’s salary, that’s a story for another day) and we shareholders what do we get? A worthless memento called a stock certificate that we can use to decorate our walls with!!!

  • Report this Comment On January 21, 2012, at 5:50 AM, prginww wrote:

    Perez made off with $29 million in compensation since 2008... and that's not include numerous benefits such as traveling on company jet for personal trips.

    He will also get a sweet severance package when this is all that will be worth at least $3 million. And could be as high as $17 million if the termination was due to change of control of the company. Furthermore he will get retirement benefit with credit for 25 years even though he has only been at Kodak for less than 8.

    Antonio Perez is a spanish crook. He should have been fired and put in jail long ago.

  • Report this Comment On January 21, 2012, at 7:41 AM, prginww wrote:

    As a retiree that still owns common, I agree with you that Mr. Perez had a personal agenda when he came to Kodak. In my opinion, that personal agneda was to have Kodak become the printing company of the world, and to put HP out of business. Silly person!! I have no idea how the BOD could sit on their hands and allow this man to demise a once great company. They should all be punished in some fashion, but they won't be. Instead, they will be allowed to benefit, while the employees and retirees will suffer.

    As far as the common goes, in my opinion, Mr. Perez will continue to be a very gready man. Since he owns approximately 6m common, I think he will see the sale of the IP through, ASAP, to get a pop in the common SP before the common is declared worthless. I hope that is what he does anyway. Those of us that have been hurt by his destroying our company, should be allowed to be a little gready also.

  • Report this Comment On January 21, 2012, at 7:53 AM, prginww wrote:

    Seriously, you guys are whining about owning Kodak stock?

    Unless you owned it for more than 20 years, and even then, you know you can sell stocks, right?

    They make FILM. Newsflash - noone uses FILM.

    The IBMs that move from profitable businesses that disapear to the next one successfuly are rare.

    Quit viewing stocks emotionally (the only reason I can think to own or keep this stock is you work for or love your Kodak) and learn to bail when the Iceberg is comming through the hull.

  • Report this Comment On January 21, 2012, at 3:02 PM, prginww wrote:

    Whine? You are reading way too deep into my comments Bob Michigan. My comments would be those of most Kodak employees and Retirees. However, I want to thank you for authorizing the sale of our shares????

  • Report this Comment On January 24, 2012, at 8:04 AM, prginww wrote:

    Article is right on! Perez and all his HP rejects have destroyed Kodak pursureing their vengeance to HP. They continually are pilfering the foot locker of George Eastman and all historical traditional Kodak logo products and businesses. Why has the Board of Directors left this crew in the helm this long? That's the $10,000 question. Maybe they fired them by email along time ago, maybe they should consider sending them all paper telegrams with ink on it, then they will get it, literally.

  • Report this Comment On January 24, 2012, at 8:29 AM, prginww wrote:

    These are the remaining guys on the board that apparently back Perez and his cronies. (3 others have quit recently, I wonder why?)

    Richard S. Braddock

    Timothy M. Donahue

    Michael Hawley

    William H. Hernandez

    Douglas R. Lebda

    Kyle P. Legg

    Delano E. Lewis

    William G. Parrett

    Antonio M. Perez

    Joel Seligman

    Dennis F. Strigl

  • Report this Comment On January 24, 2012, at 9:09 AM, prginww wrote:

    Commodore International revisited. Gould, Ali and Co. Never did want to leverage the amazing IP they had (Amiga) and drove the company to the ground.

  • Report this Comment On January 25, 2012, at 2:04 PM, prginww wrote:

    Bob from Michigan: I have news for you, there are plenty of us using film and film cameras. Perhaps that's why Kodak's film division is the only profitable division of the company. And that Ilford Photo in England, which makes film, is also a profitable company. There are a lot of ignorant people that think because digital cameras are the consumer rage that other mediums just go away. Painting's still around isn't it?

    I'd think rather than restructuring and trying to keep doing the same thing, perhaps the company should restructure itself around the only part of it that makes money! And this is despite the fact that Kodak makes no effort whatsoever to market its films and compete with the other film companies (almost like they wish it would fail...hmm).

    Instead they are doing it so that the film division's profits go towards the other losses, and are doing away with a separate division. This of course will hide the fact that they still make money from film.

    Perez has made it clear that he's only interested in digital and printing. Look where it's getting them.

  • Report this Comment On January 25, 2012, at 2:06 PM, prginww wrote:

    And Kodak's film business has not been decaying due to sales, but due to poor business management.

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