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Gauging the quality of a CEO is an inexact science. Do you look at revenue growth? Increases in earnings? Decreases in expenses? Return to shareholders? Or do you use a combination of these plus a litany of other relevant variables that you think up?
The task is made even harder when CEOs are compared across other companies and industries. Who's to say, for example, whether Steve Jobs of Apple was a better leader and visionary than Jeff Bezos of Amazon.com? Both founded and led companies that provide great products and services to their customers as well as market-smashing returns for shareholders.
Fortunately, a new service provided by Chiefist.com does the work for us. "Many of the annual exec rankings focus almost exclusively on share price improvement or some other concept of total return to shareholders," says the company's website. "While we like making a buck from our stocks as much as the next person, the notion of measuring executive performance based solely on the company's stock price pop over a 365-day period strikes us as simplistic and incomplete."
To normalize for variations across industries, in turn, the team at Chiefist developed their proprietary Business Value Enhancement Metric, or BVEM, which employs a variety of metrics to rank CEOs of publicly traded companies. Among other things, it incorporates margin expansion, earnings-per-share growth, and trends in both return on equity and book value per share.
Using this tool, at the end of last month, I examined the best and worst small-cap CEOs. Over the preceding year, the collective stock performance of the companies led by the best CEOs (+60.8%) outperformed the latter's performance (-31.4%) by a staggering 92 percentage points.
What follows is Chiefist's current list of the 10 worst mid-cap CEOs since the middle of 2010 (like golf, a lower score is better):
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|1||Michael Laphen||Computer Sciences Corp.||
|2||Aldo Zucaro||Old Republic Int'l||
|4||Ronald Hermance||Hudson City Bancorp (Nasdaq: HCBK )||
|5||Scott Bok||Greenhill & Co.||
|6||Michael Fraizer||Genworth Financial (NYSE: GNW )||
|7||Mary Wilderotter||Frontier Communications (Nasdaq: FTR )||
|8||Charles Swoboda||Cree (Nasdaq: CREE )||
|10||James Zelter||Apollo Investment (Nasdaq: AINV )||
Source: Chiefist.com, "Worst Mid-Cap CEOs."
An abbreviated run-down
As you can see, the list contains companies in a variety of sectors and industries. To name a few...
With over $40 billion in assets, Hudson City Bancorp is one of the largest thrift institutions headquartered in New Jersey, operating a total of 135 branches. Although the bank's 5% dividend yield makes it popular among dividend investors, there's a legitimate question as to how long it can maintain these payments. According to my colleague Rich Smith, writing for Yahoo! Finance, the bank is "expected to end this year at a profit, but then immediately see that profit drop as it embarks upon a five-year journey averaging 3% annual declines in profit." Of more immediate concern is the bank's disclosure that its operating under memorandums of understanding with both the Federal Reserve and the Office of the Comptroller of the Currency. These agreements are bad news and often precipitate failure.
Insurance company Genworth Financial has two primary business, life and mortgage insurance, both of which have performed poorly of late due in large part to historically low interest rates. Shares in the company fell sharply in April after the company announced its intention to postpone the previously planned IPO of the its Australian mortgage insurance business. According to fellow Fool Dan Caplinger: "For Genworth to improve, it needs the lousy interest rate environment to go away. Unfortunately, that doesn't look likely, which will hamper Genworth's attempt to move toward perfection for quite a while."
Another favorite among dividend investors, telecom Frontier Communications, has experienced its own setbacks of late. Its share price was cut in half over the last 18 months in anticipation and ultimate realization of a decrease in its dividend payment. Shares in the telecom nevertheless surged at the beginning of this month after the company's second-quarter earnings beat analysts' expectations -- though this was despite the fact that both its revenue and earnings were down year over year.
Shares in LED lighting specialist Cree began a sharp climb at the beginning of this month after the LED lighting specialist's most recent earnings release failed to disappoint, meeting expectations on revenues and beating on earnings per share. Earlier in the year, the company's CFO left to "pursue other opportunities" -- never a good sign. The company's major problem? Declining LED prices. As Motley Fool blogger Harsh Chauhan recently pointed out: "LED product and lighting sales together constitute more than 90% of Cree's revenue and have been under constant pressure due to falling prices, stiff competition, and seasonality."
Finally, double-digit dividend yielding Apollo Investment makes investments in a variety of sectors from health care to technology. Its most recent investment in the energy industry consisted of a five-year $100 million credit facility to fund the development by Miller Energy Resources of oil fields in Alaska. The company has been given four out of five stars by our 180,000 investment community CAPS with over 95% of members rating it an "outperform."
What all these companies have in common
Despite their differences, the one thing these companies share is horrible share-price performance over the last two years. As you can see in the chart below, every one of the has underperformed the broader market -- some, like Cree and Genworth Financial, by as much as 90 percentage points.
Whether you use metrics like this to gauge a CEO's value or not, it's always important to trust the people leading the companies you're invested in. And for this reason, I invite you to view one of our newest free reports about three stocks that will help you retire rich. Of the stocks recommended, two of them are arguably led by the best CEOs alive today. To view this free report instantly, click here now.