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This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a 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'm going to take my criticisms for kicking a dead horse, but I absolutely have to highlight David Vieau of the now bankrupt A123 Systems (Nasdaq: AONEQ ) yet again.
The dunce cap
A123 Systems, a manufacturer of electric car batteries, at one time had visions of creating 38,000 jobs within the United States, including 5,900 at its plants alone. That vision has disappeared like a cloud of smoke in the wind.
Last month, A123 filed for bankruptcy protection after a last ditch effort to save the company, by attempting to work out an investment deal with China's Wanxiang Group, fell through. In total, A123 blew through $249 million in government grants, and totaled more than $1 billion in cumulate free cash outflow since it opened for business, producing zero quarterly profits and wiping out 99% of all shareholder value. A123 was able to sell its automotive operations to Johnson Controls (NYSE: JCI ) for a fire-sale price of $125 million, but I'd hardly call that something to brag about.
There are two things that I find truly mind-boggling about this – because let's face it, bankruptcies do happen. The first, which I've touched on in a previous CEO Gaffe of the Week, is why would the company choose to expand its workforce by 20% when it knows that it's on the precipice of a cash crunch and its cash outflows are only growing? A123 did introduce a new battery technology, the Nanophosphate EXT, which can run in more extreme temperature environments and is less costly than current lithium-ion batteries. However, as we've now seen, taking a product from idea, to concept, to commercialization requires a plan -- a plan that A123 didn't hash out very well.
To the corner, Mr. Vieau
Remember how I said there were two things mind-boggling about this bankruptcy? The final factor has to do with what appears to be wholly undeserved compensation boosts among executives.
According to a report by the National Legal and Policy Center, on Feb. 8, following a trailing 12-month decline of 75% in its share price, A123 awarded its chief financial officer and two of its vice presidents salary raises ranging from 27% to 51%. As if that wasn't enough, the nail in the coffin came just one week after filing for bankruptcy, when the NLPC also reports that Vieau and his board requested that a bankruptcy judge let them keep $4.2 million in executive and retention bonuses to see through the transition of its automotive operations to Johnson Controls.
Furthermore, Vieau and his Board of Directors changed the remuneration terms of its top executives prior to filing for bankruptcy protection. These changes would allow executives to receive full bonuses, up to 18 months of pay, and accelerated stock option vesting if their positions were terminated due to the company changing hands.
Talk about a wag of my finger!
One thing is for certain: The bankruptcy of A123 isn't going to affect General Motors' (NYSE: GM ) production of the Chevy Spark EV, and electric battery production as a whole will still go on without a hitch. At least when the sun rises tomorrow, taxpayers won't have to worry about David Vieau being in charge of their money!
Do you have a CEO you'd like to nominate for this dubious 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 see your suggestion in the spotlight.
Curious as to what sort of future electric vehicles will play in General Motors' grand scheme? Find out the answer to this question, and much more, by getting your copy of our latest premium research report on General Motors. Crammed with in-depth analysis on the opportunities and threats facing GM -- and complete with a year of regular updates -- this report will give you the tools needed to make smart long-term investing decisions.