Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions 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, we'll turn our attention to once again to BlackBerry (NASDAQ: BBRY ) and its CEO Thorsten Heins – hopefully for the last time.
The dunce cap
Watching BlackBerry unravel over the past couple of years has been like watching The Three Stooges try to run a publicly traded company.
Where it all fell apart for BlackBerry (previously known as Research In Motion) was in the innovation department. BlackBerry was one of the first mobile device makers to introduce a smartphone to consumers, but it also fell back on its laurels and allowed Apple (NASDAQ: AAPL ) and Google (NASDAQ: GOOG ) to utilize their ability to innovate and eventually overtake BlackBerry's devices.
You could say it all began coasting downhill when Apple introduced the iPhone 3 and Google developed their own operating system capable of running on Motorola, HTC, and other devices. At its peak, Blackberry was able to control approximately 51% of U.S. mobile market share, whereas today it now holds about 3.4% total U.S. smartphone market share. Apple's sleek designs and touchscreen interface, as well as Google's globally popular OS simply put the antiquated keyboard and operating system on BlackBerry's phones on the back burner for consumers and eventually even its enterprise customers. Nowadays, iOS and Android account for nearly 95% of all U.S. market share in terms of operating systems.
If you need any further proof of Apple and Google's dominance over BlackBerry, just look to the most recent product launches, or expected launches, for further evidence. Apple's new iPhone 5s and versatile lower-priced 5c, which run on the all-new iOS7, sold 9 million units over the weekend, allowing Apple to guide Wall Street to the higher end of its previous $34 billion to $37 billion revenue range in its upcoming quarter. For Google, all eyes are on its KitKat 4.4 OS due out in the coming weeks. Rumor has it that KitKat 4.4 may be compatible with older Android-based phones which could mean a big boost for Google's OS global market share, and the ability for HTC and Samsung to lean on legacy smartphones for longer than a year if need be.
The promise for BlackBerry had been that Thorsten Heins' promotion to the role of CEO in early 2012, and Jim Balsille and Mike Lazaridis stepping down as co-CEOs, would lead BlackBerry down a different path. Instead, it was just more of the same for the shareholders. The long-anticipated BlackBerry Z10 and Q10 (the Z10 being the touchscreen mobile device and Q10 boasting the traditional keyboard) both were delayed numerous times and took nearly two full years to develop and bring to market. In between, Apple brought two new versions of its iconic iPhone to market while numerous new Android devices were introduced. It really shouldn't come as a surprise then that after the two-year wait, sales of the devices disappointed in a big way!
Last week, in a surprising move, BlackBerry reported its preliminary second-quarter results a week earlier than expected in order to let shareholders know they were going to lose $0.47-$0.51 per share on an adjusted basis, take a whopping charge of $930 million to $960 million to writedown its inventory, cut its production line from six models to four, and reduce its global workforce by 40%, or 4,500 workers. You know, just your average "running out of the burning house with your arms flailing" earnings report from BlackBerry. Let's not also forget that BlackBerry laid off 5,000 workers in June 2012. That brings Heins-related firings up to 9,500 workers!
To the corner, Heins...
But it gets even worse. I'm not exactly sure how I thought this situation could get worse -- but it did!
Yesterday, BlackBerry announced a deal to be taken private by Canada's Fairfax Financial for $4.7 billion, or $9 per share. Adding everything up, from the time Heins took over as CEO on Jan. 22, 2012, through the launch of the Z10 and Q10, and until the announcement of yesterday's offer, Heins' tenure resulted in the loss of 47% of BlackBerry's market value. Bravo, I guess?
Speculation on the Street from numerous sources is that this may not be the last bid we see for BlackBerry and its legacy business. But, then again, who'd want it? BlackBerry's smartphone market share has been backpedaling almost non-stop for four years, the mobile division is losing money, and even traders couldn't push the stock to a close above $9, signaling their skepticism about a white knight coming to BlackBerry's rescue. Plus, the designs aren't nearly as appealing to consumers as iPhones, the Samsung Galaxy series, or even (gasp!) the Nokia Lumia.
Perhaps even more ominous and worthy of the mightiest finger wag of them all is Thorsten Heins' golden parachute package should BlackBerry be purchased.
According to a May proxy filing by the company, if Heins were to be pushed out as CEO were the company to change hands (and let's face it, who is going to keep this value-destroyer around?) he would be entitled to receive... and I hope you're sitting down for this... $55.6 million in compensation. This figure was established based on salary, incentive payments, and equity awards, presumably for a job well done that resulted in more than $4 billion in market cap lost and 9,500 jobs axed. What's more, shareholders approved this atrocity of a compensation package at BlackBerry's annual meeting in July, making me wonder if shareholders even bother studying up on shareholder compensation anymore! In other words, on top of the $10 million-plus he made in 2012, the roughly $10 million in salary in 2013, and his $55.6 million diamond-encrusted compensation package, Heins will have earned just shy of $132,000 per day since he took over as CEO!
On that note, I'll leave you with this inspiring quote from Heins five months ago at a Milken Institute conference in Los Angeles, courtesy of Bloomberg:
In five years I don't think there'll be a reason to have a tablet anymore. Maybe a big screen in your workspace, but not a tablet as such. Tablets themselves are not a good business model.
...said the CEO of the company that officially pulled the plug on its PlayBook tablet in North America last year.
Ultimately, shareholders should be glad they're getting more than $0 for their shares while the rest of us can presumably be thrilled that we no longer have to listen to Heins backpedal at a quarterly conference call.
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