CEOs generally fall into three categories -- founders, insiders, and outsiders.
Founders can be successful thanks to their intimate vision for the company's future, or they can outstay their welcome and become liabilities rather than assets. Insiders are employees who rise through the ranks of a company through decades of hard work. Outsiders are often brought it when a company needs to completely shift gears to halt a decline.
It's not easy to hold on to that top post. At the end of the third quarter, 43 companies in the S&P 500 were being led by new CEOs. If just more than six CEOs get replaced by the end of the fourth quarter of 2013, it will mark the highest CEO turnover rate since 2008.
Recently, General Motors (NYSE: GM ) and Lululemon (NASDAQ: LULU ) appointed new CEOs, while Abercrombie & Fitch's (NYSE: ANF ) controversial CEO Mike Jeffries managed to retain his job despite rising shareholder opposition.
Let's take a moment to evaluate these three CEOs and the challenges that they will face.
The ultimate insider: General Motors' Mary Barra
GM's Mary Barra, who will become the first female CEO of a major automaker, isn't a familiar name to most.
Female CEOs are increasingly common nowadays, but many of them were already known for their accomplishments before being promoted to the top post. Yahoo!'s Marissa Mayer, for example, was already one of Google's most promising executives. Hewlett-Packard's Meg Whitman was previously the CEO of eBay.
Barra, unlike those outsiders, is the ultimate insider. Her father was a die maker for GM and she started her career with General Motors at the age of 19. She climbed the entire ladder, from inspecting fender panels to the top position. That intimate knowledge of GM makes her an ideal leader for the company.
Looking ahead, GM has a solid future, thanks largely to outgoing CEO Dan Akerson, the government-appointed outsider who resurrected the company with the help of a $50 billion government bailout. GM is now profitable again, thanks to attractive new vehicles like the 2014 Chevrolet Corvette and the 2014 Chevrolet Impala, and its stock is up 40% since the beginning of the year.
Will Barra be able to continue Akerson's good work at GM? She certainly has some lofty goals to achieve -- she needs to fix GM's European market, make peace with the United Auto Workers, and decide whether to shed non-performing brands like Buick and GMC.
Two outsiders and a loose cannon: Lululemon's Day, Potdevin, and Wilson
Yoga apparel retailer Lululemon, on the other hand, has had an awful year.
After an embarrassing recall of see-through yoga pants, CEO Christine Day, who was instrumental in the stock's 1,180% gain over the past five years, stepped down, and founder and former CEO Chip Wilson made a snide comment blaming women's "fat thighs" for causing the pants to become see-through.
Lululemon handled these debacles as poorly as possible -- following Day's resignation, the company placed a "CEO Wanted" ad filled with unfunny, quirky jokes on its homepage, and after Wilson's widely publicized "thighs" remark, a Lululemon store placed an equally unfunny, absurd poem in its window that read, "Cups of chai, apple pies, rubbing thighs?"
Both incidents made investors in Lululemon, once Wall Street's darling growth stock, wonder if the company was intentionally sabotaging itself. As a result, the stock has fallen 9% year-to-date.
To fix these problems, Lululemon hired a new CEO, Laurent Potdevin, the former president of shoe company TOMS.
Filling Day's shoes will be tough. Prior to becoming CEO of Lululemon, Day was senior vice president of Starbucks (NASDAQ: SBUX ) and the president of its rapidly growing Asia Pacific operations. In my opinion, she was the perfect choice for Lululemon to expand internationally, which was necessary for the stock to justify its trailing P/E ratio of nearly 70 back in 2010.
In her haste, however, Day lost control of the supply chain -- which led to the yoga pants fiasco.
Potdevin, by comparison, has some experience expanding internationally -- he ran 226 TOMS stores in North America, Australia, and New Zealand. But that limited experience still pales in comparison to Day's achievements at Starbucks and Lululemon, so I have doubts that Potdevin will fare any better at controlling Lululemon's supply chain than Day.
However, change could be good for Lululemon. Founder Chip Wilson has now resigned from his role as non-executive chairman, hopefully clearing the way for Potdevin to get the company back on track without (hopefully) having to worry about any more negative publicity.
Abercrombie & Fitch's 68-year old 'cool kid' keeps his job
Last but not least, we should discuss Mike Jeffries, the CEO of fading apparel retailer Abercrombie & Fitch.
Like Lululemon's Wilson, Jeffries' mouth has gotten him into trouble. In 2006, he remarked that his clothes were only for "the cool kids," or more specifically, the "all-American kid with a great attitude and a lot of friends." He also stated that Abercrombie was an "exclusionary" brand, which wasn't meant to fit a lot of people.
Many people interpreted Jeffries' comments as elitist and abusive toward overweight people. On the contrary, I believe that Jeffries was merely relying on the classic "snob appeal" sales strategy that A&F has used since its rebirth in the 1990s. His big miscalculation, however, was that Abercrombie & Fitch is simply not a luxury brand like Cartier, Chanel, or Louis Vuitton -- its main customers are teens and young adults.
While controversial comments probably don't warrant a dismissal, the 30% year-to-date decline of A&F stock is alarming.
Last quarter, Abercrombie's revenue fell 12% year-over-year, it failed to post a profit, and it posted a same-store sales decline of 14%. By comparison, Gap's (NYSE: GPS ) revenue rose 2.9%, its profit climbed 9.4%, and its same-store sales rose 1%. Clearly, A&F's problems are more micro than macro related.
Based on these facts, some of A&F's shareholders have pushed for Jeffries' resignation. Unfortunately, that didn't happen -- the company's board recently signed him to a new $1.5 million per year salary with a $4.5 million signing bonus, as well as a $200,000 budget for a private jet.
In my opinion, the 68-year old Jeffries is a classic example of a CEO who has overstayed his welcome. Although he was instrumental in the brand's past success, the company needs a younger, fresher leader who can deal with threats from cheaper, more agile competitors such as H&M and Forever 21.
The bottom line
Hiring an effective CEO is tough. Founders, insiders, and outsiders all have their distinct advantages and disadvantages.
Starbucks' founder and CEO Howard Schultz is a perfect example of a founder who understands his company inside and out. McDonald's (NYSE: MCD ) former CEO Jim Skinner, who rose from an entry-level restaurant position to become one of the company's most successful CEOs, demonstrates the advantages of hiring an insider. Meanwhile, Yahoo!'s Marissa Mayer is a shining example of hiring an outsider to turn a company upside down to spur growth.
What are your opinions about the leadership at General Motors, Lululemon, and Abercrombie & Fitch? Let me know in the comments section below!
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