Some companies have had management problems for so long that it makes you wonder how they have managed to survive to this day. Others that are household names can fly under the radar and become hardly noticeable. However, all the following companies with bad management should be keenly observes for signs of further deterioration, especially if any of these companies happens to be in your portfolio.
Companies with Management Red Flags
- Hewlett-Packard: This former icon of the tech industry used to boast of products that meant that H-P anything was a symbol of high quality. However, for the past decade, the company has seemed to be in a perennial state of turmoil, starting with a dysfunctional Board of Directors. A string of questionable strategic and personnel decisions has led to a third CEO within two years, a veritable corner office revolving door. With debt to equity ratio of 0.80 as of the end of 2011, any major misstep by current CEO Meg Whitman could spell a major and possibly unrecoverable disaster. The stock has lost 40% in the past year.
- Caterpillar: After retiring in 2010, former CEO James Owens still received $22.5 Million in compensation, four times the median compensation of the company’s seven other top executives. Half of the 8 Board Directors are over 70, making the matter of succession imperative. Analysts have questioned the valuation of the company’s assets and liabilities, at the same time pointing out the lower level of liquidity and higher leverage. The debt to equity ratio is 2.39 and the current ratio is 1.39.
- Wells Fargo: The base salary of CEO John Stumpf is among the 10 highest of S & P 500 CEO pay, his annual incentive pay is not capped, and does not have any pre determined target range. Analysts have noted the recent high activity in divestitures, mergers, and restructurings.
- Constellation Brands: The Sands family dominates this company with its 55% voting power. Executive stock options are tied to the stock price alone and do not reflect management performance. High inventory ratios, accounts payables and seemingly doctored sales numbers have suggested questionable accounting practices.
- SandRidge Energy: Here again, executive pay is not tied to performance, and a number of related party transactions have raised eyebrows. A steady string of divestitures also raise the risk level, whereas a sudden jump in revenues along with expenses raises accounting issues.
In most of these companies with management red flags, the main issues are executive pay suggesting internal dealings that have nothing to do with shareholder value, as well as accounting gimmicks.