Groupon founder Andrew Mason was fired today by his board of directors
In a letter to his former employees Mason informed his employees that he was fired by the board of directors based on the company lack of performance.
It seems that in today’s quarterly driven organizations, some boards are doing their job and even being the founder does not guarantees anyone their jobs and salaries. Groupon board of directors today announced their decision to fire their founder after another set of disappointing quarterly results, and a 20% stock drop. Considering this development many entrepreneurs can ask themselves if taking the risk of launching your own company is worth the aggravations, if at the end some of them won’t even have the ability to remain at the helm of the companies they help create and launch.
What I can’t understand is why this is such an isolated incident, or why other boards do not seem to follow this example on their deals with their current CEOs. Sadly for investors Groupon is not the only company with quarterly, yearly, and even decade long stock results, without any consequences for their CXO’s and executive team members. It seems that some executives have mastered the art of public speaking and recurrent company layoffs, while avoiding the consequences of the basic “pay-for-performance” principles they like to promote at their employee and stockholder meetings.
One of the best examples of the IT industry companies at forefront of the “pay for lack of performance” bandwagon is Cisco Systems.
Once the bellwether of the multinational IT networking industry the company is barely a shadow of its former glory. The company stock reached the low $80’s during the first quarter of the year 2000, but has since then dropped to below the 20’s on an average for the last 12 years (stock currently stands at $20.86 on Feb 28, 2013, or about a 75% loss not counting for inflation). During the same 12 years the company executive team has fired over 15,000 employees, reduced benefits, and devalued their stock to the point where employees don’t even bother about it anymore.
While this was happening, Chambers and the rest of the executive team have cashed in over $100 million dollars in addition to their multimillion dollar salaries and bonuses. Just during the last 12 months eight Cisco insiders cashed in over $9 million dollars in company stock (or a little over one million each) in addition to any other compensation they may be already receiving.
Cisco’s Insider Transactions for 2012
Should executive compensation be directly related to the value created?
I agree that nobody should be against properly compensating executives, employees and shareholders for their contributions to the company grow. At the same time we can ask ourselves what compensation should be received by individuals who have contributed to the loss of over 75% of the value of a company in the last 12 years?
It seems that Cisco’s board of directors either does not have an idea of the basic principle business (Return On Investment) or they are somehow being compensated for NOT looking for the company shareholders best interest. It may also seem that after today’s news, they better start carefully reviewing their roles, or they may see themselves being carefully scrutinized by the shareholders, and even potentially by the FTC since they seem to be failing on their role as the shareholders advocates.
I must applaud Groupon’s board of directors for their difficult decision to oust their founder, and Andrew’s Mason recognition of the reasons that caused that decision. On the other hand I must question why boards of companies such as Cisco have not acted even after it is clear that the current executive team has not been able to actually create any shareholder value in over 12 years.
So if you are a Cisco stockholder (employees, customers, and shareholders) .
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- Groupon fires founder, CEO Andrew Mason (cbsnews.com)
- Groupon Replacing CEO Andrew Mason (fool.com)
- Groupon Ousts Founder Andrew Mason | Inc.com.