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AOL’s Tim Armstrong is the Worst CEO of the Decade

Revenue has fallen almost 30%. Earnings per share have been cut in half. Free cash flow is two-thirds lower today than it was when Armstrong took the company public again.

What has AOL done under Armstrong’s leadership? Its three major moves were acquisitions. AOL bought Patch in 2009, TechCrunch in 2010, and Huffington Post in 2011.

Patch, Armstrong’s old company, which he co-founded before joining AOL — is now essentially gone, as AOL has sold most of it at fire-sale prices after sinking more than $300 million into the absurd notion that most people would really love to read all about the potluck dinner at the local firehouse or the cat that got stuck in a tree in the neighbor’s yard. Lesson learned? You can’t make money off “hyper-local” journalism, because hyper-local journalism doesn’t scale. Also, local news is pretty boring, which is why it doesn’t make money in the first place.

Traffic is also falling fast for the Huff Post and Tech Crunch since Aol bought them.

Now, Armstrong has somehow managed to top his executive blunders with a PR flub for the ages. It all began when The Washington Post reported on changes to AOL’s 401(k) plan, which now requires employees to remain “active” with the company past Dec. 31 to receive a one-time annual lump-sum matching payment relative to whatever they’ve contributed on their own. Most companies match with every paycheck, so this change effectively punishes anyone who doesn’t time an exit to coincide with the start of the new year. It also punishes anyone else who might want to gradually invest more in a rising market instead of dumping all of his or her money into something all at once.

Why did Armstrong and the management team make this change? Armstrong offered two answers. The first was “it’s Obamacare’s fault,” which in Armstrong-speak sounds like this when relayed to a CNBC interviewer: “As a CEO and as a management team, we have to decide: Do we pass the $7.1 million of Obamacare cost to our employees? Or do we try to eat as much of that as possible and cut benefits?”

Tim Armstrong made $12 million in 2012, in case you were wondering, a year in which AOL’s subscription revenues more than offset over $33 million in adjusted losses in the news-focused part of the company Armstrong has so diligently been building since 2009.

The second answer was “distressed babies,” a phrase that’s sure to become a business-world meme for its sheer boneheaded insensitivity. Here’s Armstrong again, talking to employees at a town-hall meeting about the benefits changes:

We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were OK in general, and those are the things that add up into our benefits cost. So when we had the final decision about what benefits to cut because of the increased health-care costs, we made the decision, and I made the decision, to basically change the 401(k) plan.

These comments created such a media firestorm that Armstrong has already backtracked on the 401(k) match policy change and publicly apologized, but that didn’t stop the mother of one “distressed baby” from going public in Slate. Deanna Fei, whose husband works for AOL, delivered her second child by emergency cesarean four months early, agrees that the costs for her daughter’s care could have conceivably soared into the seven figures, but (rightfully) has a big problem with being scapegoated for the benefits cut by a CEO who made more in one year than her family might in its lifetime:

I take issue with how he reduced my daughter to a “distressed baby” who cost the company too much money. How he blamed the saving of her life for his decision to scale back employee benefits. How he exposed the most searing experience of our lives, one that my husband and I still struggle to discuss with anyone but each other, for no other purpose than an absurd justification for corporate cost-cutting. …

There was nothing high-risk about my pregnancy. I never had a single risk factor for a preterm birth, let alone one as extreme as this one. Until the morning I woke up in labor, every exam indicated that our daughter was perfectly healthy. In other words, we experienced exactly the kind of unforeseeable, unpreventable medical crisis that any health plan is supposed to cover. Isn’t that the whole point of health insurance?

Read more at the Motley Fool


 

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