The Rest of the Fallen

Heads rolled over bungled launches, loose accounting, and soured deals

He had the right name, but Christopher B. Galvin never could come up with the right formula to spark growth at Motorola Inc., the electronics giant his grandfather founded 75 years ago. During his seven-year tenure, Motorola (MOT ) lost ground to Nokia Corp. (NOK ) in its flagship cell-phone business, watched much of its wireless-networking gear become irrelevant, and saw its chip unit battered by industrywide slumps. The cerebral, 53-year-old Galvin blamed outside influences: a lackluster economy, the telecom spending spiral, and SARS. But in the end, he turned in his walking papers on Sept. 17 when he realized he would never see eye to eye with the board on how to create a more nimble, innovative company.

Groomed for the top, Betsy D. Holden saw a series of business and personnel gaffes doom her chance to become the lone big cheese at Kraft Foods Inc. Holden, 48, lost her job as co-CEO and head of Kraft's U.S. business on Dec. 16, but remains at the company in an unspecified position. On her watch, the world's largest food company bungled two U.S. product launches, made several pricing mistakes, and was slow to respond to fatty food concerns, all of which led to market share declines in Kraft's flagship U.S. businesses. The departure of three talented managers undermined confidence in her leadership ability. And sluggish U.S. sales helped send Kraft's stock skidding to just above its June, 2001, initial public offering price of $31.

For 16 years, Leland C. Brendsel gave Freddie Mac (FRE ) shareholders exactly what they wanted: smooth, steady earnings growth. Brendsel, 61, took the home mortgage giant public in 1989 and tripled its size every three years in the 1990s. But in June, Freddie's steady growth proved to be Brendsel's undoing. New auditors, brought in after Arthur Andersen's collapse, discovered that earnings had been manipulated to smooth out spurts and lulls in growth, and that Freddie had mucked up the accounting for more than $260 billion in securities. In the wake of Brendsel's resignation on June 9, Freddie restated $5 billion in earnings and agreed to pay a $125 million penalty for the accounting breakdown. Regulators want Brendsel to cough up $34 million in penalties, while Congress is debating tougher rules for Freddie Mac and Fannie Mae. Pleasing shareholders has seldom cost so much.

Candice Bergen may have been Sprint Corp.'s (FON ) public persona, but for more than two decades CEO William T. Esrey was the driving force inside the company. A former investment banker with a love of technol-ogy, the 63-year-old Esrey pushed Sprint to the cutting edge. But on Feb. 2, Sprint booted its longtime leader for his use of a question- able tax shelter to shield more than $100 million in stock option gains. Esrey says he was an unwitting participant, poorly advised by accountants Ernst & Young LLP. But in an era when too many CEOs have come under fire for playing fast and loose with the numbers, Sprint's board couldn't let Esrey slide.

During his six years at the helm of Delta Air Lines Inc., (DAL ) Leo F. Mullin, 60, kept the company out of bankruptcy and built up the strongest balance sheet in the industry, with more than $2 billion in cash. But that cash hoard won't last long if Delta can't persuade the pilots to accept significant pay cuts. When the pilots learned that Mullin had quietly guaranteed his top 33 executives $45 million in pensions if the airline went bankrupt, the negotiations broke down. That's why he's stepping aside on Jan. 12.

He's not alone either. American Airlines Inc. (AMR ) CEO Donald J. Carty resigned in April, after the airline's unions learned that it had agreed to pay top execs hefty retention bonuses and spend $40 million to protect the pensions of senior managers in event of bankruptcy. Carty, 57, had convinced the unions to accept $1.6 billion in concessions on the premise the airline was broke. The unions extracted one last bonus for sticking to the deal: Carty had to walk the plank.

In recent years, Mikhail B. Khodorkovsky, the onetime bad boy of Russian business, seemed to have turned over a new leaf. The richest and most successful of Russia's "oligarchs," Khodorkovsky had Western investors flocking to buy shares in Yukos, the oil company he managed and largely owned. And in recent weeks, Exxon-Mobil Corp. (XOM ) has signaled its interest in buying a multi-billion dollar stake in the Russian company. So it came as a shock when, on Oct. 25, Khodorkovsky, 40, was arrested on charges of defrauding the state of more than $1 billion between 1994 and 2000. He denies any wrongdoing. If convicted, he could face 10 years in jail.

For Richard H. "Dick" Brown, Mar. 20 marked the end of an impressive run of corporate turnarounds. Six months after shocking investors by missing third-quarter earnings estimates by 80% and failing to disclose a $225 million payment in connection with a failed derivative strategy, Brown, 56, resigned as chief executive of Electronic Data Systems Corp. (EDS )

He was a farm boy who transformed a family prosciutto business in Italy into one of the world's biggest dairy groups. But now the 65-year-old Calisto Tanzi, the former chairman and CEO of Parmalat, is at the center of a scandal that's already being compared with Enron and WorldCom. On Dec. 19, four days after Tanzi resigned under pressure, Parmalat admitted a $4.9 billion bank account it had claimed a subsidiary held did not exist. Now Italian prosecutors estimate the missing funds to be between $8 billion and $12 billion. On the day Parmalat was declared bankrupt, Dec. 27, Tanzi was arrested on suspicion of fraud, false accounting, and destruction of evidence, though formal charges have not been filed. Parmalat's ex-CFO and at least 20 others are also under investigation. Like Tanzi, Cees van der Hoeven wanted to turn his company, a little-known Dutch grocery group, into a global champion. Instead, as CEO of Zandaam-based Royal Ahold, he presided over a world-class corporate accounting debacle before being forced to resign last February. During a decade at the helm, van der Hoeven spent $19 billion on acquisitions to transform Ahold into a $65 billion-a-year company whose holdings include the Giant Food Stores and Stop & Shop grocery chains in the U.S. By last year, Ahold had pulled nearly even with France's Carrefour, the global No. 2 behind Wal-Mart Stores Inc. But now it appears that at least one of van der Hoeven's big purchases was rotten. Ahold has acknowledged that from 2000 to 2002, it overstated earnings by $1.2 billion, largely because of inflated sales figures at U.S. Foodservice Inc., a distribution company it acquired in 2000. With criminal and civil investigations still under way in the U.S. and Holland, van der Hoeven's role in the alleged improprieties still isn't clear. But Ahold's widely held shares lost half their value in 2003. And the company van der Hoeven built is being dismantled. The new CEO, Anders Moberg, is selling off stores in Eastern Europe and Latin America and is expected to seek a buyer for U.S. Foodservice.

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