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Harsh Realm: Meg Whitman and the CEO Myth

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Billionaire Republican Meg Whitman, still trying to gain traction in her bid to beat Jerry Brown and succeed Arnold Schwarzenegger as California's governor despite already having smashed all non-presidential campaign spending records in American history, rests her campaign on her reputation as a corporate CEO. Since she didn't bother to vote and was never involved in public affairs before deciding to start as governor of a state she moved to in the late '90s, it's all she has. Absent that, she is nothing more than an assertion of ambition and creation of paid advertising.

Californians have been inundated with ads since last fall extolling Whitman's purported expertise as the former CEO of eBay, the online auction company, and other business credentials. With her negative ads coming up short against Brown, Whitman relaunched her imagineering efforts anew ... with a TV ad telling us she did a great job at eBay.

Billionaire Meg Whitman is, once again, trying to sell herself as potential governor of California by saying she was a great corporate CEO.

But did she, really? Or did she actually do what she claims politicians do, i.e., disastrously expand into areas she knew nothing about, jack up overhead, take far more in personal pay and perks, and repeatedly hike fees (read: taxes) on eBay sellers?

Let's look at what Whitman did with her earlier harsh realm. ("Harsh Realm" being inspired, of course, by Whitman's married name of Mrs. Harsh and her constant depiction by the California Nurses Association as Queen Meg, as well as the short-lived series from X-Files creator Chris Carter.)

Some business magazines have said that Whitman was a great CEO. But business magazines have been notorious for their lavish praise of CEO culture and lifestyle, and for anointing executives who turned out to be terrible. It's part of the myth of the CEO in politics, that a tough corporate manager is what is needed for a good governor or president.

Though Whitman, notorious for her temper at eBay -- and a reported $200,000 settlement of charges after shoving an employee -- has the tough part down, the reality is that corporate CEOs seldom work out as governmental leaders.

But how good, really, was Whitman in her two CEO jobs, at eBay and FTD?

The record is far more mixed than the endless commercials claim, and in her final years at the mature eBay was quite poor.

For starters, Whitman never talks about her brief stint at the helm of FTD, the nation's leading floral delivery service. That's because it didn't go well at all, ending not long after she was forced to settle an age discrimination suit.

This ad from California Working Families points out the gross inaccuracies in Whitman's major attack ad against Jerry Brown, which has been panned as dishonest by independent media outlets such as the highly regarded factcheck.org

What about the CEO job everyone has heard about, in endless TV and radio ads, not to mention millions of dollars in direct mail and Internet advertising?

Well, like her other CEO job, the one at the floral delivery company, Whitman exited her job at the online auction house not long after expensively settling charges against her, in the aforementioned shoving incident. That's the one in which she grew infuriated with a PR woman who was trying to prepare her for a wire service interview about online avatars, lightweight stuff compared to most anything, much less what a governor of California has to deal with.

But before her now clearly ignominious fade-out at eBay (Whitman successfully hid the shoving incident and expensive settlement until the New York Times revealed it earlier this year), Whitman had a great run followed by a disastrous run.

We have all heard about the great run, eBay built from a small company when she arrived -- contrary to what many imply on her behalf -- eBay was not her idea, she didn't start the company, and it was already on the road to success when she arrived, which is how they were able to pay her well in the first place.

eBay grew with the dot-com boom of the late 1990s and early part of the last decade. Unlike most dot-com companies, it stuck around. After all, it had a very logical niche, that of providing a platform for people to sell their things on the Internet. It didn't create products, it provided a stable marketplace.

What eBay had needed in its growth phase was an experienced corporate marketer to manage things, to make it the main online place for folks to sell their stuff. And in Meg Whitman, that's exactly what eBay got.

But once the dot-com wave had washed over the country, with Internet use firmly established as a fundamental key to life in an advanced industrial society, things did not go nearly so well.

There are some very inconvenient facts about Whitman's eBay leadership the last few years before she left the building, while, ironically, some business magazines were touting her as a great corporate executive.

Whitman really doesn't like to talk about her last three years as eBay's CEO. (She formally exited in 2008, becoming national co-chair of John McCain's presidential campaign against Barack Obama in early spring, but was mostly out the door in late 2007, already the national finance co-chair of Mitt Romney's presidential campaign and actively exploring a gubernatorial campaign.)

In 2005, 2006, and 2007, eBay lost nearly half its value. Whitman, eager to keep growing eBay's revenues, thus making herself the head of a bigger company, made a number of bad acquisitions and strategic decisions.

Whitman's purchase of Skype, the Internet telephony service, and her move into China were outright debacles.

Here's Whitman's thoroughly dishonest, and thoroughly panned, attack ad against Brown. Even the "newspaper headlines" are fake.

But eBay maintained revenue growth through these acquisitions. And by hiking fees on eBay sellers -- the real entrepreneurs in the eBay story, without whom there is no story at all -- a half-dozen times.

Let's see, doesn't that sound exactly like Whitman's criticism of state government? Always expanding into areas beyond its core competence, and always raising taxes?

Why, yes, it does.

According to investment banker and columnist Eric Jackson, writing in TheStreet.com on September 30, 2009: "Whitman promoted a drunken-sailor approach to acquisitions, always overpaying and making little effort to stitch them together. A culmination was the $4.1 billion purchase of Skype in 2005 (including all payouts), in which she took an auction and e-commerce site into the phone business. Potentially more damaging in the long-run for eBay than overpaying was that Whitman didn't get the intellectual property associated with Skype. This has allowed Skype's founders to now come back and sue eBay for trying to unload the property recently at a valuation of $2.75 billion."

As other observers have noted, Whitman's personal compensation increased dramatically while eBay's market value tanked and eBay sellers were charged more.

"Based on my review of the company's SEC proxy filings," wrote Jackson, "it appears that there were two big clues for investors that suggested, between 2005 and 2008, Whitman's interest had drifted away from increasing the stock price of eBay to increasing her cash compensation and perks. Had anyone seen these clues -- and, interestingly, perhaps Skoll did as he liquidated his entire eBay stake in 2006 -- they might have pulled the ripcord on owning the stock in 2006 or 2007 when it was trading at $35, before the bottom fell out in the stock and it hit its nadir below $10 this past March. The first big clue that Whitman's eye was no longer on the ball as CEO had to do with her total annual compensation spiking in the last two full years of her tenure, even as eBay's stock price continued to decline. Peaking at $58 at the start of 2005, eBay's stock price dropped 43% over the next three years. Over that same period, Whitman's total annual compensation almost quintupled to $13.9 million from $2.9 million."

In addition to paying herself a lot more while the company did a lot worse, Whitman developed a great love for private jets. In fact, few if any Silicon Valley executives rivaled Whitman in private jet usage.

"The second big clue that Whitman," as Jackson notes, "was no longer as focused on eBay's fortunes in her final four years as CEO was the amount of time she spent flying around the world on personal business in eBay's corporate jet, which was paid for by eBay shareholders. As the chart below illustrates, eBay's compensation committee (again perhaps indirectly linked to Tierney's arrival) went from a practice of not granting Whitman any personal air travel on the corporate jet paid by the shareholders to almost $1 million a year in her final two full years on the job. That $1 million includes tax gross-ups, meaning shareholders also paid Whitman's taxes on the benefit she received of making all those flights instead of the billionaire paying her taxes herself. These two years of lavish perks coincided with a time when eBay's stock dropped 22%, even though Nasdaq was up 17% in the same period."

So how's Whitman's latest venture, the proposed acquisition of the governorship of California, going? Well, it certainly has all the hallmarks of her late eBay tenure -- massive spending, huge overhead, and a candidate who views the folks below her from 30,000 feet.

As I've been writing and saying since the June 8th primary, she is gaining remarkably little traction for all her massive campaign spending, now well north of $110 million, making hers the biggest spending non-presidential campaign in American history.

Her plan was to be as much as 15 points ahead of Jerry Brown by this point, hopefully far enough ahead to prevent Brown from mounting a post-Labor Day comeback. Whitman has been spending a few million per week on advertising, while Brown has spent nothing.

But the McCain/Palin national campaign co-chair hasn't gotten that huge lead she and her strategists believed she needed, and would get during this period between the primary and the start of Labor Day weekend. In fact, she has no lead at all. In fact, she is very slightly behind Brown.

So earlier this month, she tried to reboot her image by running a positive TV ad telling people she was the great CEO of eBay. It's an old message. She's already runs countless ads around the state telling people this. Everyone she knows she was at eBay, which, after all, is not a company that cured cancer, invented the Internet, or won a war. But I did get a very nice second-hand jacket on it, as well as some long-sought CDs.

Besides trying to restart her advertising campaign, Whitman's troops are trying to downplay her incredible spending, most of it from her stock market-derived personal fortune. (Her old friends at Goldman Sachs, where she served so controversially on the board, helped her out with favorable stock analyses back in the day when she was cashing in shares to form her fortune.)

Whitman's highly-paid minions are saying her record-shattering spending makes her independent, while Brown will be totally beholden to unions providing the bulk of funds for independent expenditure (IE) outfits like California Working Families and Working Californians.

Which the on the one hand/on the other hand drones of Post-Press Era journalism dutifully report.

The reality, however, is that Whitman is heavily outspending these operations. And when Brown himself goes on the air, he will outspend their efforts as well.

So while the IE efforts are helpful to Brown, they will end up as the minority of spending on his behalf.

California Attorney General Jerry Brown is investigating the mystery of how city officials in tiny Bell, California, came to pay themselves such exorbitant amounts of money.

Indeed, what is actually quite striking about this is that, while the IEs were dark for a few weeks on English-language television, Whitman's unfavorables continued to rise. This was noted in both Democratic and Republican private polling, with a prominent GOP consultant marveling to me last week about how Whitman is suffering under the weight of her own efforts.

The other area where Whitman seeks to turn a negative into a plus is in the matter of the wildly overcompensated local elected officials of the tiny LA area city of Bell.

With the story broken by the LA Times, Brown has been all over it as California's attorney general, earning publicity in the process that Whitman can only dream of.

So he campaign has taken to the false charge of claiming that Brown presided over a Bell of his own in Oakland. In reality, a number of firefighters became highly-paid during his tenure there. There is nothing on the scale of Bell, as Whitman undoubtedly knows.

Worse for Whitman, Brown last week trumped her criticism of him by forming a joint investigation of Bell with LA County District Attorney Steve Cooley.

Cooley is not only a Republican; he's the Republican nominee for state attorney general. The fact that a member of Whitman's supposed ticket is working closely with Brown on the issue will make it very hard for her to criticize the wily Brown, who has very good relationships with most of the state's prosecutors and law enforcement officials.

You can check things during the day on my site, New West Notes ... www.newwestnotes.com.