The Harvard Business Review article "Blockbuster's Former CEO on Sparring with an Activist Shareholder" by John Antioco describes his own, first hand, challenging journey of being Chief Executive Officer (CEO) at the Blockbuster Corporation.
Antioco resents the fact that Carl Icahn, well known investor, decided in 2005 to buy 10 million shares of stock in Blockbuster to gain control of the corporation. "Expectations of failure were hovering over the company even before I joined in 1997. Most outsiders were convinced that our bricks-and-mortar video retail business would be killed off by market shifts and technological advances," wrote Antioco (Harvard Business Review, p. 39). The primary hypothesis is that Icahn's personal investment interests and greed and selfishness led to the downfall of Blockbuster.
What made Antioco's life hell were Carl Icahn's aggressive and micromanaging tactics in controlling Blockbuster and his willingness to include two additional board members that would do his bidding and support his ideas, not Antioco. When Boards decide to take control of an institution and undermine the CEO, they will most likely fail.
Antioco further writes that "when directors with preconceived notions are determined to serve as obstacles to management's plans, it's hard to find a formula for success. Three years after my departure as CEO, Blockbuster declared bankruptcy" (Harvard Business Review, p. 40). Antioco had extensive experience in turning around businesses that were failing and making them into success and profitable entities. He had management and leadership experience that he obtained in his 20 years of being a top manager at 7-Eleven, he was CEO at Circle K, and PepsiCo hired him as CEO of Taco Bell. Antioco proved to be an effective leader since he did listen to the senior managers and they implemented a new strategy that helped to make Taco Bell a powerhouse in the fast food industry.
Antioco shares a lesson with his readers that you do need to take into account the ideas of your staff and that you have to protect your staff when you are a CEO. Carl Icahn's role and experience in life was being an "activist shareholder" which means that he buys thousands of shares in different corporations and then pulls out his investment to make monumental profits. Icahn could care less if people were laid off or fired in order to save costs. What he really cared about was making money and this case study does illustrate that Antioco's leadership was undermined and questioned by Icahn, who ultimately wanted Antioco to resign, along with other Board members.
Also, changes in technology and the introduction of the DVD did not particularly help Blockbuster to remain competitive. Netflix was ahead of the curve by allowing customers to obtain movies by mail. Antioco was trying to keep Blockbuster financially stable by eliminating late fees of video rentals. "Those moves put Blockbuster back into growth mode" (Harvard Business Review, p. 41). This was a wonderful idea but Icahn and the majority of the Board of Directors did not agree with the elimination of late fees and they wanted them to be brought back. This created further tensions. Especially when Antioco wanted to "spend $200 million to launch Blockbuster Online and another $200 million to eliminate late fees" (Harvard Business Review, p. 42).
These two moves really angered Icahn and he began writing letters to the shareholders to make Antioco look bad and to obtain full control of the company.
"Carl Icahn and his two chosen directors were now on our board of eight. Even though he lacked a majority, sheer force of will gave him a lot of power. Since it could be a formidable task, after a while the other directors were disinclined to pick a fight with him. So within a few months he effectively controlled the board" (Harvard Business Review, p. 42).
Antioco describes how Icahn did not follow protocol in the Board meetings. He spoke his mind and interrupted anyone whenever he wanted. "Having contentious directors was a nightmare; as management, we spent much of our time justifying everything we did" (Harvard Business Review, p. 43). Since Icahn now fully controlled the Board, he would question everything and opposed a lot of the ideas from management, along with the Board members that he had recruited to back him up.
Antioco was also partially to blame since he already received a monumental salary in the tens of millions. Plus he wanted to obtain a lofty bonus through executive compensation. The Board refused. This was the issue that broke the camel's back. Antioco negotiated to leave the company and he stated "we finally agreed that I'd leave the company in July 2007 and would be paid a negotiated bonus plus an exit package. The board environment had become very frustrating and stressful, but instead of resigning and walking away with nothing, I had cut a deal giving me a major portion of the pay I was entitled to" (Harvard Business Review, p. 43).
The Board did choose a new CEO named Jim Keyes, to run Blockbuster. He had great retail experience but he did not have technology marketing experience to help Blockbuster survive the changing times. On September 23, 2010 Blockbuster filed for bankruptcy.
Eventually Antioco cashed out his stocks that he had in Blockbuster and invested in the competition, Netflix.
Many lessons can be deducted from this article review. Antioco was driven by greed and promoted hedge funds. He knew how to pressure to make corporations make profits, increasing the value of shares. The ultimate lesson here is that profits is what drives investors like Icahn and CEO's like Antioco are compensated heftily, while the employees make minimum wage and many times are kept as part timers, in order to avoid providing health care coverage to them.
It is a tragedy that Blockbuster stores are going out of business due to the mismanagement of people like Icahn. Now thousands of people are unemployed and we no longer can continue the tradition of going to Blockbuster videos to rent our favorite movies, to see by ourselves or with our families.
Boards of Directors can definitely make major mistakes and CEO's are ultimately the ones to blame. Antioco is definitely courageous by writing this article in the Harvard Business Review. I applaud his honesty and courage to tell us some of the truth of what led to Blockbuster's fall. Further research can be done to also support how other corporations have fallen due to the personal interests of Board of Directors in making profits for themselves.