CEO Gaffe of the Week: Energy Conversion Devices
Feb 17th 2012 10:24PM
Updated Feb 17th 2012 10:26PM
Last month, I introduced a new weekly series, "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the Worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week I want to highlight the recently bankrupt Energy Conversion Devices (NAS: ENER) and the myriad of leaders it has had over the past few months, including former CEO Mark Morelli, interim CEO Jay Knoll, and now permanent CEO Julian Hawkins.
The dunce cap
You know this is going to be a doozy of a story if the company's bankruptcy isn't even the actual gaffe.
Energy Conversion, a manufacturer of thin-film solar panels that are lighter than traditional solar panels made from polysilicon, shut down its solar plants despite a huge build-up in its inventory in November. Although lighter, the company's thin-film panels didn't have nearly the same efficiency at converting light to electricity as did those of its Chinese rivals Yingli Green Energy (NYS: YGE) and Trina Solar (NYS: TSL) while costing significantly more -- and that's a problem.
It was such a problem that Energy Conversion specialized in converting cash into losses over the past two years and in seven of the past 10 years. Fiscal 2011 losses totaled $306 million, and losses in 2010 were a brisk $475 million. Revenue in these years amounted to only $233 million and $254 million, respectively. Under CEO Mark Morelli's leadership, Energy Conversion managed to take operating margin from a double-digit negative figure to a triple-digit negative figure. I'm not sure shareholders were all too sad to see him leave.
His interim replacement, Jay Knoll, got special mention in December for releasing a statement that his company had "elected to defer payment of the interest" on a 2013 convertible bond. The press release went on to say that Energy Conversion Devices was "not currently experiencing significant liquidity constraints," but instead attempting "a successful repositioning of its solar business." One month later the company did indeed make good on that bond payment ... only to file for bankruptcy just weeks later.
You might think Julian Hawkins gets an unfair mention here after inheriting a dire situation. But don't feel too bad -- Mr. Hawkins chose to sell the company's rechargeable battery division for $58 million to BASF (OTC: BASFY) on Monday, just one day before filing for bankruptcy. Why, you ask? Because the company hadn't secured funding to keep its operations running, which is odd since a company filing for bankruptcy usually has a financial backing plan in place prior to filing. Energy Conversion said it would run its operations using its remaining cash balance.
To the corner, all of you
But wait - there's more!
What about those poor souls working for Energy Conversion Devices? As is the case with many bankruptcies, they have been left twisting in the wind. The company has to seek out approval from the Michigan bankruptcy court just to pay its employees, all while it burns the cash from the sale of its battery division.
Perhaps the best comments came from Michael Schostak, director of business development at Energy Conversion Devices. He noted, following the company's bankruptcy filing, that "[w]e've been around 51 years and are one of the most experienced solar companies in the world." Apparently experience doesn't translate into bottom-line profits -- a five-year-old can tell you that if your product costs more and yet isn't as good as another product, it's going to fail.
Am I surprised there are no bidders for Energy Conversion's solar business? Not one bit. Perhaps it should consider knocking on the U.S. Government's door -- I've heard they fancy a solar investment now and then. (Oh, wait ... ECD was already denied an Energy Department stimulus loan by Uncle Sam. Never mind.)
So-lar, farewell, goodbye, and good riddance, Energy Conversion Devices -- don't let the door hit you on the way out.
Do you have a CEO you'd like to nominate for this dubious weekly gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.
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