Tim Armstrong, AOL CEO
image via wikimedia commons

Once upon a time, Tim Armstrong was President of Google’s Americas operations. He was an idea generator in a complex machine with endless resources and competent executives who balanced each other out. He had a reputation for rallying the troops with coach-style pep talks, like something out of a football movie. Now,  Tim Armstrong has spent five years as AOL’s CEO, bragging about his steadily increasing profit. But as MF points out – revenue, cash flow, and earnings are actually down 30-66%. He’s burned through more than a dozen C-suite level executives in the last 4 years.He’s sold off patents, dumped $500 million into Patch (a now-failed local news service he co-founded and had AOL purchase after he became CEO), and committed some of the most consistently embarrassing and insensitive PR gaffes in corporate history. The worst of these fiascos happened as AOL announced sweeping changes to employee retirement plan, and Armstrong apparently invited his foot to take up permanent residence in his mouth.

In case you missed it, Armstrong decided to change how AOL paid their contribution to employees’ retirement funds to save AOL money. You can read more about it  via The Atlantic here.
Most of their employees found out when the information leaked to the Washington Post. Then Armstrong went on CNBC to explain the change – before bothering to talk to his employees about it. And THEN Armstrong held a conference call where he informed employees that the change had to be made because they had $7.1 million in Obamacare expenses (a number that industry analysts can’t fathom and Armstrong hasn’t bothered to explain). And then said that two AOL employees’ special needs newborns factored into the decision:

“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.”

Employees were shocked – especially because everyone knew who he was talking about. One of those babies’ fathers was sitting at his desk, listening to his boss blame his baby girl – born four months early! – for scaling back employee benefits. As his wife, Deanna Fei, explained in a brilliant piece for Slate

” … 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’s also a good chance that Armstrong violated HIPAA regulations, which dictate what information employers and insurance companies can and cannot share openly.

The media exploded. Employees raged. And Armstrong? He tried to calm the storm by sending out a memo. His obliviousness and obvious self-concern only made their anger worse, and the memo completely backfired. This weekend, Armstrong was forced to apologize for his insensitivity AND reinstate AOL’s original retirement program.

It was a classic example of how mismanaging a crisis causes a secondary crisis. They’re the most dangerous kind of crisis, because they’re what happen when you’re under the illusion that you’ve handled a crisis well. They’re always triggered by something you did – or didn’t do – when you tried to manage the original crisis. In Armstrong’s case, it was just the latest in a long chain of crises he keeps triggering. Tomorrow’s crises come from yesterday’s solutions.

Here is what Armstrong said – and what his employees and the public heard.

Honest Press Releases:

Tim Armstrong & The Distressed Babies Edition


AOLers –
As we discussed at the town hall, we care about you and the company – a lot.

As you could tell from my monologue this morning, I’m really embarrassed by the total failure of my vision for AOL and how mad our shareholders are at me.

This morning, I discussed the increases we and many other companies are seeing in healthcare costs.

This morning, I tried to convince you all that we had to make cuts because AOL can’t afford to pay for both your healthcare and your retirement. I really hope none of you journalists saw that big interview I just did where I bragged about our “Olympian” growth and double-digit profit increases. Or heard about the $8 million dollar raise I got this year.

In that context, I mentioned high-risk pregnancy as just one of many examples of how our company supports families when they are in need.

With that goal in mind, I singled out two employees for having sick babies that cost AOL a lot of money. I know nothing about them other than that they were the biggest expenses we had and AOL didn’t pre-approve or budget for those births. But don’t worry guys: we totally paid their medical bills anyway. Wasn’t that super nice of us?

We will continue supporting members of the AOL family.

We’ll keep paying for silly things like your flu shots and chemotherapy and life support because we’re super nice like that. Please think I’m nice. I’ve always been the Likable Executive and it’s really important to me that you like me. It’s also important you don’t known that I think your benefits are a money drain that provide no immediate return on investment. And that I will use this attitude to justify exploiting every legal loophole we can find to keep you from cutting into our profits more than you already do.

We provide a wide range of benefits – including our 401k plan – and conduct open information sessions each Fall on all available benefits as well as any changes being made. We will continue to do that.

We’ll still have those tables set up in the cafeteria for a week every November with HR guys in polo shirts and the glossy brochures. We will continue grudgingly paying your medical bills and investing in your future because … laws … and contracts … and stuff. And we’ll do it ON TOP OF giving you free gyms and yoga classes and having free food in some break rooms. Give us some credit, you ungrateful sickos! That’s got to save you … what? $85 a month in gym fees? You’re WELCOME!

The spirit of the town hall and the spirit of how we choose benefits are the same – we want to be open and transparent about the choices we make and why we are making them.

The goal of my lecture was the same as the goal of the cutting benefits: to shift blame and avoid responsibility for dumping $500 million into my stupid Patch project. I know all of those executives and investors told me it wasn’t working three years ago… but I totally believed it was going to work and WHY IS EVERYONE BEING SO MEAN TO ME? BEING A CEO IS HARD, GUYS!!!

As I have said over and over again, our employees are our greatest asset. Let’s move forward together as a team. – TA

You’re making me feel responsible for my failures and like I’m completely out of touch! I don’t like feeling this way! Shut up, stop asking questions, and get back to work. -Your Boss Who Publicly Fires People

 A CEO’s job – any leader’s job, actually – is to take responsibility for where their organization is and be accountable to the people under them. But Armstrong seemed to think he only need to take responsibility for making the decision to change the retirement plan. Everything else he said put responsibility for the situation on others – publicly blaming Obama, babies, and sick people for the retirement cuts. Without acknowledging that he had made some serious mistakes that affected the company’s finances, Armstrong was passing the buck.

What’s more, his request to “move forward as a team” was insulting and hypocritical. He was telling his employees that they had to make sacrifices to their retirement funds to help the company without offering to make any personal sacrifices himself. He expected the employees to show loyalty to the company without offering loyalty to the employees. As Frank wrote last year, “Loyalty up comes from loyalty down.”

Note: You can read the first of our Honest Press Release series here: “How to Panic, Pass the Buck, and Alienate Customers: McDonald’s Style.

 

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.