The Five Dumbest Things on Wall Street This Week

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The Five Dumbest Things on Wall Street This Year

Colin Barr

1. Serious Snooping

Hewlett-Packard's (HPQ Quote) spy games didn't turn out to be much fun for anyone.

This year it emerged that the Palo Alto, Calif., tech giant had been rummaging through employees' and journalists' phone records in hopes of ferreting out the source of boardroom news leaks.

The probe did eventually expose the leak: longtime director Jay Keyworth. But it also gave H-P -- once considered the Silicon Valley model of upright management -- a shiner that won't soon fade.

CEO Mark Hurd said he was sorry and promised not to make the same mistakes again. Keyworth quit after scoring an apology from Hurd. General counsel Ann Baskins and other execs left ahead of a congressional probe into the matter.

Former Chairman Patricia Dunn, who oversaw the internal inquiry, quit and left the board. Still, the new year could bring a state trial on felony identity theft and conspiracy charges.

"On behalf of Californians," state Attorney General Bill Lockyer said in October, "those who crossed the legal line must be held accountable."

But accountability, it seems, isn't Dunn's specialty. As she told Congress this fall, "I do not accept personal responsibility for what happened."

She may yet have to accept something far more onerous: hard time.

2. UnitedGreed

Longtime UnitedHealth (UNH Quote) CEO William McGuire didn't just lose his job this year. He also surrendered any shred of integrity.

McGuire, as fans have been quick to point out, took a struggling health insurer 15 years ago and turned it into a highly profitable industry leader. In the meantime, he used his job atop the Minnetonka, Minn., company as a pulpit to urge Americans to demand better and more efficient health care.

But McGuire's efforts on that front are likely to be forgotten now that he's been kicked out of UnitedHealth on account of his incredible greed. It came to light this spring that McGuire was sitting on some $1.6 billion worth of unexercised stock options -- a hoard that made a mockery of his claim to be looking out for society's less privileged.

What's more, it turned out that McGuire had overseen a company program that timed stock option grants to maximize holders' gains. And McGuire's manipulations didn't stop there. In September 1999, UnitedHealth announced McGuire and his right-hand man had signed long-term employment contracts. But an investigation found that those deals weren't finalized till almost three months later.

Lawyers probing the matter for UnitedHealth said McGuire told them he believes option grant dates "were selected without the benefit of hindsight." But, a report to UnitedHealth's board concluded, "certain facts run contrary to this assertion."

That seems to be a recurring theme with McGuire.

3. Failing Upward

You can't hold down Sprint's (S Quote) Gary Forsee.

Sprint has performed poorly since the big telco acquired wireless specialist Nextel. Rivals such as Verizon Wireless and Cingular have been ringing up huge subscriber gains, but Sprint's growth has slowed to a crawl as lucrative users flee. The company has repeatedly missed profit targets this year.

You might expect that if anyone were to take the hit for such a pathetic showing, it would be the CEO. But at Sprint, that has most certainly not been so.

In April, strategy chief Tom Kelly retired. In August, operating chief Len Lauer quit. In October, Chairman Tim Donahue set plans to retire early. Those departures left Forsee more or less alone in the executive suite.

Outmaneuvering his internal rivals isn't enough for Forsee, though. So this month, Sprint decided to promote him, too. Now he's both chairman and CEO.

"As Sprint Nextel moves forward, we are pleased that Gary Forsee will now lead the board," said lead independent Irvine O. Hockaday said Dec. 12. "Sprint Nextel has the assets, brands and strategic direction in place, and we are confident under Gary's leadership that the company's goals will be realized."

It's nice someone feels that way.

4. Mr. Fix-It

When it comes to defending shareholders' interests, Home Depot's (HD Quote) board is really nailing it.

Relational Investors -- a big San Diego-based fund that's known for lighting a fire under underperforming execs -- told Home Depot this month that it wants to discuss CEO Bob Nardelli's performance. Relational suggests creating a special committee to consider a restructuring or sale of the company.

It's not hard to see why big shareholders such as Relational might be annoyed. Home Depot shares remain stuck below their 2001 levels, as customer service deteriorates and growth stagnates. The company's stock has lagged far behind that of chief rival Lowe's (LOW Quote).

"We attribute this performance to deficient strategy, operations, capital allocation and governance," Relational principal Ralph V. Whitworth wrote in a letter to the board.

It's kind of hard to argue with him, given the board's lame reply. Home Depot agreed to a meeting but shrugged off talk of a strategic review, saying it just did one. And it reiterated its unfathomable support for the rotten Nardelli regime.

Nardelli isn't just overpaid, after all. He has continued to pinch pennies on his ugly, unfriendly stores -- while pouring billions into stock buybacks.

That might sound like a recipe for disaster, but Home Depot's board has its own name for the Nardelli plan, referring to it as a "balanced approach to capital allocation through business investments and cash returned to its shareholders."

A better, if less balanced, approach might involve finding a competent CEO.

5. Sinking Feeling

Wall Street hung up on Vonage (VG Quote) with gusto this year.

The Internet phone company made its public debut in May, raising $531 million in a much-discussed IPO. But once the market opened, the voyage turned stomach-churning.

Shares lost 13% of their value the first day and a third of their value in the first week. Vonage botched its customer share allocation program, then threatened users who hadn't paid up with legal action. Big telco rivals sued for patent infringement.

Since then, earnings reports have shown Vonage is paying bigger bucks to attract each new user -- but more customers are dropping the service each month. Vonage doesn't expect to make money, even on a so-called adjusted operating basis, till 2008.

Still, Vonage hasn't been reticent about touting whatever virtues it might lay claim to.

"This quarter represents an important milestone for Vonage, as we begin to report our results as a newly public company," CEO Mike Snyder said in releasing earnings this past summer. "We also see this quarter as a key inflection point on our path to profitability."

Should be a good, long path.

Click here for the Five Smartest Things on Wall Street This Year.