AOL CEO Tim Armstrong’s Management Style Influences More than Profits

As Jessica touched on a couple of weeks ago, a company’s reputation can be drastically effected by employee reviews. If your employees don’t consider your company a place that they would recommend as a workplace, it is going to be difficult to attract the top notch talent required to take your business to the next level.

Many factors go in to employee reviews, including compensations, culture, benefits and management. Ultimately all of these elements are the responsibility of the CEO. While at the bottom line, CEOs are obligated to maximize shareholder value, it’s important to note that optimal staff is integral to the long term growth and ROI of a company. In other words, company value and happy employees go hand in hand, so it’s up to the CEO to ensure a high level of morale and satisfaction among employees.

As AOL’s CEO, Tim Armstrong has made impressive profits for the company. He has also made decisions that have negatively impacted employee trust and morale. Armstrong brutally fired an employee in front of an audience of coworkers — and later, the world. Then he cut benefits company wide while publicly blaming employees’ sick children for the much maligned change, which was ultimately rescinded.

Despite his troubles in management, Armstrong has managed great progress and even greater profits. But is it enough? Ultimately, Tim Armstrong’s reputation as a CEO depends not just on profits, but on the happiness of AOL’s employees.

Tim Armstrong: AOL’s Hero?

America Online started mailing out their trial discs (before CDs) in 1991, and charging people by the hour to get online. The company skyrocketed, to nearly 27 million monthly subscribers in 2002, before beginning to tail off and virtually disappear as broadband became more accessible in people’s homes. As AOL came in to the end of the last decade, they had to decide how to take the company forward from a dying dial up business.

In 2009, the board selected Tim Armstrong (who happened to be the first salesman to be hired at Google) to right the ship as the new CEO for AOL. When Armstrong came on, the dial-up subscription numbers had been declining every quarter since Q3 of 2002. Many of the subscription revenue to this day admittedly comes from confusion by customers thinking they still need to pay $25 per month for their email, even though they have a different internet provider than AOL.

Armstrong jumped in with big ideas, most notably in the content space. The company purchased the Huffington Post in 2011 for $315M, making substantial investments to become a content provider and not just an internet provider. AOL also turned a tidy profit by maximizing their advantage as a first mover in the Internet era, selling 80 patents to Microsoft for an astonishing $1.1B.

Over the last two years, the company has evolved, experienced growth for ten consecutive quarters, and managed to double the value of their stock since spinning off from Time Warner in 2009. One would think that this makes Tim Armstrong AOL’s knight in shining armor. If you were simply looking at financials, it would be clear that Armstrong has done an excellent job moving AOL into the next century. But ask employees, and they’re likely to tell you another story.

AOL Employee Fired Over a Single Photo

In August of 2012, Armstrong walked into a crowded lunch room at the offices of his pet project Patch, a local news network with 900 markets across the country, to deliver what many assumed to be tough news. The company wasn’t yet profitable, and they had set a deadline of the end of 2012 to make that happened. The staff in the room and on the phone, expected to be informed of layoffs to some if not all of the staff.  Instead, at the beginning of the call, the below picture was snapped.

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Armstrong, in the middle of what was actually supposed to be a rallying cry speech, fired off a motivation-killing statement to a Patch employee:

“Abel, put that camera down. You’re fired. Out,”

You can listen to the audio here. As you can imagine, witnessing the firing of longtime Patch employee Abel Lenz was unsettling, especially at the beginning of an intense call. It certainly didn’t make anyone feel more at ease about their own personal employment situation. Armstrong was blasted in the media, but forged ahead. He went on to apologize for the public firing, but the decision of Abel’s termination did not waver. Note: under new management by Hale Global, Patch experienced sweeping layoffs in January 2014.

Armstrong’s Latest Gaffe: Unsettling Changes in AOL Employee Benefits

Armstrong’s brutal firing made headlines, but firing a single employee during a tense time pales in comparison to his latest public trouble: cutting benefits company wide while pointing the finger at Obamacare and sick babies. Yes, sick babies.

On February 4th, an article appeared in the Washington Times stating that AOL would be altering the retirement benefits for their employees. Instead of seeing a matching contribution in the employee’s 401K each pay period, there would be a contribution at the end of the calendar year. Employees would only be eligible for the contribution if they remained as an active employee at the end of the year.

That was tough news to swallow for AOL employees, but to further complicate matters, most of them found out not from their employer, but from the Washington Times article. The vast majority of the employees at AOL were not yet aware of the change made to their retirement plans when the article was published.

But that’s not the worst of it. The change was explained by Armstrong as a measure to keep up with the increase of health care costs from Obamacare and major expenses from AOL employee’s babies:

Two things that happened in 2012,” Armstrong said, according to a transcript provided by an AOL employee. “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 healthcare costs, we made the decision, and I made the decision, to basically change the 401(k) plan.

This conversation took place with over 5,000 staff members listening to the call, and some were quite upset that Armstrong would single out two employees — who had sick children, no less. Within minutes of the town hall, Peter Goodman, an editor for the Huffington Post (owned by AOL) started getting questions from his colleagues as to whether Armstrong was referring to his daughter. When word traveled back to Goodman’s wife Deanna Fei, she was not pleased.

On February 8, Ms. Fei decided to put her thoughts down on paper, and penned an article for Slate in which she shot back at Armstrong for his comments, notably this stinging quote.

I take issue with how he reduced my daughter to a “distressed baby” who cost the company too much money. How he blamed the saving of her life for his decision to scale back employee benefits. How 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.

Ms. Fei, who is also a bestselling author, performed a brave act by sharing her life with the public and taking the story to a personal level. Her story has been featured across numerous media outlets, and resulted in what what she called a “heartfelt” apology from Armstrong, who reached out to Fei via phone.

“I really feel like he spoke to me…not in his public role as CEO, he spoke to me in a heartfelt way as a father of three kids to a fellow parent,” Fei told Today. “His apology was heartfelt and I appreciated it and I do forgive him.”

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Armstrong’s Apology: Too Little, Too Late?

Armstrong recognized the damage that his choice of words inflicted not only on the two families singled out, but on the company as a whole, and elected to rescind the planned changes to the company 401K plan.  In a letter to AOL employees, he wrote the following:

The leadership team and I listened to your feedback over the last week. We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution.

Taking back the proposed changes was a great gesture, but it’s difficult to erase the damage of such an insensitive comment. Armstrong’s role as company leader has been irreparably tarnished, and has almost certainly cost him the faith of AOL employees.

Armstrong’s Role as AOL’s Leader

In a company the size of AOL, the CEO should be the biggest cheerleader of the organization, not a figure to be feared and reviled. It is imperative to not only have your employees believe in your long term strategy goals, but to motivate them to achieve those goals. Leadership like Armstrong’s does not promote trust and growth, and that has an impact on employees, both rank-and-file and at the executive level.

While AOL achieved 13% revenue growth over the last quarter under Armstrong’s watch, they have had a tremendous amount of turnover at the executive level, with two COOs, four advertising Presidents, four Heads of Media, three CTOs, and four head of PR. With turnover like this, you have to wonder if Armstrong’s leadership techniques are wearing on the staff.

Going forward as AOL CEO, Armstrong needs to take his gaffes seriously. Simply forgoing the 401K changes does not solve the core problem: Armstrong has proven himself to be an insensitive leader. A company is only as good as its staff, and if Armstrong doesn’t immediately curb his behavior, the alienation of AOL’s workforce will quickly erode the profits shareholders are counting on.