Three years ago, his resume was impeccable. Now, top recruiters and management experts told Fortune the charismatic CEO’s performance could end up permanently tarnishing his reputation.
By Shelley DuBois, reporter
FORTUNE — His résumé was to die for. Tim Armstrong had been Google’s first salesman and, as president of American operations, presided over the firm’s explosive expansion. He’d forged relationships with the world’s biggest advertisers and solidified his reputation with a generation of tech executives as an affable, energetic leader. He’d made a fortune. It was hard to imagine a more promising executive to take the reigns of AOL in 2009 as it prepared to exit Time Warner.
Three years later, the picture looks much more bleak for the 40-year-old executive. Armstrong’s much-hyped transformation of AOL AOL into a new media powerhouse hasn’t materialized. Instead, AOL stock has tumbled 37% this year and at least $1 billion in value has been wiped out since its spin-off. Armstrong was forced to sell assets including the social network Bebo and instant messenger ICQ at humiliating prices. His vaunted acquisitions of TechCrunch and The Huffington Post blew up as internal disputes between Michael Arrington and Arianna Huffington spilled out into the press. And late last week, when Bloomberg reported AOL was floating a possible tie-up with Yahoo YHOO , shares tumbled more than 5%.
AOL’s problems are years in the making — and may take even longer to truly untangle. What’s certain, according to top executive recruiters and management experts who talked to Fortune, is that Armstrong himself needs to work on holding his reputation together. So what can he do to exit AOL smoothly, executive profile untarnished?
He could continue trying to make his current plan work. Although Armstrong originally said he would turn the company around by this year, he recently gave his team an extension to 2013. If the ad market begins improving at a brisk pace, competitors falter or traffic to the company’s marquee sites is robust, it could clear some of the clouds over his head. Armstrong still has some leeway in his turnaround timeframe says Daniel Grassi, a partner at global executive search firm Boyden. “I think people who know this industry know that AOL was going to be tough to turn around. Hopefully [Armstrong] will continue the strategy and it does.”
Though AOL shareholders were frustrated with the company’s dismal second quarter earnings, they’re not necessarily the most important people Armstrong must convince. “My guess is the vital chemistry here is between Tim Armstrong and his board of directors,” says Michael Useem, a professor of management at the Wharton School of the University of Pennsylvania. As long as his board supports him, Armstrong can continue to weather disappointing financial results and even bad press — for a time.
Another path: Armstrong continues to make improvements to AOL’s stable of businesses, sprucing the whole in preparation for a sale. The odds of AOL becoming a major digital media company by itself aren’t that great, says Steven Gal, a professor at Cornell’s graduate school of management, but he does think that Armstrong has put together properties that make AOL valuable. “The best outcome is that he sells the company honorably and without dismal losses. Then he exits as a quasi-hero whose job was to reposition the company,” adds Mark Jaffe, president of executive search firm Wyatt & Jaffe.
Finally, Armstrong could split up the company’s assets and sell them off piecemeal. The technology side of the house, properties like AIM and MapQuest, could be sold independently of the media group helmed by Huffington. (Potential suitors are said to include Microsoft MSFT and News Corp NWS .) “I’m sure that right now, they are looking at who wants to buy what,” Jaffe says. Ultimately, it doesn’t matter if the media likes the course of action as long as it returns value to shareholders, says Gal. But that option is risky. “If you start to sell assets,” Gal notes, “you have a negative spiral — it becomes a yard sale very quickly.”
Armstrong has indicated publicly that he has no interest in that. Or much of a shift in strategy, for that matter. At the end of the recent earnings call, he pronounced, “And the last thing I’m dead serious about, we are not aiming this company to just have a struggling come back of AOL. [I] don’t care what the press says about this company.”
Ultimately, according to sources Fortune spoke to, Armstrong’s own profile may now be an obstacle. That Armstrong’s personal narrative has proved so irresistible to the media could be a bad sign, according to one industry expert who declined to be named for this story. If that really is the case and AOL’s fortune continues to decline, it may be impossible for him to extricate himself gracefully.