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CEO Daily: Tuesday, August 18

Carly Fiorina has emerged as a welcome voice of sanity in a GOP presidential field that tilts otherwise, and she is enjoying a sharp rise in the polls as a result. But her new popularity raises an old question: Do business leaders make good political leaders?

 

Having spent a career shuttling between the two worlds, I can report that the record is decidedly mixed. Confounding checks and balances and hazy and ever-shifting metrics of success make Washington a mystery to many raised on executive power and bottom-line performance. While the business pragmatism of a Ross Perot, a Carly Fiorina, or even a bombastic Donald Trump may make them appealing candidates, their instincts can quickly lead them astray once they arrive in the political swamp.

 

The case of Carly Fiorina raises a separate question, however. Writing for Fortune, Yale professor Jeffrey Sonnenfeld reviews Fiorina’s record as CEO of HP and concludes she performed “pretty badly.” Yes, she doubled revenues, by pushing through a controversial merger with Compaq Computers; but profits sagged, shareholder wealth dropped, and ultimately, she was fired – an unusual event for a CEO in those days. Andrew Ross Sorkin reaches a similar conclusion in this morning’s New York Times.

 

Interestingly, it was the political parts of her CEO job that troubled Fiorina most. As I reported in my book Revolt in the Boardroom, Fiorina completely misread the discontent among her own board of directors, leading to the sudden showdown that cost her the job. Board member Patricia Dunn told me at the time that Fiorina was resistant to the board’s input and advice, and that directors were “hopelessly confounded by her organizational structure.”

 

A point of history: Fiorina got the HP job in part because she was No. 1 on Fortune’s very first Most Powerful Women in Business list – as my colleague Pattie Sellers describes here. This year’s version of the list – which will not include Fiorina, but will include some surprises – will be out right after Labor Day.

 

More news below.

 

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

• China weighs on world markets

European markets faced steep selling pressure that carried over from Asia after Chinese shares were down 6% and emerging market currencies and oil prices stayed at sharp lows. “The mood in London is that the party is over in China,” said one market commentator. Time will tell how U.S. markets react today, though strong U.S. housing data on Monday offset a very weak performance of New York regional manufacturing.  Reuters

• Political instability paralyzes Brazil

Brazil, one of the world’s most important emerging markets, is facing its deepest economic and political crisis in a generation, resulting in a business climate that has paralyzed many major sectors including the auto industry. General Motors has halted factories, Latam Airlines is cutting flights and plane maker Embraer is putting its biggest new aircraft on hold. “Political instability is enormous, and it’s paralyzing Brazil,” said the co-CEO of a homebuilder.  Bloomberg

• American Apparel may go out of business

American Apparel has said that the retailer’s cash position has deteriorated so badly it is not sure it will be able to stay in business. The company, which has been stung by weak sales and a bottom line mired in the red, said it does not expect business to materially improve in the next year and that it may not have enough cash to get through that period. The company is mulling a debt refinancing, potential moves to raise new equity and other restructuring options.  Fortune

• Petco files to go public

Pet supply retailer Petco is planning to take the company’s third entry into the public markets after filing for an initial public offering on Monday afternoon. It would be the company’s third IPO in the past 11 years. There has been some movement in the pet supplies aisle of late. The company’s largest rival PetSmart was acquired by private equity firms earlier this year for around $8.9 billion, while pet food makers Blue Buffalo Pet Products and Freshpet have launched IPOs recently.  Fortune

Around the Water Cooler

Does U.S. have ammo for the next crisis? 

When the next crisis hits, how can the U.S. respond? While few economists believe the U.S. is near recession, The Wall Street Journal points out that it could be hard to use the tools often employed to battle dips. Generally, the U.S. injects cash into the economy by cutting interest rates or ramping up federal spending. But with interest rates near zero and high levels of government debt, those options could be off the table. Policy makers are busy planning a response to the next, inevitable downtown, especially with the U.S. entering its seventh year of expansion. WSJ (subscription required)

• Google loses friend at the FTC

Federal Trade Commission’s Joshua Wright is leaving his post later in August, after only being sworn in as of early 2014. Wright drew some fire as a purported ally of Google, even promising to recuse himself for two years from matters pertaining to the search engine giant because some of his research had been funded indirectly by Google. FTC commissioners typically serve 7 year terms so whoever is confirmed to replace Wright can finish out the remainder of his term.  Fortune

U.S. mulls Cuba flights by year’s end

The Obama administration is working to reach a deal with Cuba that would allow travelers to fly on commercial flights between the countries, chipping away at a travel ban without requiring Congress to lift it. If the pact were to occur, it would make the most significant expansion of economic and tourism ties between the countries since the 1950s. And while only Congress can lift the U.S. travel and trade embargoes imposed against Cuba, President Obama can grant exceptions.  WSJ (subscription required)