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Power Sheet – January 6, 2015

In a big organization, when things turn bad, they tend to get worse. We could hypothesize on why that is, but let’s skip it for now. It’s just a miserable fact of life for leaders, as we’re reminded this morning by reports of deepening trouble for Chicago Mayor Rahm Emanuel, Yahoo CEO Marissa Mayer, and Volkswagen CEO Matthias Müller. They’re all in the same boat: trying and so far failing to get control of a crisis that threatens each one’s survival as a leader.

Emanuel’s problem has been his attempt to position himself as a corrector rather than an enabler of the Chicago police department’s apparent misbehavior. The release last fall of video showing a white officer shooting black teenager Laquan McDonald 16 times sparked the furor. It intensified when it became widely known that the city’s law department, in the months leading up to Emanuel’s reelection bid, had argued in court against releasing the video. Yesterday a judge stated that an attorney in the law department had withheld and lied about evidence in another police shooting; the lawyer quickly resigned. Emanuel had to state his continued support for the law department’s head. Reacting rather than acting, playing defense rather than offense – that’s a bad corner to be stuck in.

Mayer is in a similar spot, under attack by activist investors led by Starboard Value Fund’s Jeff Smith, who this morning called for Mayer to step down. As Yahoo’s share price has declined over the past year, he pressed for spinning off the company’s stakes in Alibaba and Yahoo Japan into a separate entity, and Mayer made plans to do that. Then he reversed course and argued she should leave those stakes right where they are in Yahoo and instead spin off the core businesses into a separate company, which she said she’d do. Now other activists are pushing for her to forget the spinoff, which could take a year to complete, and just sell those core businesses ASAP because they’re losing value by the day. So how will she respond? The answer is almost beside the point. The more important reality is that no one is talking about her strategy to invigorate Yahoo. Investors, advertisers, and news media are instead focused on which end-game move she’ll try next. Not a strong position from which to lead.

Müller’s disaster at VW is almost four months old now and is becoming a textbook example of poor crisis management. More bad news emerges almost daily. On Monday the U.S. Justice Department sued VW for installing emissions-cheating devices in cars sold in the U.S., greatly increasing the potential fines the company could be forced to pay. VW stock plunged on the news.

A steady drip of new trouble is what crisis managers try hardest to avoid, but that’s just what all three of these leaders are facing. It’s a vicious circle: The longer it goes on, the harder it becomes for a leader to seize control of the situation and start leading again. My judgment is that Mayer’s situation is closest to irretrievable. Emanuel and Müller could yet pull through, though it’s getting more difficult to see how.

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What We’re Reading Today

North Korea says it has tested a hydrogen bomb

The announcement, if true, would signal a significant improvement in North Korea’s atomic capabilities. While nations are trying to verify the report, a seismic event did take place off the country’s coast. The development would also be a blow to North Korean ally China. North Korean leader Kim Jong Un‘s move to test a hydrogen bomb, even as China has urged the country to denuclearize, indicates a straining relationship with President Xi Jinping. CNN

Valeant names replacement for hospitalized CEO 

Valeant director and former CFO Howard Schiller will become interim CEO. The move comes as CEO J. Michael Pearson remains hospitalized in an undisclosed location due to severe pneumonia, and it’s unclear if the change could become permanent. Valeant and Pearson have been under fire for their drug pricing and accounting practices. The Globe and Mail

Apple slows down iPhone production

The decision by CEO Tim Cook is generating wide ripple effects. Foxconn Technology Group, which assembles the phones in China, asked its provincial government for over $12 million so as to limit layoffs. The news won’t sit well with Apple investors, who have worried about iPhone sales growth for the past year. Nasdaq

AT&T jumps into health care

The company will open an innovation center at the Texas Medical Center Innovation Institute with the purpose of connecting its internet-of-things technology to patients. Randall Stephenson‘s company wants to connect patient data generated by devices, such as glucose meters and even wheelchairs, to the hospital for better analysis and results. AT&T will work with startups and engineers to develop and improve the technology. The initiative is the company’s first jump into connected health. Fortune

Building a Better Leader

Company gives $10,000 to resigning employees  

Adore Me CEO Morgan Hermand-Waiche says the unusual move is to say “thank you.” Bloomberg

Turning down the risky job offer…

…could be a sign of lack of confidence in yourself, especially if it’s a dream job. Fortune

Allow for bathroom breaks

Pennsylvania company American Future Systems was ordered to pay $1.75 million for docking pay to 6,000 employees during bathroom and other short breaks. Philadelphia Inquirer

Worth Considering

DuPont-Dow merger may follow Tyco playbook

DuPont CEO Edward Breen led the remodel of Tyco. When he took over the conglomerate it had $41 billion in sales. He broke it up, and the part called Tyco International is now a $10-billion business that provides security and fire suppression systems for buildings. If the Dow-DuPont merger closes as scheduled, the plan is to do a similar breakup, turning the combined entity into three separate entities. WSJ

Obama, the gun salesman

In December, when President Barack Obama responded to the San Bernardino shootings by calling for tougher assault rifle measures, gun sales spiked to 1.6 million units that month. Fear of gun restrictions led to the increase. Yesterday, Obama laid out his latest measures to curb gun violence; the stock prices of gunmakers Smith & Wesson and Sturm Ruger & Co. jumped. Fortune

Ted Cruz leaps to the top in Iowa

Iowa Republicans believe the only way Cruz doesn’t win the Feb. 1 caucuses is if Donald Trump‘s participation brings out a surge of new GOP voters. It’s an unusual spot for Cruz, who claims he’s always the underdog. NYT

Up or Out

Yum Brands chairman and former CEO David Novak will retire in May.  NYT

Spirit Airlines has replaced CEO Ben Baldanza. He will be succeeded by board member Robert Fornaro, who led discount airline AirTran before selling it to Southwest Airlines. CNBC

Fortune Reads and Videos

Twitter may increase tweet limit from 140 characters to 10,000

It’s a possibility as Jack Dorsey‘s company seeks new users. Fortune

Verizon puts its data centers up for sale 

The move could raise $2.5 billion.  Fortune

Kia Motors joins autonomous car efforts… 

…but its target of a self-driving car by 2030 puts it way behind competitors.  Fortune

Surge-less pricing

Lyft and Uber cut prices for rides in Las Vegas ahead of CES, presumably to encourage use.  Fortune

Today’s Quote

“The nuclear weapons test announced by North Korea undermines regional and international security and is in clear breach of UN Security Council resolutions. I condemn the continued development by North Korea of nuclear weapons and ballistic missile programmes and its inflammatory and threatening rhetoric.

“I call on North Korea to fully respect its international obligations and commitments. North Korea should abandon nuclear weapons and existing nuclear and ballistic missile programmes in a complete, verifiable, and irreversible manner, and engage in credible and authentic talks on denuclearisation.” – NATO Secretary General Jens Stoltenberg responding to North Korea’s announcement that it has tested a hydrogen bomb NATO

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Produced by Ryan Derousseau