How Meg Whitman Failed Her Way to the Top at eBay, Collecting Billions While Nearly Destroying the Company

With the elections for governor just around the corner, most California voters probably think they have a pretty good grasp of the pros and cons of Republican candidate Meg Whitman: on the downside, she's an aloof billionaire who can't be bothered to vote or remember her own servants' names after nine years, and she's dabbled in the sort of insider double-dealing with Goldman Sachs that's brought the nation's economy to its knees.

On the plus side, many still regard Whitman as one of the most effective and successful business leaders around. Three decades of relentless pro-business PR have convinced a lot of voters that our best business leaders know best, and that's been Whitman's main selling point, going back to her first campaign ad:

"I have run large organizations. I know how to create jobs. I know how to focus. I know how to balance a budget. And, I think, a business perspective is a bit of what California needs right now."

But what few people outside of the investment community know is what a disaster Meg Whitman's business career really was. In fact, Meg Whitman's record in the corporate world reads like a laundry list of failure: it's a resume marked by fraud, gross incompetence, wasteful spending and gross disregard for anyone's interests but her own. In her obsessive drive to become a billionaire, Whitman left a legacy of bitterness among untold numbers of jilted employees, shareholders and eBay clients, while enriching herself and a handful of fellow executives and investment bankers.

Her worst decision at eBay -- to buy internet phone service Skype for over $4 billion in 2005 -- bled billions in eBay's value. It was a huge waste of money whose consequences were passed on to employees and shareholders. The effects are still being felt by the company today, over five years after Whitman's disastrous decision.

Whitman's fabled $1 billion in wealth was acquired in the first few months of her tenure, well before she could muck the company's bottom line up. That billion-plus that eBay's directors handed Whitman was perhaps the easiest billion anyone has ever been handed in corporate history: eBay hired Whitman in March 1998, when the company was already the tech world's darling. Just six months after she joined, eBay went public, making Meg Whitman an overnight billionaire thanks to stock options that allowed her to buy eBay stock at just 7 cents a share, and sell them on the market for as high as $170 per share.

That was in 1998-'99, long before Whitman could screw the company up -- when the worst she could do was work out a scheme with Goldman Sachs to kick back to her personal account a couple million more in exchange for making Goldman Sachs the lead investment bank for eBay's stock offering.

So Whitman made her eBay billion not by building the firm up, but rather by lucking into the right place at the right time. Over the next few years, as she started to put her own stamp on the firm, eBay's fortunes went into decline and finally into full-scale tailspin.

Now cut to 2005, when Whitman is fully in control of eBay. By now, in the middle of the last bull market, eBay's stock is floundering thanks to a series of poorly executed decisions, bad investments and frustrated eBay users. This was the moment when Whitman went from incompetent to reckless: she bet the eBay house on a grossly overpriced $4.1 billion takeover of Skype, a startup internet phone company with almost no revenues to speak of. Even normally friendly analysts were confused, not just by the price but also the business logic.

In a CNET article back in 2005, headlined "eBay's scary Skype purchase," analysts from Forrester Research looked at the numbers and the logic and concluded, "These things don't add up to the $2.6 billion price tag (with the total value climbing to a potential of $4.1 billion). Skype provides no sustainable advantage in the communications or communities arena to eBay."