distressed babies

Add Tim Armstrong's distressed babies to the pile of gaffes

February 7, 2014: 2:04 PM ET

In a call with AOL employees in which Armstrong tried to explain why the company had changed its 401(k) plan, the CEO said that two AOL employees' sick newborns factored into the decision. One can only imagine what he'll say next.

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FORTUNE -- Protip: Don't let Tim Armstrong dial into any more conference calls. They seem to be the AOL CEO's favorite forum for making major gaffes.

The most recent incident occurred on Thursday. In a call with AOL (AOL) employees in which he tried to explain why the company had changed its 401(k) plan, Armstrong, a former Google exec, said that two AOL employees' sick newborns factored into the decision.

"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 okay in general," Armstrong said on the call. "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 health care costs, we made the decision, and I made the decision, to basically change the 401(k) plan."

There is never a censor button around when you need it.

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Insulting as Armstrong's comments were, he might face a bigger problem than hurt feelings. The Wall Street Journal pointed out that Armstrong may have violated HIPAA laws, which regulate the health care information insurers and employers are allowed to share about patients.

AOL employees were rightfully upset over Armstrong's comments, but they shouldn't have been all that surprised. This is the same CEO who sparked a media bonanza when he fired an employee live on a conference call in August after Abel Lenz, an art director for hyperlocal news site Patch, snapped Armstrong's photo. "Abel, put that camera down right now. Abel, you're fired. Out," he said.

As chairman and CEO of AOL, it's Armstrong's job to "retain energy and make sure people are willing to salute you when you walk by," says Michael Useem, a management professor at the Wharton School of the University of Pennsylvania. "The fastest way to undercut that is to blame anyone else in public." There's an understanding in America that we just don't do that, Useem says.

Since Armstrong seems to have missed that memo, responsibility to rein in his off-the-cuff comments-turned-insults falls to his lead director. "The lead director must intervene as a coach and mentor to stop this from happening," Useem says.

But in addition to asking who's to blame for Armstrong's remarks, the most recent gaffe raises the question of why he still has his job.

For that answer, look no further than AOL's most recent earnings. Revenue was up 13% year over year in the fourth quarter. The company beat revenue estimates, but missed a bit on earnings per share. It took a $5.8 million charge related to layoffs at Patch, but the site is now off AOL's books for good as it was sold to Hale Global in January. AOL declined to comment on this matter.

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As surprising as it might sound, AOL is on a roll. Its stock is up by nearly 50% over the past 12 months.

And when it comes to evaluating a CEO, money is what matters. (Paging Jamie Dimon.)

But Useem looks at it another way: "If it's doing well, maybe without Armstrong it could be doing even better?"

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