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Do You Need To Be An Expert On Wigits To Be CEO Of A Wigit Company?

There is a fashion cycle in the insider vs outsider CEO hiring cycle. As the enclosed article from the WALL STREET JOURNAL indicates, we may not be in the outsider swing of the pendulum.

The next time a recruiter tells you, "You've got great skills but we are looking for someone with years of wigit industry experience," download this article and fax it to him!

Do you agree with this article? Send us an e mail response to and we will post it at the end of the piece.

Maryanne Peabody & Laurence J. Stybel
Corporate Sponsored Career Consultation for Senior Executives Boston, MA
tel: 781-736-0900.

January 21, 1998

Ten years ago, a bedrock American company like AT&T Corp., Eastman Kodak Co. or International Business Machines Corp. wouldn't have dreamed of having an outsider as CEO. Today, they all do.

Ten years ago, chief executive officers were rooted in one business and rarely strayed from it. Today, increasingly, they hopscotch around corporate America and across all industry boundaries. A banker-turned-utility executive runs Delta Air Lines; a former accountant and consultant heads computer maker Unisys Corp.; a former finance professor and cereal executive runs publisher Times Mirror Co.

Call them the portable CEOs. They are the antithesis of the 1950s-style company man -- more, really, like the 1950s TV cowboy Paladin, whose philosophy was "have gun, will travel." Portable CEOs are hired not because they know the guts of the business, but because they have the guts of a leader. They are quick on the draw to shake things up and, sometimes, equally quick to move on.

Rising in the Ranks

They also are growing in number. A recent study by Michigan State University emeritus management professor Eugene Jennings, found that more than a third of CEOs hired by 369 major corporations in the 1990s came from outside the company. A Harvard Business School study of 839 big companies found fewer outsider CEOs -- 17% -- but a faster rise in their ranks, more than doubling since 1980, compared with a near doubling since the 1970s among companies in the Michigan State study.

The studies include all outsiders, but what is striking is how many come not just from outside the company, but also from an entirely different industry. The CEO with the right stuff is increasingly seen as having superior general management and leadership abilities, not specialized industry knowledge. That trend is only likely to grow. A triple-industry star like IBM's Louis V. Gerstner Jr. has redefined success and lured other executives toward the fame and fortune of running a multicompany decathlon. And a growing number of boards -- particularly those at troubled companies -- are open to going outside, if only out of imitation and desperation.

Certainly stellar companies like General Electric Co. and Coca-Cola Co. continue to groom and pick only lifers as leaders. "I can honestly say it never even crossed our mind to use outside people," says James B. Williams, a Coke director who oversaw the CEO transition from the late Roberto Goizueta to M. Douglas Ivester. "It isn't necessary because there's so much talent at Coca-Cola and because you want continuity, so there's never a threat of missing a beat."

Pursuing Free Agents

The portable CEO reflects some of the profound business changes of the past decade. Boards have grown more powerful, and that includes taking charge of succession. They often cast a broader net for candidates than in the days when insiders tapped proteges. The companies are bigger, the competitive turf more slippery, the failure costs higher, and the available talent supply thus thinner. Like big-league teams, Big Board companies are now willing to pursue free agents, especially if a dynamic outsider sends a desired signal of change to investors and workers.

Outsiders can, however, also easily crash, for they don't know the nuances and politics of the business they are heading. For every IBM, which has seen its business revive and its stock price nearly quadruple during Mr. Gerstner's near-five-year run, there's an Egghead Inc., which has wound up with egg on its face in recent years through three failed outsider CEOs. (The software retailer is now on its fourth.)

A portable CEO is, in any event, a more volatile mix of pluses and minuses than the lifer. Mark Willes, who went from pushing Wheaties for General Mills Inc. to peddling papers for Times Mirror, says boards must assume portable CEOs "will make mistakes. The question is, will the cost of the mistakes be smaller than the advantages of a fresh perspective?"

Recruiters' Role

One big reason the answer so often comes back "yes" is that executive recruiters now often strongly recommend hotshot outsiders. "It's a better bet to go for the great athlete rather than the average player who knows the industry," says Thomas Neff, chairman of U.S. operations for the Spencer- Stewart executive-search firm. "The balance has tipped from management to leadership."

Outside CEOs typically command a hefty pay premium over insiders who move to the top. And that's profitable for recruiters, who typically collect a fee equal to one-third of an executive's projected first-year cash compensation. In addition, high-profile cross-industry hires become headhunters' calling cards in landing new corporate clients.

What's the right stuff for succeeding in this high-risk, high-reward endeavor? Here are some of the emerging axioms.

Make it snappy.

When Mr. Gerstner joined IBM on April 1, 1993, he told an acquaintance he expected to spend the first four months sizing up the situation. He was a computer-industry novice, after all, coming from top stints at American Express Co. and RJR Nabisco Holdings Corp. But he soon found Big Blue's woes were too big for that. In a late-May meeting with his newly hired chief financial officer, Jerome York, both agreed IBM needed to make deep cost cuts because, in Mr. York's words, "the problems were so massive."

A month later, Mr. Gerstner presented his board a plan to eliminate 35,000 jobs and take a pretax charge of $8.9 billion. It was tough medicine, but it went down well with worried directors. "The board was concerned that IBM could get into a liquidity crisis," recalls Mr. York. "By moving swiftly, we greatly eased their fears."

When Mr. Willes joined Times Mirror in June 1995, almost immediately he shut down two newspapers, earning him nicknames like "Cereal Killer" and "Cap'n Crunch." But Mr. Willes, whose Mr. Chips appearance belies his boldness, says, "I'd do those [shutdowns] over again... . We had to establish a sense of discipline," adding, "They quickly got the discipline message. I don't regret the timing."

Mr. Willes told analysts last month that, following two years of restructuring, he expected Times Mirror's 1997 earnings to rise nearly 50% from the previous year.

Make it personal.

On his second day in office, Insilco Corp. CEO Robert Smialek summoned the 12 business-unit heads to a Dallas hotel room and delivered an ultimatum: Make your business achieve tough operating-profit goals within a year, or consider your business for sale.

Then Mr. Smialek, who had just been recruited from Siebe PLC, a British engineering company, listened to objections from his new subordinates. After all, he had contravened their longtime autonomy and had challenged their assumptions of what was possible at the diversified manufacturing company. The poorest-performing unit heads howled loudest.

They insisted, "'This is the way it is... . The [low] margins you see here are typical of the industry,'" he recalls. "That's the way it's going to be," replied Mr. Smialek. He also remembers why he took this approach: "We needed to raise the bar." Nine units reached his 10% operating-income goal on time. All but two unit heads have since left. Meanwhile, Insilco shareholder returns have outperformed the market throughout his nearly five-year tenure.

At Unisys, Lawrence Weinbach met with his top 100 managers last October, after one month on the CEO job, and announced, "Everyone in this room is going to be responsible for two customers." The condition of being admitted to the next management meeting would be a declaration of the two specific customers each will handle.

Mr. Weinbach had also made that requirement of senior management at Big Six accounting company Andersen Worldwide, his previous CEO post, but saw an even more urgent need at this long-struggling computer maker. One of its troubles, he sensed, was being too internally oriented, including a nearly total lack of customer contact by top executives.

"It became very clear that I had to change that culture and change it very quickly," says Mr. Weinbach, who made himself subject to the two-customer rule, too. "We had to start thinking about the customer."

Take some friends.

One characteristic of premier portables like Mr. Gerstner and turnaround artist Albert J. Dunlap is a set of loyal sidekicks who follow them from job to job.

Gary Wetsel didn't have any at Borland International Inc. -- one of the contributing factors to his short run as CEO of the Scotts Valley, Calif., software concern. His predecessor had fired a number of senior managers, and Mr. Wetsel replaced them almost entirely by promoting insiders. But between the operating inexperience of the new CEO (he had a finance background), his industry inexperience (he came from Octel Communications Corp., a voice-mail specialist) and the new aides' greenness, Borland's board wasn't sure an attempted turnaround was taking hold.

Mr. Wetsel resigned in July 1996, after 17 months, on the day the company predicted an unexpectedly big quarterly loss. He saw the problem as an unsupportive board; they saw the problem as a disorganized management team.

Successor Delbert Yocam made sure his team wouldn't be short of savvy-or loyalty. He recruited two former colleagues from Apple Computer Inc. soon after joining Borland in December 1996. Says Mr. Yocam: "Men and women who've worked with you before know how to operate -- and how you operate."

Beware of predators.

Sad scenarios like that of John R. Walter -- made AT&T's president and then, in a frenzy of backbiting, unmade -- unfold more often than realized. Outsider gets top job; outsider gets ambushed by politically potent insiders; outsider winds up back outside, sadder but wiser -- and often richer.

Ronald T. LeMay never thought his job at garbage-hauling giant Waste Management Inc. would include having to haul the company's founder out of the way. He wasn't former CEO Dean L. Buntrock's first choice. Almost from the day Mr. LeMay arrived from long-distance carrier Sprint Corp. last July, the two men locked horns over everything from corporate jets to corporate accounting. The latter proved particularly contentious, with Mr. Buntrock, who was still a board member, demanding that the company stick with his aggressive approach and Mr. LeMay demanding a more conservative one. After an unexpected second- quarter earnings decline, the new CEO "felt a major overhaul was required," according to board member Robert S. Miller, while some directors saw him as overreacting. After little more than 100 days on the job, Mr. LeMay fled back to Sprint.

When Bruce Krysiak agreed to leave the Circle K Corp. convenience-store chain last January to become Dollar General Corp.'s president, it was with the understanding that he would be CEO-in-waiting. What he didn't understand was just how long a wait. In the course of last year, it became clear that chairman Cal Turner Jr., the 57-year-old son of this Nashville discounter's founder, was in no hurry to give up the No. 1 job.

Mr. Krysiak, 47, began to press Mr. Turner for a date when he would become CEO, and, he says now, "I pushed him a little harder and little faster than he was ready to be pushed." Mr. Krysiak announced his resignation in December, effective April 1. Mr. Turner began looking for a new No. 2, this time, he says, someone who fits into Dollar General's strong team culture rather than someone "with a burning desire to be CEO." Both say they erred in not getting the timetable straight up front.

Clang the symbols.

Mr. Willes of Times Mirror believes that a newcomer must quickly make symbolic gestures, as well as substantive ones, because "you only get one chance to make a first impression." He moved the CEO's office from a central courtyard area, overlooking an interior atrium, to a corner conference room with huge picture windows facing City Hall. The intended message: "Let's not gaze at each other; let's look outside. Our readers are out there."

He also had the Picassos taken off the executive dining-room walls because "it said we are more like an insurance company than a newspaper company," he says. He replaced them with work by Times Mirror photographers.

No chain saw? No problem.

The Al Dunlap model -- "throw out the bums and tear up the company" -- is the best known modus operandi. But it isn't the only way to go.

Raymond Gilmartin spent his early days at pharmaceutical giant Merck & Co. not terrorizing his employees, but endlessly talking to them. He met about 40 senior managers, asking each the same two questions: "What do you believe are the major issues facing the company?" and "Where would you focus your time if you were me?"

He had entered a company whose morale had been sapped and growth-rate slowed by a messy succession scramble. That's what had forced the company to hire him away from medical-equipment maker Becton Dickinson & Co. His interviews enabled him to grasp Merck's dynamics and to judge its people. Within three months, he chose 12 people for his top team and, one month later, they developed a plan to get Merck back up to speed.

The beauty of Mr. Gilmartin's approach, says Merck director and CEO search- committee member William G. Bowen, was that he saw the company didn't need a makeover but a healer and facilitator. "He went in with the idea this was going to be a partnership," says Mr. Bowen. "He was eager to release the talent that was there."

Fit is it.

What it really comes down to, case-by-case, is fit. When a company hires the wrong person, things can go very wrong very fast. When it hires the right person, they can live happily and profitably ever after.

Brunswick Corp. has done both. In 1994, the boat maker recruited John P. Reilly, chief of Tenneco Inc.'s automotive business, to be its president and ultimately successor to longtime chairman and CEO Jack Reichert. But Mr. Reilly clashed with a Reichert aide, putting him at odds with the chairman. And he was a hands-on type, immersing himself in the company's businesses. Brunswick's directors belatedly realized that the company really needed a strategic thinker and marketer. Mr. Reilly was gone in nine months, moving on to more successfully run Cleveland-based Figgie Industries Inc. and then Stant Corp., an auto-parts maker. Brunswick then recruited Peter Larson, another outsider who did fit that bill.

Mr. Larson, who was chief of Johnson & Johnson's consumer and personal-care products, became CEO immediately and began redefining Brunswick. He snapped up high-growth companies that made camping gear, bicycles and other recreational equipment that, he reasoned, could be cross-marketed to Brunswick's core boat customers. That has produced a company less dependent on the highly cyclical marine business -- and a happier Brunswick board.

An outside CEO works "if the board has a clear understanding of what it's looking for and finds the right person," says Jay Lorsch, a Brunswick director and Harvard Business School professor. But, he adds, "most companies should still be trying to emulate GE: develop deep pockets of talent inside and let the board get to know it. Like any corporate fashion, this one's dangerous."

Copyright © 1997 Dow Jones & Company, Inc. All Rights Reserved.