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 firstname.lastname@example.org and we will post it at
the end of the piece.
Maryanne Peabody & Laurence J. Stybel
STYBEL PEABODY LINCOLNSHIRE
Corporate Sponsored Career Consultation for Senior Executives Boston,
By JOHN HELYAR and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
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
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
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
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
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
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
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
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."
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