BUSINESSWEEK ONLINE : JULY 26, 1999 ISSUE
COVER STORY

'I Was an Asset...Rather Than a Meddler'


Benjamin M. Rosen has long been a strong force in the companies he invests in, largely due to his belief in an independent board chairman. Rosen is chairman of Compaq Computer Corp., where he is one of the 11 outside directors on the 12-person board. But he is criticized for being meddlesome by some people and for not acting soon enough by others. BUSINESS WEEK software editor Steve Hamm got Rosen's views.

Q: Why did you become a champion of the independent board of directors?
A: It came out of my venture-capital roots. In startups, the typical board is made up of the founder and CEO of the company and the investors who are the venture capitalists. They're owners of the company, and one of them is selected as chairman. As the company grows, some of the venture capitalists cycle off--and you bring in other outsiders with different skills. That's what happened with Compaq, with the exception that I stayed on as chairman. The board is supposed to represent shareholders, to maximize long-term value, and to select and supervise management of the company.

Q: In many companies, the CEO is the chairman and a lot of the directors are insiders. Why did you do it differently?
A: It emerged because we, as the owners of the company, felt it was the right thing to do. The CEO should not be in charge of the group that's supervising the CEO. You need checks and balances.

Q: What's the boundary between the job of the CEO and the job of the nonexecutive chairman?
A: They're very different. The nonexecutive chairman is in charge of the board and keeps the closest liaison with the CEO. But it's not an operating role. It's not a management position.

Q: But at Compaq, you seem to have gone over the line. You asked Compaq employees to do some research for you in 1991 that was instrumental ultimately in the board firing CEO Rod Canion.
A:
When a company faces a crisis, the board has to react and decide whether it's a short-term issue that will blow over or a long-term issue that will affect the life of the corporation. In that case, the board felt we were faced with a necessity to change the corporate strategy to meet a changing world--where price became paramount in consumers' decisions. The only way we could be competitive was to radically change. The management disagreed. They felt the problems were temporary. So I felt compelled to support our thesis in some tangible way. That's why I sought middle-level managers to help me document the case.

Q: Did you do anything like that before the board fired CEO Eckhard Pfeiffer?
A: No. We had been observing the company's problems over a two-year period. In three of the last four years, our first quarter fell short of expectations. We took a significant hit to the stock price. There were warnings along the way. We were trying to wrestle with what was causing this. Was it endemic to the company, a management issue, an execution issue, an industry issue? In the midst of this, we made two major acquisitions, and that tends to mask the underlying issues. It wasn't until the first quarter of this year that we realized the problems we had been seeing were more fundamental than we had thought.

Q: Are you concerned that Compaq's aggressive independent board is going to deter CEO candidates?
A: Judging by the quality of the people interested in this position, I'd say we have data that this is not the case. Some may have preselected themselves out. But CEO candidates tend to be secure people. And it would take an insecure person to be put off by this.

Q: Some people have said you're a backseat driver. What's your response?
A: It's not true. During good times, which has been most of the 16 years of Compaq's operations, I've been in a position of a normal board member of the company. I go to board meetings. I talk to the CEO. I help if he wants a customer visit or a speech. But I think if you talk to either of our previous CEOs--other than the times when we've had problems--they thought I was an asset to the program rather than a meddler.

Q: What about the people who say you haven't been watching close enough?
A: I never shirked my responsibility with Compaq. The board--when it makes a decision like this--has to make sure it's doing the right thing. You can't act precipitously and capriciously and on the basis of one disappointment. On the other hand, the board can't wait forever. Look at the '80s. Three competitors of ours--Apple, Digital, and IBM--ran into very significant problems and their boards took as long as six or seven years to address them. Somewhere between caprice and inaction is the optimum time to act. That's what we try to do. In retrospect, it would have been better if we acted earlier. But it's hard to know more than management tells you.

Q: Isn't it customary to give the CEO a chance to fix things? Pfeiffer has been saying he didn't have a chance to come up with a turnaround plan.
A:
It was our judgment that the problems we had in the past couple of years were execution problems and others that required not fixing, but changing leadership.



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``I Was an Asset...Rather Than a Meddler''

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