BUSINESSWEEK ONLINE : FEBRUARY 28, 2000 ISSUE
COVER STORY Silverman: "The Scars Will Be with Me" The CEO talks about the professional and personal turmoil of the past two years Cendant Corp. Chairman and Chief Executive Officer Henry R. Silverman has had a tumultuous two years. In late 1997, he merged his franchising company, HFS Inc., with the direct-marketing firm CUC International Inc. Soon after the deal closed, massive accounting irregularities were uncovered in businesses of the former CUC. Nearly two years later, Silverman is trying to win back Wall Street's confidence. In a series of interviews with Business Week Philadelphia Bureau Manager Amy Barrett, he discussed what the past two years have been like and where he wants to take Cendant. Here are edited excerpts of their conversation: Q: In December, you struck a preliminary $2.8 billion settlement of the major class action filed in the wake of the accounting blowup. How big a threat was the litigation to Cendant's future? A: If they [shareholder attorneys] could convince a jury that the damages were equal to the market decline [in Cendant's stock], that would have been terminal. We'd have had to basically liquidate. Q: The preliminary settlement of that case, which was led by pension funds like California Public Employees' Retirement System, included corporate-governance changes for Cendant. Among them: the requirement that the board will be made up of a majority of independent directors within two years of a final settlement. Did you have a problem with those changes? A: [The plaintiffs] were really interested in the governance issues because that is something elected officials can take credit for. We didn't have any objection to any of those. We would have objected to changes that would have hampered the way we run the company. Q: Since CUC founder Walter A. Forbes resigned as Cendant's chairman in the summer of 1998, there has not been a clear heir apparent at the company. Are you looking for one? A: The last experience that I had with sharing power was so difficult that I'm not ready to do that yet. Q: Over the past year, you have sold off 18 noncore businesses to fund a major share-repurchase program. As a longtime dealmaker, what was it like to be a seller instead of a buyer? A: When you are buying companies, everyone in the company feels very good. Their chests are puffed out. At Blackstone, I used to tell people that there is nothing more fun than buying a company with somebody else's money. The business is growing, which creates more opportunity for your employees. So everybody feels good about this expanding empire, personally, professionally, and financially. When you manage a divestiture program, it's the flip side. Instead of buying that dress, you are saying to the sales person, "I'm returning it because I can't afford it." So you don't feel very good about that. And everyone who works for you is wondering what business will be sold next. There is a lot of anxiety that goes with that process. Q: You have launched a series of Internet initiatives, including the creation of the real estate portal move.com. But analysts say because the company was so focused on dealing with the accounting crisis, that you missed some opportunities on the Internet. A: We didn't have the management team. We weren't in a position to recruit the team. We didn't have the currency to use in terms of options. And the same people that are now the Cendant interactive group [focused on Internet strategy] were the same people doing the [asset] disposition. And you can't do two things at once, particularly if you are working 24/7 to sell nearly $5 billion in assets. Q: Is it too late to catch up on the Net? A: Not really. Of course you are better off being the first mover. But if you come out with a better mousetrap, you can overcome that first-mover advantage very quickly. Q: So what is the vision for Cendant going forward? A: In the intermediate term, the mission is to grow the business internally, make accretive, tuck-in acquisitions to increase the business units' reach and penetration. And use the Internet to do product-line extensions and to reduce costs. Q: You mention possible acquisitions. Are you ready to resume the rapid dealmaking you were known for before the CUC deal? A: I don't see us making a major multibillion dollar acquisition in the next year. Q: Why is it so important to extend your brands, whether it is real estate brands like Century 21 or hotel brands like Days Inn, to the Internet? A: This is really what is going to separate us from companies that are terrestrial companies [just] growing at nice rates.... It is an additional channel of distribution. It allows us to access more consumers, to increase productivity, and reduce costs. We view this as something that could transform the company. Q: Do you feel that you have put the accounting episode behind you? A: To the external world this will be forgotten. But the scars will be with me and the people who lived through it. Q: What needs to happen for you to regain your credibility on Wall Street? A: If there is any redemption, it will come as our company continues to grow and our shares increase in value. That will be redemption. Q: In the end, can you say you are better off for having gone through this? A: A friend said to me, "You'll be stronger for the experience." I said baloney. That's like saying to me, "You had a terrible heart attack and you recovered." I didn't need the heart attack to begin with. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					Henry Silverman's Long Road Back COVER IMAGE: The Long Road Back TABLE: Silverman's Three-Step Plan TABLE: The Cendant Saga CHART: Cendant's Wild Ride TABLE: Cendant's Brand Portfolio RESUME: Henry R. Silverman ``Just Going About His Business'' ONLINE ORIGINAL: Silverman: "The Scars Will Be with Me ONLINE ORIGINAL: Is It Safe Yet to Buy Cendant? INTERACT E-Mail to Business Week Online

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