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SUMMERTIME--AND CEOs ARE SWEATING
Summer, bloody summer.
Uneasy rest the heads that carry the crowns in executive suites across the country. In unprecedented numbers and various ways, top executives are tumbling. If it's not employee disgruntlement forcing out Archibald Cox Jr., chief executive of First Boston Corp., it's a family feud at Dart Group, or board uprisings at Eli Lilly and Giddings & Lewis. Then there are the abrupt exits of heirs apparent such as Richard J. Markham at Merck, Christopher Steffen at Kodak, or Ervin Shames at Stride Rite. Tambrands, JWP: The list expands.
Unlike the winter flurry of board coups, in which chiefs at GM, IBM, and American Express lost lengthy power struggles, change now blows in as suddenly as a summer storm.
In some cases, confusion reigns in its wake. After the surprise ouster of Eli Lilly & Co. CEO Vaughn D. Bryson on June 25, employees staged an impromptu protest at headquarters, never mind Lilly's lackluster performance under the fallen leader. At Giddings & Lewis Inc., instead of hanging crepe, employees seemed inclined to hang in effigy their former chief, William J. Fife Jr. But shareholders and distributors, who favored G&L's fat profits and strong service under Fife, were praising his legacy, not burying it.
The combustible combination of independent boards, active shareholders, and fast-changing markets seems likely to keep exploding the status quo. In the early stages of this transformation, here's how the churning is done:
That's what happened to Andrew T. Dwyer of Rye Brook (N.Y)-based JWP Inc. After a decade of acquisitions, JWP's chairman and chief executive had built the former water-supply company into the country's largest electrical and mechanical contractor and moved into computer retailing in a diversification effort. But, according to a shareholder lawsuit, JWP under Dwyer failed to keep adequate financial controls. The board stuck by Dwyer at first, but when JWP's lenders balked at negotiating with him on a restructuring loan, Dwyer left the company on June 29. He could not be reached for comment.
The bell also tolled suddenly for G&L's Bill Fife. Few argued with his record for boosting the machine-tool maker's sales and earnings in a tough economy. But Fife had flaws. His board questioned some deals he made, and disgruntled executives complained secretly to directors about his hard-charging style. The result: He resigned abruptly on Apr. 26.
Even hand-picked--and pampered--directors are fast becoming a force for change in the corner office. At Tambrands Inc., Martin F.C. Emmett treated board members well, and they returned the favor--giving Emmett a big bonus early this year. But Tambrand's board pushed him out after his strategy of raising prices on Tampax-brand products failed and earnings fell.
Succession is among the most important decisions that CEOs make. And making succession plans that stick, it seems, may be among the most difficult. Merck & Co. Chief Executive P. Roy Vagelos found that out when he elevated Richard J. Markham to Merck's No. 2 spot seven months ago, bypassing several rivals. Markham quit after becoming isolated in Merck's top ranks, leaving Vagelos without a clear successor (box).
Lilly's Bryson was more than an heir apparent. He was the chief. But his predecessor Richard D. Wood remained an activist chairman of the board. When Bryson changed the corporate culture, tearing down Lilly's hierarchical structure in favor of a more collegial approach, Wood orchestrated Bryson's ouster, over strident objections of at least two inside directors. Wood couldn't be reached. But one Lilly director called it a "sign of the times, in our industry, and in our boardroom."
Herbert and Robert Haft had much more in common than genes and swept-back manes of bushy hair. They seem to have a vision for Dart Group's future that included Robert eventually taking over from his 72-year-old father. Former Dart director James G. Leonard says Herbert "would literally extol his son. He was sickly sweet [about Robert]. Syrup just came out all over."
It's vinegar now. When Robert began taking on more responsibility, and acknowledging his leadership role to the press, Herbert exploded. On July 5, after using the clout of his 57% stake in Dart to purge the board of his wife, Gloria, his son, Robert, and three apparent sympathizers, Herbert finally ousted Robert from the corporate suite. And the breach seems final: Robert is out looking for a new job, perhaps running a retail company. He also has spoken with lawyers about suing to recover lost wages. "I don't understand how Gloria and Herbert can live in the same house," says Leonard. "I guess it's a big house."The elder Haft couldn't be reached for comment.
Not everybody leaves under a cloud. Some top executives go at their own behest, sometimes abruptly. When corporate nomad Christopher J. Steffen came to Eastman Kodak Co. as chief financial officer, it appeared he finally had found prospects befitting his lofty ambitions. Eleven weeks later, he left, evidently dissatisfied with the amount of clout he had at Kodak. And at Stride Rite Corp., Chief Executive Ervin R. Shames left suddenly on June 27, forcing retired executive John J. Phelan to fold his lawn chair and return to run the company until a permanent replacement emerges.
Archibald Cox Jr. now knows how suddenly fortunes can change. Just weeks ago, the chief executive of First Boston was set to head the company's securities and investment banking operations. But First Boston employees, angered at their relatively low raises after Wall Street's record year, kept leaving in droves. Former executives say Rainer E. Gut, chairman of First Boston parent Credit Suisse, intervened on July 13 and Cox was out. His defenders say Cox was never given the budget needed to stop the talent drain.
There may be costs to this unsettled, sometimes troubling new era. Jeffrey Sonnenfeld, a professor at Emory University's business school, says the lack of CEO security may prompt managers to become too cautious. "It can hurt long-term risk-taking," he warns. "You need people to keep pushing the edge."
But after decades of docile directors and inbred decision making, many welcome the fresh air. "There ought to be more churning at the top," exclaims Robert B. Duncan, professor of strategy and organization at Northwestern University's J.L. Kellogg Graduate School of Management. "I don't think we get rid of enough of these guys." Moreover, adds Thomas J. Neff, president of headhunters Spencer Stuart & Associates, where billings are up more than 30% this year, there's one way to avoid the ax: "The best insurance against change at the top will be focusing on performance."
In this bloody summer, top executives who forget that advice seem sure to give new meaning to an old pledge: The king is dead, long live the king.David Greising in Chicago, with Lori Bongiorno in New York, Mark Lewyn in Washington, and bureau reports