Businessweek Archives

Is Compaq's Board Too Strong For Its Own Good?


News: Analysis & Commentary: Executive Suite

Is Compaq's Board Too Strong for Its Own Good?

Chairman Rosen and his team run the show--making the CEO search more difficult

Compaq Computer Corp.'s board of directors has never been a bunch of shrinking violets. It bounced co-founder Joseph R. "Rod" Canion when the company started to flag in 1991 and did the same thing to Chief Executive Eckhard Pfeiffer in April. At the time, Chairman Benjamin M. Rosen installed himself and Directors Frank P. Doyle and R. Ted Enloe III as a temporary management team--not mere caretakers. True to their word, the trio in short order restructured distribution and reorganized operations. Then, on June 29, they sold 83% of Compaq's AltaVista Co. Internet unit to Web holding-company CMGI Inc. for $2.3 billion--indicating a new twist in the company's Web plans.

Problem is, Rosen & Co. might be doing too much--making it harder to attract a top-flight exec for the vacant CEO suite. The board's first choice, Continental Airlines Inc. President Gregory D. Brenneman, dropped out of the running on June 28. Brenneman would not comment, but a source familiar with the negotiations says talks broke down when it became apparent that Rosen wanted to stay chairman and "master puppeteer." That didn't sit well with the airline executive, the source says: "In order for Compaq to achieve maximum shareholder value, they need to recognize there's a hurdle in front of them, and it's Ben." Compaq had no comment.

Compaq's CEO search was going be difficult no matter what. First, there are only a handful of computer executives capable of turning around such a complicated business--Compaq competes across the computer market and is still absorbing Digital Equipment Corp. There are easier ways for seasoned execs to make bigger bucks at Internet startups. Another hitch: Compaq is looking for a CEO at the same time as rival Hewlett-Packard Co., which has the advantage of being in Silicon Valley, not Houston.

The board can't afford to let its hunt drag on much longer: Compaq is losing momentum fast. Although it's still the PC-market leader--with a 14.3% share of PCs shipped worldwide in the first quarter--its shipments grew only 16% from a year earlier, compared with No. 2 Dell Computer, whose shipments grew 53%. "It's a massive state of confusion at Compaq. A lot of accounts are moving over," crows Dell CEO Michael S. Dell.

In spite of Compaq's problems, Rosen is committed to forging ahead with the master plan that Pfeiffer laid out a year ago. Rather than completely adopting Dell's direct-sales strategy, he declared that he would serve customers online, in stores, or over the phone--whichever way buyers prefer.

Rosen's twist is to make everything Compaq does happen faster. Step one came May 10, when Compaq consolidated all distribution among four wholesalers to slash the amount of inventory sitting in warehouses. A month later, it divided operations into three product groups--consumer PCs, business PCs, and large computers--each responsible for forging a profitable business. Most recently came the sale of its high-profile AltaVista search Web site and related businesses.

But why sell off an established Net brand? Rosen insists the deal actually represents an expansion of Compaq's Internet ambitions. In exchange for AltaVista, it gets a 16% share in CMGI and a strategic relationship with a company that holds stakes in more than 40 leading Web companies. "We did not sell our Internet assets," says Rosen. "We found it made more sense to have a significant share of a broad portfolio of Internet properties and technologies, rather than 100% of one property."

Most Wall Street analysts applaud the AltaVista deal, figuring that Compaq doesn't need to control the site to profit from its growth. But analysts are growing impatient for signs of a turnaround and a new CEO. "They still need to get their cost structure and their services sorted out," says Daniel Niles of BancBoston Robertson Stephens. The company announced on June 17 that it will post a loss of as much as $260 million for the June quarter because of higher-than-expected costs and "inadequate revenue growth." Its shares now trade at about $22--down from nearly $50 in January.

Fixing that dismal fiscal picture and rebuilding credibility on Wall Street will be top challenges for whomever Rosen lands as CEO. The easy part of the job will be figuring out who's the boss.By Steve Hamm in New York and Bureau ReportsReturn to top


Hollywood Goes YouTube
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus