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BETTY ANN BOWSER: After a year of fallen stock prices decreased in net income and earnings AT&T announced a new management team today. Ma Bell will be led by C. Michael Armstrong, currently head of Hughes electronics. At today’s press conference in New York City Armstrong called his new job “the chance of a lifetime.”
C. MICHAEL ARMSTRONG: It’s a fantastic opportunity to make a significant contribution, so it is and will be the global leader in the communications industry. And we will deliver on our commitments with the quality and the excellence that earns AT&T its reputation with every single call and each and every day.
BETTY ANN BOWSER: For the past nine years the nation’s largest telecommunications company has been led by 62-year-old Robert Allen, a veteran with forty years service at AT&T. Both the company and the industry have gone through a tumultuous several years as increases in technology and deregulation have brought fierce competition.
Allen was responsible for cutting 100,000 jobs at AT&T.Also, during his tenure, the company spun off its equipment and research arm, Lucent Technologies and National Cash Register. There’s also a turnover at the top of another American institution, Coca-Cola. CEO Roberto Goizueta died Saturday of lung cancer. He was 65 years old.
ROBERTO GOIZUETA: When my family and I left our native land and came to this country with just a few dollars in our pockets–
BETTY ANN BOWSER: Goizueta, a Cuban immigrant, had worked for the Atlanta-based company since 1954 and was named CEO sixteen years ago. He was credited with turning Coke around–tripling sales, vastly increasing profits and helping Coke’s stock value to soar to nearly $150 billion. He expanded the company to include markets in nearly every corner of the world. Today, Coke’s red and white trademark is the second most widely recognized symbol in the world after the religious cross.
CHILD ON COMMERCIAL: Want my Coke? It’s okay. You can have it.
BETTY ANN BOWSER: During Goizueta’s tenure Coke used aggressive advertising to win market share from rival Pepsi-Cola. (Commercial – Music in Background) Among Goizueta’s greatest successes was the introduction of Diet Coke in 1982. And his biggest failure was the short-lived New Coke in 1985. During Goizueta’s three year illness, the company was run by president and Chief Operating Officer Douglas Ivestor. Many analysts expect Ivestor to succeed Goizueta.
Coke and AT&T are only two of the many corporate giants that have been received extensive public attention in recent years. Sometimes the publicity has been negative. CEO’s have been criticized as corporate killers who slash the rank and file while drawing huge salaries and compensation packages for themselves. But there has also been positive press coverage. CEO’s have been portrayed as saviors of their industries and superstars of the business world.
JIM LEHRER: More on all this now from Michael Useem, a professor of management at the Wharton School at the University of Pennsylvania and Philadelphia, and John Byrne, a senior writer at Business Week, who covers management changes in corporate America. First, on the AT&T story, Mr. Byrne, why was Armstrong brought in?
JOHN BYRNE, Business Week: AT&T needed someone from the outside to take a clear look at the business, its strategy, and to get things done. What A&T more than ever needed was credibility. Bob Allen had lost it on Wall Street. He had lost it in the marketplace. And I think Armstrong immediately brings credibility to the company.
JIM LEHRER: Why?
JOHN BYRNE: For one thing many people were very disappointed with Allen, not only his–the miscues in strategy that occurred–but he was viewed as someone who couldn’t get things done. Earlier in the segment it was announced, for example, that he had cut 100,000 jobs from AT&T.
In fact, he had announced plans to cut 100,000 jobs but at the end of last year, for example, AT&T’s payroll was 2,000 more than it was in the previous year. AT&T had 450 people in public relations alone, 2,000 in human resources. It was still a big giant that was incredibly bureaucratic and couldn’t really keep up competitively, and Allen was a person who was just basically someone who was trying to hang onto his job.
JIM LEHRER: Well, Professor, you seem–years ago it would have been unheard of for AT&T to have the number one person be announced–bring somebody in from the outside, correct?
MICHAEL USEEM, Wharton School: That is correct. They’ve had insiders there for years, and so this is quite a remarkable event to go not only outside the company but to go outside the industry.
JIM LEHRER: Now, what is that philosophy now, that–if you’re a CEO of say of a bank or of a car company or in this case an electronics company, you can also be CEO of a telephone company. What is the new characteristic of a CEO that’s so transferable?
MICHAEL USEEM: Well, what you need first of all is strategy and vision, and that’s what AT&T has needed for a couple of years. Michael Armstrong has proven he can bring that to the top office where he’s been. And I think the board at AT&T, quite correctly here, has gone for a person who can articulate a vision; he knows where the company ought to go and then take several hundred thousand people in that direction.
JIM LEHRER: But how would he know that? He hasn’t been working at AT&T.
MICHAEL USEEM: He will know it. He knows how to know. He has the sense as people at that level in the world develop how to look at the problems, how to understand what’s out three and five years, put that together with a realistic strategy.
There’s a fine line between strategy and fantasy, it’s got to get the strategy, not the fantasy part, and then he’s got the skills, as he should have, to take the several hundred thousand people, get ‘em lined up the same way, and walking in the same direction. That’s the key leadership skill which AT&T in my view has been missing, and I think he’s going to bring it to the office.
JIM LEHRER: Yes.
JOHN BYRNE: Oddly enough, if I might add here–
JIM LEHRER: Sure.
JOHN BYRNE: Armstrong has had an unusual opportunity to kind of have an apprenticeship outside the company, and it was over a year ago that Armstrong was originally contacted by the headhunters to become president of AT&T. He refused the job because Allen insisted on staying around. And instead Allen went to someone else who agreed to take the presidency with Allen sticking around. Of course that guy didn’t work out.
It was John Walter of RR Donnelly. But Armstrong has had over a year to look at AT&T, to think about it. In his head he did seriously consider it over a year ago. He’s also in a business that overlaps to a great extent with AT&T in the satellite business. He’s had a partnership with AT&T. His corporation has at least, so I think he’s very well suited for the job.
JIM LEHRER: All right. Mr. Byrne, Coca-Cola’s story–very different, is it not?
JOHN BYRNE: Total contrast; in AT&T you have a CEO who’s leaving–who leaves–not with a mixed record, but leaves a bit of–with a bit of a sort of goat status–in Goizueta–Coca-Cola, you have a CEO leaving who was a tremendous success, who was probably one of the most successful CEO’s in a generation–also I might add one of the most highly paid CEO’s in the history of business.
In fact, his departure, his death, will unleash about 1.1 to 1.3 billion dollars in income that had been deferred that will now go to his estate and will actually result in a huge corporate tax deduction for Coca-Cola this year.
JIM LEHRER: But Professor, you’re saying the new CEO of Coca-Cola has an entirely different mission than the new CEO of AT&T, right?
MICHAEL USEEM: He does. As John has said the Coca-Cola story has been a very positive story. Goizueta has done a pretty amazing job in recent years. New man coming in I think is going to carry on a tradition, a strategy, a way of operating that his boss developed and presumably mentored in.
I think the key thing here to keep in mind is that a turnover in the CEO position is a very significant event. These are the people who are going to shape the experience of thousands of lives, billions of dollars of investment and results the next couple of years, and I think what’s happened in the last several years, this is probably why we’re talking about this, is the role of the chief executive has become all that more critical to how a company is going to do one, three, and five years out.
JIM LEHRER: Why has that happened? What’s caused this?
JOHN BYRNE: I think the media has helped it in part. The media has paid much more attention to business news since probably the mid 1970′s, when OPEC occurred, and to make business news more palatable to greater numbers of people we have personalized corporations by writing stories, making it seem as if the CEO’s do everything. CEO’s are of course incredibly important; they do create a vision, articulate a mission for a company, and a strategy, but we’ve made companies, people, and we’ve done that to make business news more palatable to greater numbers of people.
JIM LEHRER: Do you agree with that, Professor?
MICHAEL USEEM: I agree with the media attention. I would go on to say that I think it’s well deserved in that as companies have faced increasingly competitive markets what the leader is doing, what he or she is saying, much more critical now I think than say 10 years ago, if it’s a period of competitive change, if you think about the telecommunications industry, and the amazing events, the mergers, the global developments there, critical now for the chief executive to get it right. I think 15 years ago much less critical as to who was in that office, essential at this point.
JOHN BYRNE: Another issue is the pay.
JIM LEHRER: I was just going to ask about that.
JOHN BYRNE: The pay has become so extraordinary and so monumental and it’s so much above anyone else in a corporation that it immediately elevates the CEO to some sort of unusual status.
JIM LEHRER: I read this afternoon that in the case of Armstrong it hasn’t been confirmed officially but that the word is he has a three-year contract worth $25 million. Now, how in the world could he be worth that?
JOHN BYRNE: Well, if you look at Goizueta in the 16 years he was at Coke he added to Coca-Cola over $140 billion to the stock market value of that company, so he probably made I don’t know 2/3 billion dollars, but it’s pocket change compared to the 140 plus billion dollars he added to shareholder wealth.
JIM LEHRER: Professor, do you agree with that–cheap at the price?
MICHAEL USEEM: In fact, I was hearing in the early 90′s when Mr. Goizueta had an $80 million year that from the standpoint of the money manager, the stock analyst he had added so much value to their portfolio they said fine, they would go with that. We may not agree with the amount up there, but I think the general point stands, which is that the pay of the chief executive has grown rapidly in recent years, the gap between the CEO and number 2 is larger, and one way of thinking that illustrates the point or in a sense confirms the point that the CEO as viewed by the board is all that more critical to how that company–how these two kinds of companies are going to do in the future.
JIM LEHRER: Professor, are they not also–moved around a lot quicker than they used to be–if you go in–somebody doesn’t perform–you’re out of there?
MICHAEL USEEM: That’s, again, a last five or six year history as the money managers, the pension fund managers have become more powerful, the assets they sit on that much larger, they have been quicker to pull the plug or to tell the board to get an under-performing chief executive out of there and that’s happened at many companies. It happened at General Motors; it happened at IBM, so the pay is up but the insecurity is up too for the top executive. They’ve got to produce or they can’t last.
JIM LEHRER: Mr. Byrne.
JOHN BYRNE: You can’t really feel too insecure if you fail and you walk away with 10, 20, 30 millions of dollars. John Walter at AT&T, for example, who left the company after nine months walked away with over $23 million for that nine-month period.
JIM LEHRER: But isn’t there also a price beyond the money–for instance, you just–Mr. Byrne, you were talking about Robert Allen–the kinds of negative comments that you just made and that have been printed about this man in the last several months–last several weeks–last few days in particular–would be unheard of in the old corporate world, would they not be?
JOHN BYRNE: I think that’s true. I think we’re in a much less forgiving marketplace. I think Wall Street is much less forgiving and I think the media is much more critical performance, and what’s happened to Allen is a good reflection of that.
JIM LEHRER: Now, Professor, you seem also–the involvement now of the fund managers, of the markets in deciding who’s a good CEO or not–that’s a new angle too, is it not?
MICHAEL USEEM: That is new, would not have even been thought about 10 years ago but head hunters tell me that when they get down to a short list, they’ve got two or three really great looking people that they’re beginning to focus in on. They at certain times will call up the half dozen major stockholders and they’ll say what do you think of this person, does he have–she have the kind of record that’s going to make for the shareholder value you’re looking for? They would not have been anywhere in the picture ten years ago.
JIM LEHRER: Mr. Byrne, does your reporting reflect whether or not Armstrong was run by some major AT&T stockholders before he was hired?
JOHN BYRNE: I don’t know if in fact he was but you know his name has been out in the media for quite some time. He has done wonders at Hughes Electronics. He is considered a very credible leader. And I think today’s market in fact reflected that–AT&T’s stock–although there is also earnings announcement–was up over 250 or $2.50 a share.
JIM LEHRER: But that’s also part of the new stardom, would you not agree?
JOHN BYRNE: Oh, yes, absolutely because when John Walter was named president of AT&T almost a year ago on October 23rd of last year, in fact, AT&T’s stock fell by 4 1/2 percent.
JIM LEHRER: Just by naming the man.
JOHN BYRNE: Yes, because there wasn’t a lot of confidence in the marketplace about his leadership ability and he was basically an unknown quantity, unlike Mike Armstrong who is well known and who is widely respected as a leader.
MICHAEL USEEM: In fact, just to add to that, that stock price drop took off $6 billion in the market capitalization of AT&T and so by one calculus here the appointment of John Walter back there October 23rd a year ago cost the value of that company, as viewed by investors and money managers, that was a negative $6 billion addition.
JIM LEHRER: Okay. You just made the point, did you not? Gentlemen, thank you both very much.