By Rachel Konrad
Staff Writer, CNET News.com
May 3, 2001, 4:00 a.m. PT

When Patti Hart was named the new CEO of Excite@Home, Wall Street shrugged. Investors questioned her ability. Co-workers didn't know what to expect. Even Hart acknowledged that she faced an extraordinary challenge.

CEO matchmaker searches for right fit John Thompson, vice chairman, Heidrick & Struggles April 20, 2001

Hart may be unusual for her candor, but she is certainly not the only new CEO whose credentials are under scrutiny. Business experts, Wall Street analysts and employees are looking critically at technology's newest crop of chief executives, including Hart, Covisint's Kevin English and Yahoo's Terry Semel.

Specifically, they wonder whether companies have been forced to settle for managers with limited experience in their new businesses because the dot-com meltdown has scared off potentially stronger candidates. The skepticism is not unfounded: Executive recruiters say many top-notch business leaders are avoiding Internet companies because of the industry's slowdown.

"There's definitely increased circumspection on the part of executives," said Mark Kesic, vice president for technology recruitment at executive recruitment firm Christian & Timbers.

"There's a lot of risk-aversion, especially in early-stage companies," said Kesic, who is based in the firm's Cleveland office. "It's all tied to the fact that it's no longer a slam dunk that you're going to ride a hyperactive market and make a lot in the equity markets. In questionable times, folks look for a safe boat in rough waters. There's a lot of, 'Let's wait and see. I'm well regarded here, so I'm going to sit tight for a while.'"

Other recruiters agree, noting that what would have been a one-month search in late 1999 or 2000 now takes six months or longer. A board's first choice--and increasingly its second and third--is more likely to take a pass than he or she would have a year ago.

At the same time, Christian & Timbers researchers say the number of CEO searches in the technology industry conducted by outside recruitment firms leaped 63 percent from 1999 to 2000. Although statistics have not been crunched yet this year, experts say heightened demand for CEOs has continued, if not accelerated.

Many CEOs command salaries exceeding $1 million per year, but the majority rely on stock options and bonuses for the bulk of their compensation. When the economy is not expanding, the stock market tends to stall--making it tougher for companies to show the kind of gains from options that lured new executives in the late 1990s and early 2000.

This is particularly bad news for the technology industry, which has a relatively smaller pool of potential CEOs, even in good times. That is because most of its companies prefer executives with technological backgrounds, not all-purpose people managers.

"There are fewer good, really top-notch people making the move to CEO right now, and if you look at technology, there are even fewer leaders who are real standouts," said Art Resnikoff, a consulting psychologist and executive vice president at Foster City, Calif.-based Hagberg Consulting Group, which specializes in training tech managers to lead companies. "If you get somebody with excellent technological expertise, that doesn't necessarily equate to good leadership; in fact, they're probably negatively correlated. So when demand for CEOs goes up, the technology industry feels it even more."

Indeed, the handful of universally lauded tech managers who seem to be on every recruiter's "A-list"--Oracle veteran-turned-venture capitalist Ray Lane, AOL Time Warner Co-Chief Operating Officer Bob Pittman, Sun Microsystems President Ed Zander, and Carolyn Ticknor, a recently retired president of Hewlett-Packard--do not seem eager to find new challenges. Why would they leave their stable positions or come out of early retirement when the new company's stock options are more likely to stagnate or sink than fund their next yacht?

No wonder they're scared
Regardless of what's shrinking the pool of CEOs, it's clear that tech companies are going to great means to buoy the best contenders.

Spencer Stuart, the executive recruitment consulting firm used by Santa Clara, Calif.-based Yahoo, didn't drag out its search; Yahoo executives and independent recruiters worked "night and day for 40 straight days" before announcing Semel as the new chief executive, said James M. Citrin, managing director of Stamford, Conn.-based Spencer Stuart. The agency also accepted resumes from the general public on a Web site.

The Excite@Home CEO post took roughly six months to fill. Hart was rumored to be reconsidering her acceptance of the Excite@Home position after the company announced that it needed money from AT&T to stay afloat, though she dismissed this in an interview with CNET News.com.

Southfield, Mich.-based Covisint, the automaker's giant online business-to-business exchange, took the better part of a year to fill its CEO spot, and the company's founders admitted that the search was tougher than they had anticipated. They offered the position to at least two executives who declined the offer before English, previously a managing director and chief executive officer for e-commerce operations at investment bank Credit Suisse First Boston and chairman and CEO of online financial site TheStreet.com.

A brief examination of the situation may reveal why the other candidates, including Oracle veteran Lane, turned down the position: The U.S. economic slowdown is likely to sting the ever-cyclical automobile industry particularly hard, and several suppliers have already tried out rival exchanges. Covisint's CEO will also have to answer to an unusually large board that includes veteran auto executives whose companies, in some cases, have been cross-town rivals for more than a century.

Even English admits he was reluctant at first. At the time, he was building an online portal for CSFB's wealthiest patrons and was still smarting after a difficult tenure at TheStreet.com. The company's stock soared in 1999 and then plummeted to a fraction of its original value, leaving many executives with worthless options.

"When I came into the job interview, I said, 'My gosh, we've got three vicious competitors that are the founding companies, suppliers who are customers and also competitors, and a 17-member board,'" English said. "I went into this thinking, 'Is this going to be like herding cats?'"

English spent several months in negotiations, during which time he said the board dispelled most of his concerns. He also grew more confident in learning that he would be chairman as well as CEO. Having the chairmanship implied to him that the board wants the company to be independent from any single automaker or supplier.

Still, English faces a highly skeptical marketplace. Even though he does not have to answer to Wall Street investors or venture capitalists because Covisint is private and funded by the deep-pocketed automakers, his appointment drew sharp criticism from manufacturing and supply experts. They questioned his credibility to lead what could become the world's largest e-commerce operation.

"I would think they would have picked someone who had at least supply-chain experience, heavy on the procurement side of the business, if not the auto industry specifically," said Rick Carman, managing director and head of supply-chain practice at Northbrook, Ill.-based consulting firm Dechert-Hampe.

Executives of other companies don't have it any easier. Yahoo's Semel, who declined to comment for this article, has already come under attack by institutional investors. Equity analyst Jordan Rohan of Wit SoundView spoke for many confused investors when he struggled to come up with an assessment other than "curious."

Derek Brown, e-commerce analyst at San Francisco-based technology-oriented investment bank WR Hambrecht, elaborated: "On the positive side, he's clearly a media-industry heavyweight, has deep relationships and a proven ability to build global franchises. On the negative side, Yahoo's most urgent need is in advertising sales, and Mr. Semel doesn't jump out as a person ideally suited to spearhead a rejuvenated sales effort."

A dearth of "home-run CEOs"
Although Covisint and Yahoo have particular challenges that might have scared off more obvious candidates, it is clear that the dearth of highly qualified, high-profile chief executives has pervaded the entire industry. A frequent complaint among Wall Street analysts and venture capitalists is the paucity of so-called home-run CEOs.

The problem is especially acute in e-commerce because of its volatile nature, said Jon Holman, founder of The Holman Group, a San Francisco-based technology-oriented executive search firm. He said virtually no small to medium-sized business-to-consumer company is able to recruit its first-choice CEO candidate, and boards are painfully aware of it.

"You don't know which of these companies is going to survive, and who wants to be CEO of a company that isn't going to make it?" Holman asked rhetorically. "Let's compare it to a couple of years ago, when we thought the only direction we could go was up...when you could call someone up and people got stars in their eyes and had visions of being worth $100 million a year from now on. Now you've got people reading every magazine, from Women's Wear Daily to Wired, saying dot-coms are dead, they're all going to go out of business."

Recruiters, psychologists and business veterans are split on what effect the CEO shortage will have on the high-tech industry.

Those who say the issue is detrimental also tend to believe that CEOs should be like rock stars: charismatic, high-profile, bold. When CEOs lack these qualities, they say, companies will not be able to build top-notch management teams and establish a clear corporate culture.

Others, however, note that some of the best-run companies--Intel and Cisco Systems, for example--are not necessarily led by people who fit that mold.

Thomas Steding, former chief executive of Metacode Technologies and a veteran Silicon Valley consultant, writes in a new book on management that the worst companies to work for are those run by CEOs who fashion themselves as cults of personality.

Steding derisively dubbed the CEO in this category a "cowboy"--a person who "shoots from the hip, never admits he doesn't understand something or know something, intimidates the troops, and thinks fear is a good way to motivate people. He changes his mind without explanation, communicates only when convenient to him, and basically has a more or less imperious attitude toward his role."

Don't write them off so quickly
Just because the newest crop of CEO appointments doesn't ring bells on Wall Street doesn't mean the new leaders are not up to the task. Several recruiters defended recent appointments and said the executives will eventually prove themselves to be competent leaders.

In some cases, the relative obscurity of a candidate may actually make his or her job easier--particularly at a company such as Covisint, which was founded by Detroit's Big Three automakers, Renault, Nissan and the auto industry's largest suppliers. Had Covisint picked a CEO who was a Detroit veteran with significant experience at any automaker or supplier, he or she would be perceived as being biased against all other companies participating in the exchange, board members said.

English's Wall Street background may give him an air of neutrality that will encourage suppliers to believe that the exchange is independent from its founders, auto industry experts said. He also takes the helm of a growing company that has been without a CEO since its inception nearly a year and a half ago.

"They couldn't have picked anyone from the inside or anyone who even appeared to be from the inside, so to that extent the choice makes sense," said Dave Cole, director of the Ann Arbor, Mich.-based Center for Automotive Research. "I'm not sure of Kevin English's credentials, but one thing is very clear: Covisint is ready to be led, and that at least should make English's job easier."

Brad Marks, CEO of executive search firm Brad Marks International in Los Angeles, said he would never be skeptical of a CEO who was not the board's first choice. In fact, he said, a board that gets its first choice is a rarity--and probably reflects little more than rigidity.

"When we start on a search, our clients and we develop this bionic human being in writing--this perfect person who has a cape and can leap off buildings. As the search progresses, we create new features together with the client and their perspective changes somewhat," Marks said.

"Suddenly, that piece of paper is more like a police rendering than an etched-in-stone portrait of this caped wonder. The person the board eventually picks may not be like the first person they had in mind at all, and that's a good thing." 

Cult of personality
Although Wall Street has scoffed at the relatively obscure managers who have recently assumed CEO positions at technology companies, fame does not guarantee performance. Here are some of America's best-known leaders from the past century:

















Compiled by Rachel Konrad from Time, Fortune, Forbes, corporate research and other resources.

 
 
The right type?
The difficulty in finding the perfect CEO may be exacerbated by the economy and negative media reports, but at least one industry veteran faults another culprit: the company board of directors looking for the executives in the first place.

Robert Hogan, founder of management consulting firm Hogan Assessment Systems and professor of psychology at Oklahoma's University of Tulsa, says tough times inspire board members to pick the most financially savvy but bland CEOs as possible.

Citing psychological research known as the RIASEC Model for Occupational Types by John Holland, Hogan said most board members are "C-types"--people who are conventional, risk-averse and formulaic. They are predominately financially oriented people, such as accountants, bankers and investors.

They look for people from exactly the same narrow lot to lead their companies, especially when economic growth is slow and investors are putting a premium on short-term profits, he said. Board members generally do not consider CEOs from other groups, such as R (realistic, mainly engineers), I (investigative, mainly scientists), A (artistic, such as musicians or architects), S (social, often human resource people) or E (enterprising, entrepreneurial people).

"They don't understand people--it's an empirical fact," Hogan said of the C's. "They understand profit and loss, and that's not leadership. Their idea of motivation is money, not a goal or leadership. They are largely incapable of detecting talent for leadership. They'll look at a guy's track record in terms of how much money they've made. They don't necessarily understand how to inspire people.

"They're also a turnoff to have to work for--they're bloodless, passionless people who really only care about the bottom line, and they're notoriously incompetent at choosing people. Who would volunteer to be a part of this horse race, this beauty contest?"

--RK

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