How CEO Survivors Stay on the Island
Call them corporate survivors.

By Joann S. Lublin
Staff Reporter of The Wall Street Journal
From The Wall Street Journal

Like participants in the popular CBS show, chief executives Jerry W. Levin of Sunbeam Corp., Gary T. Camillo of Polaroid Corp. and L. Dennis Kozlowski of Tyco International Ltd. each faced the possibility of getting voted off the island at some point.

Sunbeam, in dire straits when Mr. Levin took over from his fired predecessor, Albert J. Dunlap, in June 1998, continues to battle big losses and this month filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. Polaroid went through a series of highly painful restructurings after Mr. DiCamillo arrived in 1995 and returned to profitability but remains plagued by problems. Tyco's Mr. Kozlowski saw nearly $50 billion of the company's $88.4 billion market capitalization vanish in late 1999 during a flap over the conglomerates's accounting practices that precipitated an informal inquiry by the Securities and Exchange Commission.

That the three CEOs are still in charge confounds current corporate practice. In an era of shorter-fused shareholders, even highly regarded business leaders aren't able to withstand serious setbacks. The heads of Xerox Corp., Procter & Gamble Co., Maytag Corp., Gillette Co. and Allegheny Technologies Inc. recently quit or got ousted after less than two years. "Some boards are actually pulling the plug too quickly," says Thomas Neff, U.S. operations chairman of recruiters Spencer Stuart. "It's a very unforgiving market."

How have Messrs. Levin, DiCamillo and Kozlowski stayed the course? It hasn't been easy. "CEOs need air bags," observes Mr. Kozlowski, who is 54 years old. But there is a common thread to the survival of this trio of leaders: a storehouse of credibility, carefully nurtured, with major customers, employees, institutional investors and, most important, their boards of directors.

Here's a survival kit for corporate chiefs, based on the experiences of these three nimble troubleshooters:

Pacify angry customers -- fast.

At Sunbeam, which makes small appliances and camping goods, several big customers were ready to bolt when Mr. Levin arrived to undertake the latest of a string of fireman assignments for billionaire financier Ronald O. Perelman. (Mr. Perelman became Sunbeam's second-largest investor when he sold it Coleman Co., a camping-equipment concern that Mr. Levin formerly led.)

Mr. Levin blamed Sunbeam's Dunlap era for burdening retailers with too much inventory in an effort to stoke short-term profits. On his second day on the job, he called six major retailers to apologize. One retorted, "You are our worst supplier, and we are dropping you," according to Mr. Levin. The rest vented about Sunbeam's poor service and broken promises. "All had had trouble with Sunbeam and threatened our distribution," he remembers.

However, these retailers had made money selling Sunbeam products in the past -- and respected Mr. Levin for fixing Revlon Inc.'s core cosmetic business during the mid-1990s. Under his command, Revlon became the country's leading mass-market makeup brand.

The retailers agreed to give the new Sunbeam chief a year to fix their battered ties. He occasionally ordered Asian-made products flown in rather than shipped to meet tough delivery deadlines. "Sometimes, we gave up all the profit on the sale," Mr. Levin says. "We felt it was absolutely essential that we build up our credibility with our retailers" again.

Stack your management team with former colleagues -- or, at least, keep the troops on your side.

The defection of several executives and rising stars helped cut short the tenure of Xerox CEO G. Richard Thoman. C. Michael Armstrong, the beleaguered leader of AT&T Corp., has been criticized by a powerful board member because so many talented top managers have quit.

No wonder then that Mr. Levin started recruiting ex-Coleman associates from a car phone hours after he accepted the No. 1 Sunbeam post. "I had no choice but to bring in people who knew me," the 56-year-old executive explains. "They would have the confidence that I could hold this thing together. It looked so bad, how could you recruit [elsewhere]?" Twenty-nine of the 32 Sunbeam managers and executives he hired had worked for him before. All 29 still work for the Boca Raton, Fla., concern.

Mr. Kozlowski rose through the ranks to Tyco's top job in 1992. He took extra steps to bolster staffers' loyalty during the accounting-practices controversy. For instance, he spoke with Tyco staffers at plants and sales meetings every day for two months.

"Many of our employees are shareholders. Many had their own personal net worth on the table," he recollects. "People wanted to see and hear the CEO say that we were going to weather the storm." (Tyco, based in Bermuda, is managed from Exeter, N.H.)

Overcommunicate with leading investors.

Mr. Kozlowski says none of the dozen Wall Street analysts who regularly cover Tyco downgraded their recommendations during its accounting-practices crisis because he previously had spent so much time explaining its business models and accounting principles. In a newsletter, Dallas money manager David W. Tice had claimed that Tyco's hefty acquisition-related charges obscured its results, though he never alleged any fraudulent activity.

Mr. Kozlowski refuted the Tice critique during a conference call with major institutional investors the morning after the newsletter appeared in October 1999. The following week, he held a standing-room-only session for about 500 investors and analysts at a top-drawer New York hotel. Among other things, he promised to make Tyco's annual report more user- friendly. Some investors had faulted the conglomerate for burying complex but important financial-disclosure items in obscure footnotes in filings that many didn't even peruse. (The SEC gave the company a clean bill of health last summer; if that had not been the case, Mr. Kozlowski believes Tyco directors might have replaced him.)

When Polaroid missed analysts' third-quarter expectations just weeks after saying its outlook was fine last fall, the share price of the Cambridge, Mass., maker of instant camera and film plunged 20% to levels last seen in 1985. The company subsequently posted a $5.9 million net loss for the fourth quarter, suspended its regular quarterly dividend and unveiled plans to cut 11% of its work force.

Mr. DiCamillo, 50, has tried to bolster his Wall Street credibility by participating in more than two dozen investor sessions in the U.S. and Europe over the past year. He says the share price remains "lower than the facts warrant" because he has yet to totally disclose Polaroid's digital-printing strategy. Planned new products include printers that produce images from digital cameras on Polaroid film. Fixing Polaroid has proved "tougher than I thought when I came in," Mr. DiCamillo admits.

Be frank with board members -- and set their expectations low.

Boards "are much more willing to give you the extra mile for honesty than if you overpromise,'' says Charles Elson, a Sunbeam director and head of the University of Delaware business school's Center for Corporate Governance. He considers Mr. Levin to be a blunt straight shooter, a role that "gives his board confidence in his abilities and stewardship."

Not that Sunbeam is problem-free. The loss-ridden company still faces heavy debt, shareholder suits and a threatened SEC enforcement action related to prior accounting problems. But "I am still standing," Mr. Levin says, a bit amazed.

Similarly, Polaroid's Mr. DiCamillo phoned every director to exhaustively explain its third-quarter setback days before the company's mid-October announcement. "He has a great record of never surprising the board," says John W. Loose, chairman of the Polaroid board's human-resources panel. "If he wasn't open with the board, we'd probably have a different situation entirely" -- and possibly, a different chief.

Mr. DiCamillo failed to turn around Polaroid within the three-year period that directors anticipated upon his arrival in late 1995. But the board renewed his five-year contract nearly a year ahead of its planned expiration last fall because "this board supported very much what Gary was doing," adds Mr. Loose, Corning Inc.'s president and CEO.

Still, candor alone rarely saves the leader of a badly underperforming business. Some chiefs get shown the door after only two poor quarters. There is mounting speculation over whether AT&T's Mr. Armstrong will survive, because the ailing phone giant revised its earnings outlook in December for the fourth time in 2000. "When bad news becomes water torture -- bad news followed by bad news by bad news -- that's when CEOs lose credibility," Mr. Kozlowski concludes. "This job is all about credibility."