Take what happened last week, when AT&T introduced its new president, John Walter. AT&T stock lost more than $5 billion of market value in two days. How come? Mainly because Walter isn’t a techno-wizard. Until his ascension to the top of AT&T, he was chairman of a Chicago printing company, R.R. Donnelley and Sons, whose closest connection to the phone biz is producing the Yellow Pages.
This reaction, in my humble opinion, is every bit as silly as the giddiness of September 1995. That’s when Wall Street added $10 billion to AT&T’s stock-market value after the company announced plans to fire lots of people and split into three pieces. AT&T has since given up that gain and much, much more. After 13 months of almost unrelenting bad news, chairman Robert Allen has gone from Wall Street’s penthouse to the outhouse. Indeed, one of the supposedly rational reasons for last week’s $5 billion drop is that Allen, 61, will hang around as chief executive officer for about 18 months rather than immediately falling on his sword.
Now the people who made Allen a hero last year and a bozo this year have declared Walter a bum, even before he’s picked out his office furniture. Maybe he’s not an inspired choice–I certainly don’t know–but it seems a little early to declare him a failure. In fact, when you look at the way the world really works, you realize that running a big company doesn’t require technical genius. It requires management skills, intelligence and a flexible, open mind. Louis Gerstner, for instance, wasn’t exactly known for his computer expertise when tapped to revive IBM, the quintessential technology company. His qualifications for the job weren’t a matter of bits and bytes; it was a question of managerial effectiveness. Or take George Fisher, who engineered a makeover at Eastman Ko- dak without becoming an imaging expert. Or John Sculley, a marketing whiz from PepsiCo who did just fine at Apple Computer until he decided he’d become a techie, at which point he and the company began to get into trouble.
In other words, technical expertise is nice. But as with these other executives, the biggest challenge facing Walter at AT&T isn’t technology. It’s people. As anyone who has followed AT&T knows, the company has a disturbing pattern of rejecting high-profile hires from outside. The human analogy would be the way antibodies attack foreign matter entering our bloodstream. Why is the AT&T presidency vacant, anyway? Because an unhappy high-profile outside hire, Alex Mandl, left to run a start-up wireless company.
I could fill this page with examples of senior hires who have flopped at AT&T. For every high-profile defector like Mandl, there are many quiet departures that most people never hear about. For example, two of the three outsiders AT&T hired in recent years to run its international business have just left. The third may be leaving. Whether the problem in all these cases over the years was the people, AT&T or a combination of the two is impossible to say. But at this point the pattern is set. Many upper-middle-management insiders feel that they will never get a fair shake at moving up because outsiders get all the plum jobs, and the outsiders run into level after level of resentment, rage and fear.
That’s why AT&T’s real problem isn’t technology but something deeper–figuring out how to cope with change and motivate employees who are demoralized, afraid and angry after years of cutbacks, ever-changing strategies and a growing sense that no one’s in charge. Maybe Walter can handle these problems; maybe he can’t. But how can anybody possibly know, especially before the poor guy even gets to work?
Perhaps the most troubling question is why AT&T seems to be so hostile to managers from the outside world. Harold Burlingame, AT&T’s executive vice president for human resources, insists it isn’t. I’m looking at the past, he says, not the present. ““I would have accepted that premise in the early ’80s,’’ Burlingame said in an interview, ““but it’s clearly not factual now.’’ What about Mandl and the three international execs? Both Mandl and AT&T say he got an offer he couldn’t refuse. The international departures, Burlingame says, arise from changes caused by the company’s split-up.
Burlingame’s reassurances notwithstanding, you have to wonder whether we’re still dealing with the old, change-resistant AT&T. Normally, I pay attention to what the stock market is trying to tell us. But it was wrong about NCR, the breakup and the job cuts. It could be wrong about John Walter, too.
