The dust has obviously settled now on the latest corporate repositioning schemes of AT&T and MCI WorldCom. And the verdict has been positively brutal: T and WCOM have been pounded to multiyear lows, and the once-cocky CEOs are seen by the Street as likely candidates for business goat of the year.
It wasn't so long ago that AT&T and MCI WorldCom were companies on the prowl, bent on acquiring their way to victory. The idea: Get big and dominant, take advantage of economies of scale, and maximize shareholder value. Now, the key to success is breaking their businesses up, and the replacement notion is pare down, get nimble, and maximize shareholder value.
But investors aren't simply punishing inconsistency. After all, corporate structure theories rise and fall and get tinkered with all the time, in response to regulatory changes or new technologies or simply because of desperate experimentation. Just this weekend the Times ran a long business trend piece that essentially ignored the telecom pare-down and focused on the vogue for massive mergers. Wall Street veteran Henry Kaufman commented: "There is a deeply embedded view everywhere in business today that big is better. Chief executives enjoy the prestige of managing a big company, and the higher pay. The investment bankers are happy to arrange the deals. And stockholders favor consolidation because it tends to drive up stock prices." OK. But on the other hand, it's just as routine to hear criticism of big, bloated companies that are too unwieldy to compete, are run by overpaid and out of touch CEOs, and don't offer shareholders anything like the growth opportunities of smaller firms. You can sell either story, depending on the circumstances.
What's really remarkable is how drastically the conventional wisdom on these two telecom CEOs has changed, a development that says at least as much about the mindless hyping of corporate chiefs--you could call this the Superboss Theory--as it does about the fortunes of these particular firms.
Consider AT&T's head honcho, Michael Armstrong. In his first six months or so on the job, everybody loved the no-nonsense veteran of IBM and Hughes Electronic. Never mind that his main strength seemed to be the fact that he was not Robert Allen, who had run AT&T for much of the 1990s and done little for his company's stock. "In three months," Fortune observed early in the Armstrong era, "Armstrong has transformed AT&T from a tired also-ran into the telecom 'it' company." T shares were soaring, out-performing every other Dow stock for a time. Armstrong was incessantly compared to Lou Gerstner, the man who famously turned around IBM. Observers marveled at Armstrong's decision-making skills, his leadership style, his sense of humor, his accessibility, his Harley motorcycle. Super! One Business Week story from that period even had people complimenting Armstrong's willingness to let meetings run on for hours, which in my experience is neither a rare nor an admirable quality.
Ebbers, meanwhile, was practically a folk hero: His Mississippi-based WorldCom, built from a string of rapid-fire acquisitions, truly startled everyone in orchestrating the takeover of comparatively massive MCI. If Armstrong was central casting's Seasoned Manager, then Ebbers was the Wild Cowboy, dispensing salty wisdom and brandishing his big cigar all over the business press.
All of which is fine, as far as it goes. By the time these two came along, the celebrity CEO was a familiar phenomenon. The problem with this was--and always will be--that while a good CEO is important, there are quite obviously a lot of things that no CEO can control, yet Superbosses are increasingly anointed long before their strategies have been proven successful. The result is a lesson Wall Street learns (or maybe doesn't) over and over again: New top executives are routinely applauded simply on the basis of being new, or perhaps being a previously obscure up-and-comer. Often the executive sees a stock soar simply on the basis of his presence and, not surprisingly, starts in with a lot of cocky self-assessments. ("I am demanding," Armstrong reflected early in his tenure; Ebbers was bragging that WorldCom "knows how to put companies together and get the most out of them" less than a year before the recent suggestion that he'll be taking his company apart.) Eventually reality sets in, and often expectations have flown so high the CEO is almost guaranteed to get burned.
Now, this doesn't mean that Armstrong or Ebbers are fools or that their companies are doomed. The future of each is as murky, complicated, and risk-laden as it was three years ago. But back then, it just seemed a little easier to set all that aside and concentrate on those charismatic Superbosses.