Merger Tests Blumenthal’s Tough Style : Some Voice Doubts About Acquisition of Sperry by Burroughs

The day after W. Michael Blumenthal returned to Burroughs’ headquarters here from nailing down the Sperry acquisition, his desktop was neat as a pin, the fine wood glossy with polish. Topping a modest stack of papers in his in-basket was a magazine article that he said he hoped to read soon.

It was “Merger Syndrome: Stress and Uncertainty,” by Los Angeles psychologist Mitchell Marks and Philip Mirvis. Within a week, the magazine article was read, Marks hired as a consultant and Blumenthal was out of town again, this time to Minnesota on a good-will mission to the largest concentration of Sperry’s work force.

Blumenthal is wasting no time setting about to effect a smooth merger of the two companies. After all, running the No. 2 computer maker has been his goal since he joined Burroughs in 1979. And even though the merger is perhaps the boldest move yet in the computer industry and the biggest challenge of Blumenthal’s long career, indications are that Blumenthal isn’t about to change his style to fit the extraordinary circumstances.

The Big Picture

That means still shunning day-to-day tasks that might clutter his desk with paper work and choosing instead to deal with big-picture issues such as how employees of both companies will react to the $4.8-billion merger.

“The one thing I will avoid is to make all the decisions,” Blumenthal said. “I would kill myself.

“I am not the good Lord, and I don’t sit here and try to make all the decisions,” he said in an interview from his office in the New Center area of Detroit, an area that also houses General Motors’ headquarters and the Fisher Building, two of the city’s landmarks. “I spend very little time making decisions. Sometimes I wonder why I am needed at all,” he said. “I’m sort of like an orchestra leader, but I don’t play any of the instruments.”

So far, Blumenthal’s style of delegating to a well-chosen management team headed by President Paul G. Stern has worked for him at Burroughs. It’s a style that he also used earlier at Bendix, a Detroit-area automotive supplier that was considered one of the best-managed companies in the country.

A complex man who, associates say, likes to think of himself as an intellectual, 60-year-old Blumenthal has often been described as arrogant, aloof and ill at ease in group situations. His blunt manner often clashed with that of the Georgian contingent among the Carter Administration during his two-year tenure as Treasury secretary, colleagues say, and contributed to his ouster in 1979.

Critics who have tracked Blumenthal’s efforts to raise Burroughs up a notch privately speculate that his ego was the driving force behind the Sperry acquisition. “He likes to make his presence known and his weight felt,” one securities analyst said.

Skilled Negotiator

Yet Blumenthal is a skilled negotiator and can be witty and charming in one-on-one encounters. Community leaders praise his talent for getting to the heart of a problem, and former associates--including some that he has fired--remain fond of him.

As a businessman and economist--he received his Ph.D. from Princeton and later taught there--he scores high marks. “He understands business,” said a critic who pointed out that Blumenthal joined Burroughs with no background in computers but “made a lot of right moves” at the company.

Indeed, many industry analysts privately admit to serious doubts about the Sperry-Burroughs combination but withhold out-and-out naysaying in deference to Blumenthal’s track record.

George Podrasky, a securities analyst who has followed both Burroughs and Sperry for Duff & Phelps in Chicago, said the merger “is not a great idea.”

But Podrasky, sizing up the “long process to put the companies together,” also said that “Blumenthal and Stern will be a good team to do that. They’ve done a good job with Burroughs.”

Blumenthal joined Burroughs in 1979 as vice chairman and chief executive-designate, becoming chief executive in the fall of 1980. At the time, the company was viewed as a technological leader but troubled by poor quality control and indifference toward customers. By then, it was generally agreed, Burroughs was failing to expand the niche it forged selling mainframe computers to customers that market leader IBM had neglected.

During the tenures of Raymond W. Macdonald, who headed Burroughs from 1967 to 1977, and his hand-picked successor, Paul S. Mirabito, the company maintained healthy growth rates and reached a record $305-million profit in 1979. But critics said the profits often came as the result of cutting corners in research, strategic planning and customer service.

Stodgy Image Hurt

Market forces, which included increased competition and pricing pressures, began catching up with the company. As the young, spirited firms of the West Coast’s Silicon Valley began emerging as the stars of the computer industry, Burroughs slipped into a second tier of manufacturers grouped not as much by profitability as by stodgy image.

Burroughs’ earnings also slipped throughout 1980. In September of that year, a full quarter ahead of his scheduled retirement, Mirabito was ousted and Blumenthal was made chief executive.

“When he took over that company, it was in pretty bad straits,” said Thomas Crotty, a securities analyst with the Gartner Group in Stamford, Conn. “The surface cracks were there, but nobody knew the depths of them.”

Customer dissatisfaction ran deep. Product quality was uneven; components made at different plants often didn’t work together as a system. Service was slow and customers, including many in the financial services arena that is Burroughs’ mainstay, experienced long delays in getting the systems debugged.

One of the first things that Blumenthal did at Burroughs, said Crotty, was to tackle the production problems. While implementing internal quality controls, the company also established staging centers where the components were sent, assembled and put into working order before shipment to the customer. It was a costly interim step but a necessary one, Crotty said.

Blumenthal also directed improvements in field service and implemented a system of strategic planning. He sought to strengthen the company’s research and development efforts by narrowing their focus, eliminating some projects that seemed out of step with Burroughs’ primary market targets.

“The things he did internally were the right steps,” Crotty said.

Per Flaatten, information technology research manager for Arthur Andersen & Co. in Chicago, said that until recently, he too held an image of Burroughs as being a stodgy company “that was No. 2 (in large computer sales) and on its way out” despite the strength and soundness of its technology.

Better Customer Ratings

“They had terrible marketing and very uneven support. Burroughs claims they’ve turned around in those areas,” Flaatten said. And, according to an independent survey of customer satisfaction, Burroughs’ systems now get high ratings in several areas.

“Burroughs is way up there now . . . and everything I see bears out Burroughs’ contention that it is succeeding in changing its image.”

Flaatten gives the credit to Blumenthal, who, he said, “made sweeping changes and made the company less complacent.”

Burroughs’ revenue began rebounding and in 1985, the company had sales of $5 billion, with a profit of $248.2 million. In the first quarter of this year, however, as the slowdown in the computer industry caught up with Burroughs, revenue dipped slightly and earnings skidded to $16 million, compared to $46.6 million in the first quarter of 1985. A large part of the blame was placed on continuing losses at Memorex, the Santa Clara, Calif., disk-drive maker that Burroughs purchased in 1981.

When Blumenthal joined Burroughs, “he felt himself an outsider there, where the average tenure of the vice presidents was about 20 years,” according to Walter Douglas, former president of New Detroit, a business and community coalition to which Blumenthal belongs.

Within two years of Blumenthal’s arrival, 10 of 12 vice presidents had been replaced. Whereas the former Burroughs corporate culture was that managers came up from the ranks after long years of service, Blumenthal brought in executives from IBM and other computer makers, as well as associates from Bendix and government service.

Interestingly, noted Flaatten, one who remains was Fred R. Meier, a 30-year veteran who now is vice president of corporate program management and a strong force in technological development. In that regard, said Flaatten, Blumenthal gets high marks “for not fixing what ain’t broke.”

Painful Changes

Blumenthal, who indicated that there would be further changes in the management structure to accommodate the addition of Sperry executives once the companies are combined, said the changes at Burroughs “were painful. . . . Nobody likes to fire people; it’s a terrible thing to do, and I hate it.”

But, he said, “the reality is, when you’re putting together a good team and people who are in certain jobs and have to start working much harder and faster at higher levels of competency, those people realize they may not be up to the job. Frequently, people come to you and say they are not comfortable. . . . Some wanted to retire.”

Douglas Fraser, former United Auto Workers president whose contact with Blumenthal increased during the negotiations with the Carter Administration on loan guarantees for troubled Chrysler Corp., said of Blumenthal: “Some people would say he was ruthless, but the corporation was not going too well and it needed fresh blood.

“There’s an old saying which fits Mike very well: He doesn’t suffer fools gladly,” said Fraser, using a characterization repeated by several of Blumenthal’s business and governmental associates.

The scenario was similar at Bendix. Blumenthal joined the Southfield, Mich., company in 1967 as president of its international division. From 1972 until he left in 1977 to join the Carter Administration, he was chairman, president and chief executive.

There, he also reorganized the upper ranks of management through dismissals, transfers and by bringing in outsiders. Karen Walker, who worked at Bendix for 15 years, including two as Blumenthal’s administrative assistant, recalls that while the executive shifts were demoralizing to some, “most people agreed with what he did.”

Walker, who remained at Bendix until after its forest products division was sold in 1981, is now director of human resources at Crown Zellerbach. She said Blumenthal was a “fascinating man to work for” and echoed statements of other former Blumenthal associates who said he was a demanding boss but one who gave his managers a lot of opportunity.

Firm Improved Sharply

During Blumenthal’s tenure at Bendix, the company nearly doubled its revenue to $3 billion a year, sharply improved its profits and diversified its defense-based business into automotive supplies.

There, one of Blumenthal’s proteges, brought in from the outside, was William Agee. When Blumenthal left for his Cabinet post, Agee succeeded him as chairman and, for a handful of years, continued the company’s growth.

Blumenthal’s stint in Washington, his second in government service, was short-lived, however. (Blumenthal left Crown Cork International, where he was vice president, in 1961 to join the State Department as assistant secretary for economic affairs. In 1963, he was appointed an ambassador and served Presidents John F. Kennedy and Lyndon B. Johnson as deputy special representative for trade negotiations.)

Blumenthal was one of the richest members of the Carter Administration. He often found himself at odds with members of the White House staff who had been President Jimmy Carter’s Georgia associates and were now among his closest advisers, said one Cabinet colleague who generally found himself on Blumenthal’s side of issues.

He was blunt, often to a fault, said the official, who spoke on the condition that he not be identified.

“Even when he was right substantially, and he often was, he thought he had an obligation to tell people when he thought they were wrong. . . . He sometimes would have been better off not to tell people when they were wrong, when it wasn’t necessary to do so anyway.”

Carried Tax Fight

Blumenthal’s role, said the official, was to carry Carter’s fight for an individual income tax cut to Congress, which preferred a capital-gains tax reduction. “He did a good job but didn’t get very far. Mike was in the unfortunate position of doing the best he could and making compromises with Congress. Some (on Carter’s staff) though he was selling them out.”

His outspokenness made him a highly visible member of the Cabinet. Yet there were places where his oft-photographed face was unfamiliar.

Once, while dining late in a San Francisco restaurant, apparently in anonymity, Blumenthal offered up a credit card for payment, only to be politely told that the card had expired. When he instead offered a check, he was asked for identification.

Reaching into his pocket, Blumenthal withdrew a dollar bill bearing his signature. Blumenthal, who recalls the story with less relish than others who tell it, said summarily: “I told them, ‘See, the signature is good.”’

As Carter’s stalemate with Congress lingered, Blumenthal’s support in the White House weakened. In August, 1979, Blumenthal exited during a Cabinet shake-up, later called the Cabinet massacre. “He got a raw deal; he was a good soldier,” one former Cabinet official said.

In Mary Cunningham’s book “Powerplay,” in which she writes of her ouster from Bendix, her later marriage to Agee and the eventual merger of Bendix and Allied, Cunningham said that Blumenthal wanted to return to Bendix after leaving the Treasury Department.

Cunningham, who wrote that Blumenthal was among those who agitated against her and Agee while she was Agee’s executive assistant, said that Blumenthal began a “war against Bendix.”

Others who followed the bizarre saga of Bendix’s failed attempt to takeover Martin Marietta, which led to the Allied merger in 1983, said that Agee, in addition to resisting a Blumenthal return to Bendix, also tried to thwart Blumenthal’s joining Burroughs. Cunningham wrote that Burroughs was on Bendix’s list of possible acquisitions. Other observers say Agee feared that Blumenthal could exert some control over Bendix because of a long history of close ties between the two companies, including the presence of several directors on both boards.

Hostilities Increased

Hostilities between the two former friends increased, and eventually the dual directors left Bendix’s board.

“Blumenthal considers Agee his biggest mistake,” said one individual who knows Blumenthal well. “For a time, he was obsessed with Agee . . . but I think now, he has a sense of humor about it.”

Some Wall Street analysts believe that he’ll wind up thinking the Sperry acquisition was a bigger mistake.

“It doesn’t make sense,” said analyst Crotty, who also called the merger a “misstep” by Blumenthal.

The companies’ markets are complementary, but the products are based on different internal designs and thus require separate support services.

Blumenthal insists that the two lines will not be merged, that economies of scale will be achieved in administrative areas and that the combined research and development budgets will give the new company needed “critical mass” to support future technological developments. But industry analysts say that eventually, the computer lines will have to be merged through software development.

“Those half-dozen or so analysts who are saying this (merger with Sperry) is a stupid disaster--and they’re a minority--were the same people who six years ago said ‘Poor Blumenthal, he doesn’t know he’s joined a sinking ship’. . . . And one of those analysts, 3 1/2 years later, said Burroughs was the best of the bunch,” a reference to the five makers of large computers: Burroughs, Sperry (Univac), NCR, Control Data and Honeywell--the second tier in the IBM-dominated market.

“Now,” he said, his speech still bearing a trace of his native Germany, “maybe we know something they don’t.”

Blumenthal’s self-confidence and resourcefulness, said one former associate, are a legacy from his early years.

Pulled Himself Up

“You have to remember,” said the associate, “that this is a man who has pulled himself up every half-inch of the way.”

Blumenthal was born to Jewish parents in 1926 in Germany. When he was 12, his father was sent to a concentration camp, and his parents’ business was confiscated. His mother sold household goods to buy her husband’s freedom, and the family, without visas, emigrated to Shanghai.

Later, he was put in an internment camp for two years before being liberated by American troops. He came to the United States in 1947 and worked his way through college at UC Berkeley.

Blumenthal is a private man, Burroughs officials say.

He and his second wife, Barbara, live in Ann Arbor, Mich., with their infant son, Michael. In his obvious pride about his son, Blumenthal allows the veil of privacy to be lifted just a little; the credenza behind his desk bears no less than 11 framed photographs of his son.

Although some have speculated that Blumenthal’s intent is to oversee the Sperry merger just long enough to get it running smoothly, then jump to another career, perhaps back into academics, Blumenthal demurs.

“That,” he said, pointing back to his son’s photos, “is my next career.”