Disgruntled Managers Jump Ship to Form Own Firms
Corporate merger specialists, tired of subsidizing co-worker salaries, quit and create their own company. One of the country’s biggest law firms splinters in a feud over money and expansion. An advertising giant teeters when executives join a newly formed rival, wooing valued clients.
From Madison Avenue to Wall Street, disgruntled managers are jumping ship with increasing frequency, a trend that reflects their frustration at working for someone else and fear of getting victimized in an uncertain climate of corporate takeovers, experts say.
“Companies are going to have to do more to give individuals the ability to function as entrepreneurs,” said Frank Palma, senior vice president of executive search at Goodrich & Sherwood Co., a management consulting firm. “If they don’t, we’ll see more people venture into their own businesses.”
To some extent, management analysts say, many talented executives feel they have a better survival chance if they start their own companies, rather than remain loyal to employers that could suddenly become takeover targets.
“Instead of being the swallowee, why not do the swallowing?,” Palma said. “I just see a change in the perspective of a good many people because of all the insecure aspects of being a member of the corporate environment. Going into your own business is not perceived as such a big risk as it was 20 years ago.”
Denise Rousseau, associate professor of organizational behavior at Northwestern University’s Kellogg graduate management school, said the urge to jump ship also is a result of a growing service economy, in which the products are largely thoughts and ideas.
“We just simply have a greater portion of the population in knowledge-based businesses,” she said. “People can more readily take with them the wherewithal of their work.”
Some of the most visible departures came after the October stock market collapse, which shrank Wall Street profits and forced austerity upon securities firms that had grown fat and complacent. Many takeover specialists grew annoyed over directives to take salary cuts, especially when their deal making remained one of the few post-crash moneymakers.
At First Boston Corp., co-heads of the investment banking unit quit and formed their own firm. The co-head of Shearson Lehman Hutton’s mergers department quit after a reported clash with the chief executive.
Last week, Salomon Bros. Inc. lost one of its celebrities, former White House budget director David Stockman, who joined the much smaller Blackstone Group as head of corporate acquisitions. In addition, Merrill Lynch & Co. and Kidder Peabody & Co. have suffered defections by some of their brightest stars.
The splintering also has affected the legal profession, an area in which up until recently mergers and the growth of super-size firms had been common. One of the biggest examples came last year with the demise of the nation’s fourth-biggest law firm: Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, which once had 700 attorneys in offices nationwide.
Greed, excessive expansion, salaries paid with borrowed money and a management struggle at the top caused lawyers to start resigning en masse last summer, according to press accounts of Finley Kumble’s collapse.
Another publicized episode of ship-jumping came more recently when the chairman, president and more than a dozen other key people at advertising giant Lord, Geller, Federico, Einstein Inc. quit to form a new agency.
The mass departures stemmed from an autonomy dispute with Lord Geller’s British parent WPP Group PLC. Fearing the exodus would topple the firm and send clients over to the new rival, WPP took the defectors to court.
This type of litigation, which centers around an area called intellectual property rights, likely will increase as the number of employees who quit to form their own companies rises, experts say.
“There’s a fine line between what is owned by a company and what is owned by the individual who works for it,” said Edith Weiner, a partner at the management consulting firm of Weiner, Edrich, Brown Inc.
