Tough Times Challenging Western Digital Chairman
The question from the audience would make many chief executives cringe.
“Are you the right man to be leading this company in the 1990s?” a Western Digital investor asked at a crowded annual shareholder’s meeting in December.
But Roger W. Johnson, chairman of Orange County’s biggest computer products company, did not blink. Dressed in his customary dark suit, he stood prepared at the lectern.
“The real question is, ‘Does this management team have the flexibility to deal with the times,’ ” he responded. “I think so.”
Johnson acknowledged later that he had often posed the same question to himself. In years past, his customary response would have been deadpan humor. Perhaps sensing the seriousness of this situation, Johnson played it straight.
There was not much to joke about. Just a few months ago, Johnson’s company appeared to be reeling toward bankruptcy. Irvine-based Western Digital Corp., which makes parts used in personal computers, has lost a whopping $172 million over the past 15 months. It has had to sell properties to raise cash, shut some factories and lay off 1,500 people. Company shareholders have watched Western Digital stock plunge from a high of $32 a share in May, 1987, to about $3.50 recently.
Some angry shareholders have sued Western Digital and Johnson, accusing the company of issuing overly optimistic profit forecasts during 1990 and failing to disclose adverse news in a timely fashion. The company denies the allegations.
Johnson, 57, is known locally as more than just a corporate chieftain. Active in the local arts community and Republican politics, he raised some eyebrows last month when he publicly criticized President Bush’s economic policies and said he was considering supporting Arkansas Gov. Bill Clinton for the Democratic presidential nomination.
But Western Digital remains his top priority, he says. And investors, competitors and co-workers will be watching to see how he copes with that crisis. If profits do not improve soon, some analysts say, both Johnson and the company could be in deep trouble.
“I think his job is in jeopardy because he was so optimistic a few years ago about how big the company would be,” said one Wall Street analyst who asked not to be identified.
Johnson Rescued Company Before
But others said if anyone can revive Western Digital, Johnson can. After all, Johnson rescued the company once before. When he joined Western Digital as chief operating officer in 1982, the company had barely $25 million in sales and was still languishing after emerging from bankruptcy four years earlier. It was the same year that International Business Machines Corp. introduced its first personal computer, a product that would revolutionize U.S. offices.
Under Johnson’s guidance, Western Digital’s sales topped $1 billion by 1990. Supporters say Johnson saw the potential of the personal computer, betting that Western Digital could prosper by supplying tiny components, such as computer chips, to companies building PCs.
Beyond creating a billion-dollar company, Johnson helped put Orange County on the map as a technology center, a smaller version of Northern California’s Silicon Valley.
Johnson and his wife, Janice, have played a key role in supporting local politics and arts; the Johnsons were a staple at black-tie affairs, hobnobbing with the county’s elite. In 1990, the Laguna Beach couple received the prestigious Giving Is Living Award from the Volunteer Center of Orange County for the work that made the Johnson name synonymous with the elite of the local performing arts scene.
But Johnson’s critics say he built his ego along with the company and overspent on a big expansion without setting aside enough cash to pay debts or to tide the company over in a slow economy. He set up factories worldwide, spent $119 million on a showcase semiconductor plant in the high-rent Irvine Spectrum business park and moved the corporate headquarters to a 15-story office tower nearby.
When the recession hit in late 1990, the company was caught with $160 million in debt from money borrowed to buy other companies, an aging product line and the continuing effects of an industry slump.
Johnson promptly announced a management shake-up, an internal restructuring and a severe cost-cutting program.
The company was then caught off guard when demand for older products used in computer disk drives slowed before the company could get new products to market. The decline was so steep that Johnson had to close three plants, including one in Irvine. As losses mounted, Western Digital renegotiated $205.8 million of bank debt to stave off a bankruptcy filing. Customers grew jittery, and Johnson found himself on daily damage control duty.
“Wrenching. Difficult is too soft a term,” Johnson said about the past year. “There isn’t anything we planned to do that we didn’t have to change. It involves people, and it’s hard to take something you’ve created and change it when it affects people.”
To be sure, Western Digital is not the only company in the disk-drive industry to falter in the recession. In the past quarter, four of the six major disk-drive makers--including Seagate Technology in Scotts Valley--have also reported heavy losses.
“They got caught in a product transition and in industry dynamics (that) they could not keep up with,” said James W. Reynolds, an analyst at Wedbush Morgan Securities in Los Angeles. “I don’t think management is to blame. I don’t think Superman could turn them around.”
Johnson’s current strategy is threefold: sell to such large customers as IBM, steer clear of industry price wars and develop interrelated semiconductor technologies that will keep Western Digital at the forefront of innovation.
“We turned around the company in the early 1980s by focusing on things we did well and expanding our sales force worldwide,” he said. “Now we’re doing something similar today, looking at what we do best and cutting out anything that isn’t in our mainstream focus.”
Hefty Salary for Son of Union Leader
Some critics questioned whether Johnson’s heavy involvement in politics and the arts is diverting too much attention away from his company. And several analysts said his hefty salary--$538,492 for 1991--should have motivated Johnson to devote more time to company problems.
Company officials are quick to point out that the chairman’s salary is comparable to executives of other large disk-drive companies.
This criticism riles Johnson. “Sometimes people think you should spend 100% of your time at the company doing work for the shareholder,” he said. “That’s not what this job is. I try to balance it and look myself in the mirror and ask if I’m doing my best. I’ve cut back on outside activities and put more attention on the company, and I would be irresponsible if I did less. There’s no way to win.”
However, Johnson said he might relinquish one of his three titles--president, chief executive and chairman--in 1992.
“I really should not do that for too much longer, because I think we need to have a strong president and chief operating officer,” he said.
The son of an AFL-CIO union activist from Hartford, Conn., Johnson was born in 1934 during the Depression. He had a job by age 10 and walked union picket lines with his father.
“From that I got respect for people on the floor being smarter than management,” he recalled.
He was class valedictorian at Clarkson University in Potsdam, N.Y., where he graduated in 1956 with a business degree. He met his wife at college and was mulling a career as a professional baseball player when he left school. But on the advice of a coach who called the first baseman a “no-hit wonder” for his anemic batting, Johnson instead went to work as a manufacturing manager at General Electric Co., where he spent 13 years, carefully planning each new promotion.
His years at GE left an enduring impression. There, he began describing certain types of corporate managers as “elephants,” chastising them for following herd instincts that could wreck a company when they panicked and “stampeded” into decisions.
In his glass office on the top floor of Western Digital’s headquarters, Johnson has a collection of porcelain and brass elephants--gifts from visitors who have heard the elephant tale. The collection reminds him to not become an elephant himself, Johnson said.
“The rumor was that Roger never forgot people who helped him or hurt him,” one former Western Digital executive said. “But he gives his people the authority to make their own decisions and state their viewpoints.”
Johnson uses a personal computer but leaves the technical work to his managers while focusing on marketing and financial issues. He travels frequently to the company’s far-flung factories or to make sales pitches to key customers. He arrives at work before most others, usually about 8 a.m., and leaves about 6:30 p.m. He comes in almost every weekend and is never seen at work without a suit jacket.
“We joke that Roger goes to sleep in his suit or goes grocery shopping in his suit,” said Kathryn A. Braun, Western Digital’s executive vice president.
Though hardly flamboyant, Johnson often uses humor to get his points across. Even under duress, he likes to crack a joke, co-workers said.
A few years ago, Johnson was about to tee off at a country club in Mission Viejo when he was struck in the head by a wayward golf ball. Four golfers drove up in carts to lend a hand. One of the men said he was a priest; two others were doctors. Johnson rubbed a swelling welt on his head and said to the fourth: “I hope you’re a lawyer!”
Around the office, Johnson exhibits a “little-boy charm,” swinging his baseball bat to relax between meetings, said Maralyn Olsson, Johnson’s executive assistant for the past decade.
Encourages Debate but Tough on Officers
But Johnson can also be a tough boss. Recently, he has become tougher on senior managers who he thinks are not performing as they should, company sources said. Some top managers have left the company in the past year, including three chief financial officers.
Johnson encourages debate among his managers in discussions that, these days, often focus on how to divvy up the company’s thinning resources. “You’re never shot for voicing your own opinion here,” said Braun, who joined the company nine years ago. “We tend to get excited and yell at each other a lot. Above all, I think Roger wants us to be flexible and not fall in love with our own ideas so that we can’t adapt.”
When George L. Bragg, vice chairman, joined Western Digital’s board a year ago, he was surprised by the lack of decorum in the boardroom. “The executives will interrupt each other,” he said, “and tell Roger he doesn’t know what he is doing. Most CEOs wouldn’t tolerate behavior that borders on the disrespectful. But Roger listens, then he makes the decision.”
The Johnsons live in a Mediterranean-style home that sits atop a Laguna Beach cliff. In a recent interview in their living room, Janice Johnson said she has noticed changes in her husband during the past year or so.
“Humor makes him go,” she said. “But he has become very intense, and he’s up a lot late at night. He never lets people know how concerned he is. But he tells me everything.”
Johnson says: “I could be somber, but if I did that as a leader, I’d project a somberness and that’s not what a leader should do.”
Other friends say Johnson has aged visibly during the past year, and the corporate chief concedes that he feels burned out more often than in past years. He remembers fondly the trip his family took five years ago to Africa, a getaway dreamland where there were lots of elephants and there wasn’t a phone in sight.
The Johnsons have cut back on their social schedule, reserving most evenings for themselves. To help cope with stress, Johnson works out in a home exercise room several times a week or plays golf with his wife.
He also dabbles in his hobbies: politics and the arts. After moving to the county a decade ago, Johnson became a kind of a high-tech ambassador to the local fine arts community. He has been a key fund-raiser for the Orange County Performing Arts Center since joining the board in 1986.
Passionate about the arts, Johnson made bets with Kathryn G. Thompson, a prominent real estate developer and close friend, about who would raise the most money. “He sandbagged me one year and let on that I had raised more money,” she said. “Then he had somebody stand up in the audience and say they had donated an extra $25,000, outdoing me.”
Clinton Breakfast Ruffled GOP Feathers
Long involved in Republican politics, Johnson ruffled some feathers recently when he chided the Bush Administration for its inattention to the nation’s economic problems. At a breakfast meeting in December in Irvine, in front of a dozen TV cameras, Johnson and Thompson announced that they are considering supporting Gov. Clinton for the Democratic presidential nomination. Johnson, who said he received hundreds of supportive phone calls from other county executives, said he hopes he touched a nerve among both mainstream Republicans and Democrats.
“I’m getting criticized from the party by people who miss the point,” Johnson said. “These economic issues are too serious to deal with in a partisan ideological fashion. If people call me disloyal to the party for doing this, so be it.”
Johnson insisted that his top priority is not politics or the arts but returning Western Digital to financial health. Some have likened Johnson’s predicament to that of Rod Canion, founder and former chief executive of Compaq Computer, who was abruptly fired in October after the Houston company reported a $135-million quarterly loss.
Johnson said he worries that the Compaq case is a sign that corporate directors, responding to recessionary and competitive pressures, are sacrificing long-term goals for short-term gain.
“I respect Canion,” he said, fully aware of the parallels to his own situation. “He grew a substantial company in a competitive industry, and it is unfortunate he left.”
As the computer industry has changed, Johnson has often responded by redirecting the company’s strategy or shuffling his management team, analysts said. He has even been willing to loosen his control of the company by bringing in new executives.
In August, 1991, for instance, Johnson appointed George L. Bragg, a friend and board member, to the new position of vice chairman. Johnson worked with Bragg from 1971 to 1975 at Memorex Corp.’s storage division. The two helped transform the then-unprofitable division into a moneymaker and tripled sales in four years.
Bragg is focusing on strategic issues, such as financing, while Johnson concentrates on day-to-day management. Johnson’s moves get a vote of support from the company’s largest institutional investor, the Wisconsin Investment Board, which owns 8.8% of Western Digital stock.
“They have gone through a heck of a lot of troubled times, and the actions taken so far seem to make a lot of sense,” said John Nelson, fund manager. “We think the company is going to be a survivor.”
Busy in the Boardroom
What the chairman does when he’s not running Western Digital: American Business Conference: Member, 1984 to present Board member, 1986 to present Orange County Performing Arts Center: Board member, 1986 to present Executive committee board, 1987 to present UC Irvine CEO Roundtable: Member, 1986 to present UC Irvine Foundation: Board member, 1988 to present 1992 chairman American Stock Exchange: Board of governors, 1988-90 Quintex: Director, 1986 to present Triconex Corp.: Director, 1985-88 Pacific Scientific Co.: Director, 1988 to present Catalina Toys: Board member, 1990 to present
A downturn at Western Digital
Sales at Western Digital fell sharply in fiscal year 1991, and the computer products company suffered its worst loss in history. Johnson joined the company in 1982. Western Digital’s stock peaked in mid-1987. But the stock hasn’t traded anywhere near that level since. In recent weeks, it has traded between $2 and $4. Source: Western Digital Corp.
