AT&T;’s True Choice for Next CEO Is a Shocker
Tapping a relative unknown to solve its high-profile problems, AT&T; Corp. surprised the business world Wednesday by naming John R. Walter, 49-year-old chairman of commercial printer R.R. Donnelley & Sons Co., as the telephone giant’s new president, chief operating officer and heir to Chairman and Chief Executive Robert E. Allen.
Acknowledging that other candidates “might have had more marquee value,” Allen, 61, said Walter was chosen because of his success in positioning Chicago-based Donnelley--America’s largest printing company--to confront competitive and technological challenges comparable to those faced by AT&T.;
“He’s transformed a large, old-line company challenged by new technologies and changing markets into a tough global competitor,” Allen said. “Meeting those challenges is what leading the new AT&T; is all about.”
Wall Street, however, was not buying that logic. AT&T; shares dropped $1.875, or 4.7%, to close at $37.875 in heavy trading on the New York Stock Exchange. The widely held stock helped drag the Dow Jones industrial average to a 25-point loss. Donnelley, meanwhile, fell 12.5 cents to close at $30.50, also on the NYSE.
Analysts were puzzled that AT&T; chose an executive with no direct experience in the telecommunications industry and no consumer marketing expertise. As the leading printer of telephone directories, however, Donnelley isn’t a complete stranger to the phone business.
“It would be OK if he came from Procter & Gamble,” said Mark Plakias, managing director of Strategic Telemedia Inc., a market research and consulting firm. “AT&T;’s future is in an extremely competitive consumer market and one would have liked to see someone with a consumer marketing background in this position.”
AT&T; outlined an 18-month transition, saying Walter will become chief executive on Jan. 1, 1998, and then assume the title of chairman upon Allen’s retirement the following May. Some observers considered that too long a wait for a change at a company that is paying the price for a series of strategic and operational blunders.
“I was expecting 12 months at most,” said Chris Landis, an analyst at consulting firm Telechoice Inc. and a former AT&T; executive. “I think most insiders were too.”
Among the “marquee” names mentioned recently as candidates to fill the vacancy left by the resignation of AT&T; President Alex J. Mandl in August were C. Michael Armstrong, chairman of El Segundo-based Hughes Electronics Corp., a unit of General Motors Corp.; William T. Esrey, chairman of Sprint Corp.; and George M.C. Fisher, chairman of Eastman Kodak Co.
Media speculation about the succession had been so intense that AT&T; took pains during a news conference in New York on Wednesday to say that Walter had quickly emerged as the top choice among directors. AT&T; first discussed the job with him in early September, Allen said.
AT&T; director Thomas H. Wyman, former CBS chairman and, coincidentally, also a Hughes director, said the board considered “just under 10 candidates” but was “100% unanimous” in electing Walter, which was done during a special meeting Tuesday night.
Nobody turned down the job, Wyman added, because nobody else was offered it. Wyman declined to detail Walter’s pay package but said it will be “fair and not unusual” in size.
Executive succession is only one of the problems facing AT&T.; The company continues to lose share in its core long-distance business, where it once enjoyed a monopoly, and is bracing for even more competition in that area. The company has been slow to seize new opportunities in areas such as Internet service, and it has lost billions on ill-conceived forays into computers.
Allen tried to address many of the problems with a bold stroke: breaking the company into three parts by spinning off the phone equipment and computer operations. But financial results have yet to improve.
Last month, when AT&T; gave Wall Street an early signal that its third-quarter earnings would be sharply lower than expected, the stock plunged 10% in its worst one-day performance since the 1987 stock market crash. The shares, adjusted for the spinoff of the phone equipment group, Lucent Technologies Inc., are down nearly 23% from their 1996 high of $49 on Jan. 3.
Although he offered few specifics as to the problems AT&T; faces or the solutions he might offer, Walter was crisp and assured Wednesday during his one-hour encounter with the financial press corps at AT&T;’s headquarters here.
“This is not going to be any walk in the park,” he said, acknowledging the obstacles AT&T; faces in continuing the transition from its prior life as a slow-moving monopoly. But Walter said the company still possesses a powerful brand name and a huge core of customers around the world who “want to do business with us.”
People who knew Walter at the printing firm described him as intense.
“He was particularly intense about building better and better teams,” said Steve Baumgartner, president of Donnelley’s global commercial printing operations. “He wanted people who knew maybe more than he did for new thoughts and ideas.”
At heart, Walter is a salesman. He began his 27-year tenure at Donnelley as a sales trainee and moved quickly through the ranks to become the company’s president at 39 in 1987.
Walter instituted an open-door policy that company insiders say broke up the staid atmosphere at the Chicago headquarters. He also delegated responsibility and worked to wring new ideas and strategies out of executives.
“John is a very marketing-oriented person, a global-picture person and a visionary who can see where things are going and steer in the right direction,” said analyst Rudolf Hokanson at Deutsche Morgan Grenfell Inc. “But he’s not a nitty-gritty mechanics person, the guy who fixes things.”
Donnelley began a restructuring this year that included the spinoff of controversial direct mailer Metromail Corp., which was criticized for a service that sold names and addresses of children that could have been used by criminals to locate and stalk young victims.
One question crossed Walter up during Wednesday’s news conference. Asked to name his long-distance provider at home, he said he didn’t know. But he related that when his wife coincidentally got a call this week from a telemarketer asking if she’d be interested in having AT&T; handle all her long-distance calls, she replied, “You bet I would!”
Associated Press contributed to this report.
