AOL Chief Caught in Management Fissure

Richard D. Parsons’ young reign as chairman and chief executive of AOL Time Warner Inc. is showing signs of lingering strain where he least needs it: among the officer corps that keeps his huge operating divisions running.

Parsons, who has headed the media giant for less than a year and became chairman only a month ago, last week gathered his 150 top managers for a two-day retreat that was supposed to consign intra-company rivalries to the past.

As the executives met at the new Ritz-Carlton in New York, however, a surprisingly acrimonious debate welled up over the notion of dropping “AOL” from the company name -- a gambit favored by some of the old Time Warner entertainment and publishing powers, who would happily forget the merger that combined them with now-struggling Internet service provider America Online.

According to people who attended the event, Parsons, ever the conciliator, first tried to keep the peace by remaining neutral in the fight. By that evening’s dinner, though, the AOL and Time Warner camps had segregated themselves on opposite sides of a tense room.

The tussle over the name, which leaked out, hasn’t helped Parsons’ image with wary investors, whose biggest concerns have centered on his ability to get the troops in line behind a unified plan for his sprawling media company. Despite all of Parsons’ efforts, including a turnaround plan for America Online, the firm’s stock price continues to languish.

“He’s in over his head and has been since day one,” said Porter Bibb, media analyst at Technology Partners, which has a small holding in AOL Time Warner. “Where’s the strategy? ... They’re begging for leadership.”

Parsons declined to comment for this story.

The chairman is next expected to make a tour of his Hollywood film operation, New York publishing and music units and the Virginia-based Internet division. The idea is to meet with employees and outline a turnaround strategy for a company that has been plagued in the last year by a series of executive departures -- including those of corporate fathers Gerald Levin, Steve Case and Ted Turner -- and a record-setting $100-billion annual loss.

One manager, who attended last week’s retreat, said Parsons has a long way to go to mollify the troops.

“There’s still a lot of anger because of the money people lost in their 401(k)s and stock plans, and AOL is just the repository for that anger,” he said. “People are emoting and spewing, trying to get past it. But you never get over something like this. The best you can do is get beyond it. Parsons can handle these flare-ups better than anybody.”

This manager, a Time Warner executive, said he spent time with new America Online CEO Jonathan Miller and found him to be thoughtful and bright. “We’ve all got to stop shooting at the AOL people and give them a chance. They’re working really hard trying to fix this thing,” the executive said.

However, another executive who attended the meeting took a harsher view of the continuing schism. “The beginning of realism at this company will be when we get rid of AOL. It has no strategic value. This is a cable, publishing and entertainment company that has no use for AOL,” the executive said.

Major investors contend that the 54-year-old Parsons has months, not years, to show that he can get his managers in line. “The clock is ticking,” said Richard Gay, partner at Booz Allen & Hamilton in New York. “People are going to want to see results.”

Supporters note that Parsons still is struggling with problems he inherited from the ill-fated merger.

He has won points for ending the company’s complex cable alliance with AT&T; Corp. and installing new leaders at the Internet unit. He has announced plans to sell off non-core assets to trim AOL Time Warner’s rising debt. And though management turmoil continues, he has appointed two strong company insiders, Jeffrey Bewkes and Don Logan, to direct the recovery.

Only weeks ago, however, Parsons had to face down an investor push to replace him with Viacom Inc. President Mel Karmazin. The idea was to move Parsons to the chairmanship after Case stepped down and lure Karmazin to serve as CEO.

The board quickly quashed the effort by giving Parsons both titles. Some view the investors’ campaign as a lack of confidence in Parsons, though others see it as part of the normal testing faced by any new leader.

“Just like a new president or administration in the government, Parsons has to establish himself,” said Morton Pierce, chairman of law firm Dewey Ballantine’s mergers group. “Time will tell whether he can effectively juggle everything and get everyone moving in the same direction. But so far, there’s no reason to believe that the team at AOL Time Warner is not a very good team.”

Still, some investors say radical corporate surgery may be in order, although a sale or spinoff of the Internet unit would be difficult, given Wall Street’s current inclination to assign it negative value.

“Things seem to be moving slower than people would like. Parsons is under growing pressure to take the next couple of steps,” said Michael Gallant, a CIBC World Markets analyst, who sees some sort of breakup as possible if results don’t quickly improve.

So far, Parsons appears bent on holding things together.

A former chief operating officer and longtime veteran -- some would say survivor -- of his company’s internal wars, Parsons played the conciliator yet again in the last week: His cancellation of talks toward merging the company’s CNN news operation with Walt Disney Co.’s ABC News and the replacement of Turner Broadcasting System Chairman Jamie Kellner with past Turner executive Philip I. Kent probably helped to build bridges with Ted Turner, AOL Time Warner’s largest individual shareholder.

Some accuse Parsons of having mishandled the unpredictable Turner, who announced recently that he would resign as vice chairman and may leave the board. Turner’s threat to leave -- and perhaps unload more of his stock -- has further depressed the share price.

Yet some supporters insist that Parsons is tough enough to do whatever his job requires, even when that means knocking some heads in his executive ranks.

After last week’s brawl over the corporate name leaked to the public, for instance, the chairman chided his assembled executives for disloyalty before declaring the issue closed.

“He’s collegial and democratic. But there’s no doubt at the end of the day who the leader is,” one company executive said.

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Times staff writer Sallie Hofmeister contributed to this report.

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Turmoil at AOL Time Warner

* Dec. 5, 2001: CEO Gerald Levin announces his retirement and says co-COO Richard D. Parsons will take his place.

* March 25, 2002: In regulatory filings, AOL Time Warner says it will take a $54-billion write-down for the first quarter, the largest in U.S. history.

* Jan. 12, 2003: Steve Case says he will step down as chairman in May.

* Jan. 16: CEO Parsons is given the chairmanship.

* Jan. 29: Ted Turner says he will step down as vice chairman in May. AOL Time Warner announces an additional $45.5-billion write-off.

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Sources: AOL Time Warner,

Times research

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