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The Executive Branch

The top job has grown so complex that CEOs practically need a presidential cabinet to stay informed and on their toes.

What a difference a crisis makes. Before September 11, Transportation Secretary Norman Mineta was strictly a behind-the-scenes player. But as a hijacked plane hurtled toward Washington, Mineta was hustled under guard to a secret bunker. There he manned an open line to the Federal Aviation Administration, relaying the distance countdown, “20 miles, 10 miles, the Pentagon’s been hit,” to Vice President Dick Cheney, who was seated nearby. Without conferring with Cheney, Mineta immediately gave the order to ground the 4,800 planes in the air and shut down airports nationwide, a decision that likely foiled other terrorist plots, according to reports from both the Bush administration and the FBI.

Mineta’s part in managing that crisis underscores the crucial roles played by the handpicked members of the presidential cabinet. Suddenly, in the aftermath of the hijackings and during the anthrax threats, other cabinet members, including Secretary of State Colin Powell, Defense Secretary Donald Rumsfeld, Health and Human Services Secretary Tommy Thompson, Attorney General John Ashcroft and the newly appointed Office of Homeland Security, Tom Ridge, have been thrust into the news daily.

Clearly, the president and the nation are relying on this team of experienced leaders entrusted with clearly delineated areas of responsibility, each of whom is empowered to make critical decisions. Sound familiar? That may well be because these cabinet members function like today’s management teams, albeit on a larger scale. “I view my management team members as trusted colleagues, advisers and teammates, and I have to believe that our president views his cabinet the same way,” says Robert Selander, CEO of MasterCard International, based in Purchase, N.Y. “The individuals have important experiences and skills that make them not only qualified for their jobs, but qualified to participate in a broader policy-making leadership team.”

In fact, the events that thrust government leaders into crisis mode had a similar impact in corporations as CEOs and their cabinets rushed to cope with the repercussions of terrorist attacks. At Merck, the global pharmaceutical powerhouse, for example, the prospect of bioterrorism, specifically the threat of smallpox, spurred immediate action within multiple divisions, none of which wasted time waiting for one of their twice-monthly management meetings before leaping into motion. “Without a formal request from the government, our research organization and our vaccine division asked themselves, €˜What do we have to do to put together the capability to respond to this?’ They just started moving,” reports Ray Gilmartin, CEO of the $40.3 billion Merck, based in Whitehouse Station, N.J.

A team of experienced officers and a collaborative corporate culture, asserts Gilmartin, enabled the rapid response. “Because of the working relationships between manufacturing, marketing and research,” he explains, “they were able to work out an entire program, very much self-initiated, within days.” Ultimately, however, Merck and other U.S. manufacturers were outbid by British-based Acambis PLC, which in November was awarded a $428 million contract to produce smallpox vaccines.

At MasterCard, it was the financial ramifications of a virtual halt in personal and business travel that sent the executive team scurrying. “On September 11,” recalls Selander, “we were in the final stages of finishing this year’s forecasts and our budget for next year. We took both documents and threw them in the wastebasket because there was a substantial change in the growth trajectory of our business. So everyone went back and found ways to take $35 million out of operating expenses and rethink resource allocations. It meant people who had expectations and plans in place had to redo all of that and give up a lot of things.”

Some teams would be hard-pressed to undertake such an arduous task without infighting. At MasterCard, which pulled in $1.57 billion in revenues last year, the cuts that top execs brought back to the table were more than ample. “We were able to do it without pulling teeth,” says Selander. “In fact, we were actually able to give some resources, people and money back to certain areas.”

Both Selander and Gilmartin are quick to point out that the post-September 11 story could have been very different. “It was not as angst-causing a process as it would have been [before we restructured the executive team] three or four years ago, when I would have been personally saying, you have to take this out and that out,” Selander asserts.

Without the right people around the table, Gilmartin adds, urging cabinet members to be proactive can be disastrous. “We encourage individual initiative, so that we can move and catch up later in terms of what we are doing, because we have a common understanding of what we’re trying to do,” he says. “But you have to have the right people, otherwise there’s risk in running an organization this way.”

Yet picking the “right” people and team structure is no easy task. In fact, “it’s a critical issue in why some CEOs fail,” notes Noel Tichy, a former GE executive and author of the book Leadership Engine. “It’s not because of a lack of brainpower at the top; it’s that they don’t exercise power to get an aligned team fast enough. In all revolutions, it’s your generals that get you. It’s what Jacques Nasser wrestled with, and it’s what killed Bob Allen at AT&T.”

Every CEO has a similarly strong opinion about constructing a cabinet. But while a lack of dissension in the upper echelons is considered fundamental, the philosophies of how to get there often differ. For example, after taking the CEO post in 1997, Selander slashed the number of reports going directly to him from 13 to six, while Gilmartin, who assumed his post in 1994, boosted those from his team from four to 11. Such differences suggest that everything from a CEO’s leadership style to the company’s market position can factor into the equation-as the following cabinet-constructing stories attest.

Inheriting a team
When it comes to forming a cabinet, Jerry Jurgensen, chairman and CEO of Nationwide, a $117 billion insurance and financial services giant in 2001, shunned the management reshuffle typically sought by a new CEO brought in from outside the firm. “I came in with a strategy of not making wholesale change to facilitate my own personal comfort,” explains Jurgensen, 50, who joined Nationwide from Bank One in July 2000. “My view is that if the company is doing reasonably well there’s a lot of loyalty built up among the people who work for those leaders. So when new CEOs make wholesale changes at the top, while they may like staff meetings more, they’re ignoring the feelings of 35,000 people who work at the company.”

Rather than boot top execs, Jurgensen made an addition, creating the post of executive vice president for corporate strategy and filling it with a familiar face, Michael Helfer, who left Washington, D.C.-based international law firm Wilmer, Cutler & Pickering to join Nationwide in Columbus, Ohio. “I need someone around here who knows me and can be a coach and counselor to me, someone who doesn’t have to learn me,” says the CEO, crediting their shared history. While in private practice, Helfer had represented trade associations of which Jurgensen was a member. “Michael knows me well enough to come in after a meeting and say, €˜I don’t think you handled that well.'”

Helfer’s can-do approach was also a factor. “I divide people into two piles-the people who tell me why I can’t do something I want to do and the people who tell me what I need to do in order to make it happen. He’s the second type.”

For his part, Helfer notes that Jurgensen encourages candid comments from everyone on his team. “When Jerry asks, €˜What do you think about this?’ he actually means, €˜What do you think about it?'” asserts Helfer. “Whereas some CEOs mean, €˜I’ve decided we’re going to do this, and I want you to tell me it’s okay,’ or that it’s the best idea since fried beans. He encourages all of his team members to say what they think, including that he’s wrong, not after meetings but in them, which is unusual for a CEO.”

For Jurgensen, the ideal cabinet is composed of executives with deep knowledge about their specific areas of expertise as well as the ability to bring that knowledge to the table in a constructive way. “There are going to be some very critical judgment calls along that road, so you need people with the proper amount of content knowledge,” says Jurgensen. “Equally important is how they’re wired personally. Nationwide is a matrixed environment and you’ve got to be able to get along to get ahead. So you can be right as rain but that’s not enough if you can’t convince and get other people to adopt your point of view.”

Turning everything upside down
When Robert Selander took the helm at MasterCard in April of 1997, he had no intention of preserving the status quo. “I was being transacted to death with 13 direct reports,” he recalls. “There was little time for team activities, and they were almost logistically impossible with 13 people spread out across the world.”

Selander, 51, who had been with MasterCard for three years at the time, overhauled the organizational structure, dropping his cabinet to six direct reports and moving from a geographic focus to a more customer-centric structure. The process was far from smooth, with several senior executives unable to adapt departing along the way. “It wasn’t because I was taking people out back and shooting them,” Selander says, “but because there were people who were not going to be able to play the game. It was wrenching change, and, for a company that wasn’t used to change, it was destabilizing for almost the rest of the year.”

But the end result, he says, was worth the turmoil. “I have a group that is good at listening and trying to understand others’ positions and finding ways to either resolve problems or create opportunities.” And, despite the upheaval, of the six key team members, all but Denise Fletcher, executive vice president and CFO, came from inside the company.

“I prefer to give opportunities to someone inside whenever possible,” notes Selander. “But we were moving into new areas and hadn’t built individuals with the background and skill base we needed in a CFO. In the past, we hadn’t been accessing the capital markets, and we weren’t looking to convert to a private share company and be SEC-compliant. Those are not the kinds of things where you want to have on-the-job training.”

Fletcher fit the bill nicely, having served as CFO of the financial printing house Bowne & Co. for four years and, before that, as corporate treasurer of The New York Times Co. What’s more, Fletcher, like several others in Selander’s cabinet, was raised abroad. “I grew up in Istanbul, Turkey, and speak several languages, which is extremely helpful, especially in dealing with our close partner, Europay International, in which French and Flemish are the two main languages spoken,” says Fletcher. “Even though many of our colleagues over there have a very good command of English, the fact that I speak French fluently makes life a lot easier.”

Given MasterCard’s increasingly global focus, international experience, while not a prerequisite, is invaluable, asserts Selander. “We do business in more than 200 countries and have 35 offices around the world,” he says. “We are global by any measure and it’s important that perspective exists at all levels.”

But, at the end of the day, it is results, both quantitative and qualitative, that are Selander’s ultimate litmus test when it comes to assembling a cabinet. “It’s not just the numbers you bring home, but how you do it,” he says. “I have run into people who are bullies, who may have delivered earnings at the end of the day but are leading a group of people who are unhappy, don’t enjoy what they are doing and may not understand why they are doing it. You don’t want people who damage the fabric of the company. You want people who get results and leave behind an organization capable of delivering those or better results in the future.”

More is better
As an outsider taking the helm at Merck in June of 1994, Ray Gilmartin recognized the learning curve ahead. “I spent a few months gathering information about the organization, the issues the company faced and the leadership at the senior level,” he recalls. By Labor Day, he was ready to announce a new, flattened organizational structure. “I took out a layer of management between myself and the next layer, increasing the number of direct reports from four to 11,” he says. The new CEO realized the success of the company depended on having a flexible executive team, able to respond to issues quickly across divisions. And that’s who is on the management committee, each of the heads of the major functions of the company and the major regions.

In making selections, Gilmartin, 60, was acutely aware of how closely Merck employees would scrutinize his picks. “As a final test, it was important that I could anticipate the rest of the organization’s saying, €˜Yes, that’s the right person for the job.’ That was critical because there was a lot of uncertainty about where we were headed as a company and a lot of uncertainty in the market that surrounded us. I needed a group of people who, by the announcement of their appointments, would inspire confidence and trust.”

While some top Merck executives were shown the door, Gilmartin refrained from going back to his previous company, Becton Dickinson in Franklin Lakes, N.J., to recruit cabinet members. “I wanted to take advantage of the institutional memory of the company, so I had no intention of bringing in €˜my people.'” Instead the CEO sought inside candidates who commanded respect and possessed the leadership attributes Gilmartin describes as the ability to “see what needs to be done, to get it done and to get it done the right way.”

Instilling a sense of teamwork proved one of his biggest challenges. “To take the company to the next level we had to break down the silos and shift from a competitive model-competition among executives and among functions-toward a more collaborative model so that we were able to effectively integrate across different functions,” says Gilmartin. “That dictated important attributes and capabilities. Because we operate in this collaborative fashion, there has to be a generalist characteristic about every member of the management committee.”

For Gilmartin’s team, that meant broadening traditional roles. The CFO, for example, manages Merck’s portfolio of joint ventures in addition to handling financial operations.

Empowering his team of self-starters enables Gilmartin to attend to larger industry issues, like meeting with President Bush’s cabinet to discuss initiatives in bioterrorism defense. “I rely on the people who report to me to execute without my having to get engaged or get into the details of their function,” he explained recently, just before heading out to catch a plane bound for Washington. “So it’s important that each has the instinct and capability to take the initiative and make decisions.”

Pitfalls in Choosing Your Cabinet
Poor choices and mismanagement bring dire consequences. How do you avoid the pitfalls? Chief Executive asked well-known business consultants Noel Tichy and Ichak Adizes to weigh in on three ways CEOs often go wrong and what can be done about it.

1. Don’t bring in the clones.
“The cabinet should be composed of people whose styles complement each other,” asserts Adizes, founder of the Adizes Institute in Santa Barbara, Calif. Adizes counsels companies on organizational structure and other management issues. “People usually think that they need complementary knowledge, but you can get knowledge in a document. What you need is diversity of styles and opinions so that the CEO can gather perspectives and make a decision.”

2. Kill dissension early (while you still can).
“You want free flow and debate, but only within the executive team. If it goes outside that room, you have to come down very hard,” says Tichy, who points out that when successful CEOs like Lee Iacocca and Jack Welch encountered resistance, they squelched it fast. “Iacocca fired 14 vice presidents when he went into Chrysler, and Jack took out more than a dozen business heads in 1986. A lot of CEOs who got in trouble chose to ignore dissension or delude themselves into thinking it wasn’t there, and by then the damage was done.”

3. Guard against arrogance- and humility.
“You don’t want destructive conflict, and if people start stepping on each other’s toes you end up with a multiheaded monster,” says Adizes. “But you also don’t want a situation where everyone in the room is trying to say what they think you want to hear.

“You want a real brain trust, not people who either shout or are afraid to speak.”

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.