ITT: Present at the Creation

ITT Corp. is making its final endgame move in dismantling the historic behemoth that Harold Geneen built in the 1960s and '70s. It will separate its remaining major businesses into three specialized companies serving the industrial products, water treatment, and military equipment industries.

Renowned investment advisor Felix Rohatyn was present at the creation of the corporate empire that Hal Geneen built upon his joining ITT in 1959. He was a close counselor to Geneen and banker on the multitudinous deals that were to come. In fact, Rohatyn brought to Geneen the very first deal that started it all — a small company in California called Jennings Radio Manufacturing, which made vacuum switches and other products for the telecom industry.

Rohatyn recounts that first step in the launch of the ITT conglomerate in his memoir Dealings: A Political and Financial Life [Simon & Schuster, 2010]. It was a deal that came with a certain amount of boardroom drama and had crucial implications for the future of the company, as Rohatyn describes:

Here was an acquisition, I suggested, that made sense for ITT. Not only did it fit into Geneen's plan to build an economic core of American technological concerns, but Jennings was also a company with potential: its engineers were exploring new and profitable areas.

Geneen was intrigued. He ordered his staff to run the numbers and to investigate the science. Very quickly, they agreed: purchasing Jennings Radio made sense. It was a deal with a promising upside. And the $20 million price — a pittance for ITT— was reasonable.

It would be Geneen's first acquisition as CEO, and the first deal we had made together. But my excitement was abruptly dashed. When Hal proposed the purchase to his board of directors, he reported to me with a feisty bewilderment, they were reluctant. The board did not want ITT to make the deal.

Geneen realized at once that more was at stake than simply the acquisition of a small San Jose technology concern. The board was attempting to undermine his control — and all his large plans for the future growth of ITT. With a calm resolve, he gave the board members an ultimatum: either the deal is made, or I will resign.

The board capitulated. With the acquisition of Jennings Radio, the principle was established in the company that what Harold Geneen wanted, he would get. Hal was soon off and running on one of the largest acquisition sprees in American corporate history. And I was running with him.

Now that the Geneen empire is drawing its final curtain, how interesting to see how that first act set the stage for what was to come.

All Directors Are Not Equal

Good things happen again for a past Directors & Boards author. Our congratulations to Dr. Curtis Crawford (pictured) on being selected to receive a special award at next month's annual conference of the National Association of Corporate Directors. He is being honored with the B. Kenneth West Lifetime Achievement Award. This award, named for an esteemed former NACD chairman, recognizes individuals who have been instrumental in bringing management, boards, and investors together to find common ground on issues of transparency, director independence, and corporate responsibility.

In his article for Directors & Boards, which appeared in our First Quarter 2008 edition, Dr. Crawford put the fork into the notion that all directors are equal. Here is a taste of his disagreement with that "polite fiction":

"Corporate directors are chosen from a pool of highly qualified people, and being selected as a shareholder representative is a very significant achievement that demonstrates that the director has cleared a high hurdle of competence. However, it is naive to assume that all directors are equally capable in every respect.

"While traditional boards might find it useful to maintain this polite fiction, all directors and boards are not equal. Maintaining this position is an excellent way to enforce a status quo that limits the board's performance.

"Although all directors are high achievers with equal legal responsibilities to serve, exercise duty of care, and act in good faith, they differ substantially in the kinds of value they can contribute to the board. Each director embodies differences in experience, background, interests, and tenure, which is desirable, considering that multiple talents are necessary for the board to execute its responsibility effectively."

That wasn't the only notion he pooh-poohed in his article. He also had the temerity to argue that "even CEOs who are generally great leaders do not necessarily make the best directors."

Dr. Crawford comes to his conclusions from having been in a lot of boardrooms and seen a lot of directors in action. He is president and CEO of XCEO Inc., a consulting firm that provides governance support to corporate boards. A couple of the boards he currently serves on are DuPont Co. and ITT Corp. He has held positions with such companies as IBM, AT&T, and Lucent Technologies, and is the author of two books on leadership and governance. Additional passages from his article can be found in this adaptation that ran in the September e-Briefing.

I wonder what other notions he may challenge when he takes to the stage of the JW Marriott Hotel in Washington, D.C., on Monday evening, Oct. 18, to receive his award. I hope to be a friendly face in the audience for this past author, and will report back on this blog.

Take the Experience First

It doesn't take much for me to find a reason to cite one of the grandmasters of American business — Harold Geneen, leader of International Telephone & Telegraph Co. in its heyday decades of the 1960s and '70s. Close readers of Directors & Boards, our monthly e-Briefings, and this blog come across numerous citations to the managerial wisdom of Hal Geneen — such as this, and this, and this.

My thoughts again turn to Geneen in reflecting on the hornet's nest being stirred up by the New York Times article on unpaid internships. The essence of the article is that most companies that have unpaid interns are likely violating federal law on minimum-wage and other working standards.

Here is the passage from the NYT article that is riveting attention: " 'If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,' said Nancy J. Leppink, the acting director of the [Labor Department's] wage and hour division."

This shot across the bow of Corporate America is not being well received. We can count on the Wall Street Journal to mount a more rational counterpunch. Its "War on Interns" editorial today takes the emminently sensible position that unpaid internships aren't "exploiting young people. It's letting young people exploit an opportunity."

The late and great Hal Geneen would agree. Here is how he once put it: "You get paid with two coins in life — money and experience. Take the experience first. The money will come later."

There is an extension of this unpaid intern controversy to board life. Many executives believe that serving on nonprofit boards will eventually yield an offer to join a corporate board. Others pooh-pooh the notion that nonprofit board service is a stepping stone to a public-company boardroom. Where I come down on this, not surprisingly, is in the Geneen camp — take the board experience first.

First of all, accept the nonprofit board invitation if you believe in the mission of the organization and, second, if you believe that you can help support and advance the organization through your board involvement. A distant motivation is if you think it will get you higher up on the opportunity scale for a corporate directorship. That may happen — just as an internship may open up employment options — but "take the experience first" and have a spirit of openness for whatever might come later. If Geneen is right — and one didn't do well betting against him when he was in his prime empire-building years with ITT — you will be rewarded later.

I will be monitoring how the unpaid internship debate plays out, but I will continue to share Geneen's sound advice with the students I teach at Temple University.

Sighted: A Long-Term Thinker

Close readers of this blog know of my admiration for Harold Geneen, the legendary leader of legendary conglomerate International Telephone & Telegraph Co. The incisive management mind of Hal Geneen has been cited regularly in this blog and in my editor notes for the Directors & Boards print journal and e-Briefing newsletters.

Thoughts again turned to Geneen when I read Rachel Sanderson's superbly reported and written Nov. 27th Financial Times profile of Michele Ferrero (pictured), patriarch of the Italian confectionary company that is in the mix over possibly bidding for Cadbury. Take note of this passage from Sanderson's story:

"He is still busy. Ferrero's latest invention is a dessert tasting of Sicilian lemons called Gran Soleil which, when put in the freezer and shaken, turns into a kind of ice cream. It was designed to be easily transported in China, India and Africa. In a rare interview, Mr. Ferrero told local journalists: 'You'll see, in 50 years time it will be as big as Nutella' " (another Ferrero invention).

What's so striking about that? Simply this: here is a company leader now in his 85th year (he was born in 1925, according to the FT article) doing some product line projecting five decades into the future. Is this not the rarest sighting in business today — a long-term thinker?

What's the Geneen connection? You'll readily see it in this anecdote told by David J. Mahoney, an impressive leader himself of the old Norton Simon Inc. juggernaut, who counted the ITT master builder among his most important influences. In an excerpt that I published from his memoir, Mahoney wrote of Geneen: "[He] always taught me to look forward. When I complained that a certain project would not pay out for 10 years, he replied, 'Yes, but it will pay out in 12.' He was 77 at the time."

Lesser Lights

I got a chuckle out of the Wall Street Journal's recent report on a mishap at a brokerage industry conference in Palm Beach, Fla. During a presentation on hedge funds, a power failure plunged the hotel into darkness. Quipped the WSJ, "The lights are going out all over hedgeland — literally."

It reminded me of my favorite anecdote about Harold Geneen (pictured), the legendary head of ITT Corp. during its uber-conglomerate decades of the 1960s through the 1970s.

The notoriously exacting CEO was holding court in Brussels with a group of his European managers. The lights in the room began flickering. Since it was 2 a.m. and the meeting was showing no signs of ending, one of the executives piped up, "You see, even the lights are getting tired."

Snapped Geneen: "Only the lesser lights."

When I look around at the havoc being wreaked by this recession, all I can think of is that this is the handiwork of lesser lights – from Wall Street to Main Street to Washington, from trading floors to boardrooms to Congressional offices. 

On this President's Day, a day when we honor profound leadership, here is a call to those now in power in the aforementioned boardrooms: Turn the lights out on any lesser lights in your midst. That means firming up the talent both on the board itself and in the senior management ranks. The challenge ahead is just too daunting to do otherwise.