Lawyer CEOs

There is an interesting read in today’s Journal on lawyer CEOs (sub. required). It seems like every time a lawyer ends up in a prominent CEO position, these articles pop up in various places. My take on it is that lawyers are just like every other type of professional: some make good CEOs and some don’t.

A good lawyer, engineer, accountant, or salesman that ends up in a CEO position should to be self-aware enough to realize what their inclinations are and how they can rationally correct for whatever sub-optimal tendencies they have. It is easy to concoct a mental image of a stereotypical lawyer-CEO whose concern with contractual details, potential liability, privacy policies, etc. drowns out any entrepreneurial spark they had going for them. However, it just as easy to think of similar scenarios for engineer-CEOs (hung up on features, no business sense, etc.), accountant-CEOs (overly concerned with receivables, terms of financing, etc.), and sales-CEOs (focused on selling the product, not developing or financing, etc.).

My guess is the reason there is so much “Lawyer CEO!” press is that lawyers are far more maligned than accountants, engineers, and salesmen.

When Firms Turn to Lawyers
WSJ; January 10, 2007; Page A11

When people get in trouble, they often turn to lawyers. So I guess it’s no surprise that companies do the same.

The latest examples: Home Depot and Pfizer.

The two companies share top billing in the CEO pay-without-performance Hall of Shame. Their former chief executives, Bob Nardelli and Hank McKinnell, each walked away with roughly $200 million in parting compensation, after failing to deliver a penny to their shareholders. The boards of both companies then turned to lawyers to clean up the mess.

The folks at Pfizer insist Jeffrey Kindler’s law degree (Harvard, ’80) had little to do with his selection as the company’s new CEO. At Home Depot, where the top job went to Frank Blake (Columbia, ’76) — a friend and former General Electric colleague of Mr. Kindler — a spokesman says there’s a difference “between having a law degree and being a lawyer. Basically, since 1998, Frank’s been out of the lawyer mode.”

Still, this trend in the corporate world is hard to ignore. Lawyers seem to get called in when companies have serious legal troubles, or when a charismatic leader leaves behind an unmanageable muddle. When then-New York Attorney General Eliot Spitzer lowered the boom on Marsh & McLennan, the board dumped Chief Executive Jeffrey Greenberg and replaced him with lawyer and Spitzer buddy Michael Cherkasky (Case Western, ’79). After Time Warner‘s Gerald Levin brokered the disastrous merger with AOL, he fled the company, leaving lawyer Dick Parsons (Albany, ’71) in charge.

There’s clearly some sense to this. Lawyers are trained to foresee risk, making them well-suited for times of trouble. Perhaps more important, they understand what it means to be a fiduciary, acting in trust on someone else’s behalf. Messrs. Nardelli and McKinnell clearly failed to grasp that basic tenet of public-company leadership.

But some see this trend as one more cause for concern about the direction of the business world in the post-Enron era. “It’s a sign of the times,” says Philip Howard, a lawyer himself and a relentless crusader for legal overhaul who wrote the book “The Death of Common Sense.”

“We’re more concerned with legal compliance than with getting the job done. If you have an economy where people circle the wagons and try and prevent anything bad from happening, the economy will suffer.”

Can lawyers make good CEOs? One man struggling to show he can is Chuck Prince (USC, ’76) who became chief executive at Citigroup in 2003 after spending years as consigliere to his predecessor, Sandy Weill. Mr. Weill built Citigroup through mergers and acquisitions. But his far-flung empire was filled with cowboys, whose relentless pursuit of profits got the company into a succession of scandals. In response, the Federal Reserve shut down Citigroup’s growth machine, prohibiting the giant bank from making any more acquisitions until it cleaned up its act. (The prohibition was lifted last year.)

That left Mr. Prince with little choice but to focus on creating a new culture of ethics and compliance. In an interview two years ago, he told me that today’s CEOs are given little time in their jobs, and as a result he could only hope to accomplish one or two big things. Changing Citigroup’s culture, he said, “is job one.”

Now, Mr. Prince wants a shot a job two: restoring growth. His shareholders, however, are getting impatient. Last fall, they balked as the company’s expenses grew faster than revenue, and as rivals like J.P. Morgan Chase and Bank of America offered better shareholder returns. A number of analysts downgraded Citigroup’s stock. In an eleventh-hour rescue effort, Mr. Prince appointed a new chief operating officer to focus on costs.

At a meeting with analysts on Dec. 14, he made a lengthy and spirited argument that the company would resume solid growth and profitability in 2007. The market responded, and Citigroup’s stock rose to $55 from $49 in the final month of the year. “We scored in the last three minutes of the game,” Mr. Prince told me last week.

Still, the fall flap put Mr. Prince on notice: He has to do better this year. “I will succeed or fail, not on what happens with compliance,” he said. “I will succeed or fail on whether this enormous battleship can get up to” speed.

Like Messrs. Kindler and Blake, Mr. Prince believes his legal training is irrelevant. As long as he remains focused on the goal of expanding the company, he says, “whether you are a lawyer or a plumber — it doesn’t make a difference.”

Meanwhile, those who worry that the turn toward lawyers is a sign of public companies’ poor health can take some comfort from this: They aren’t yet turning to priests.

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