Why More Heads Will Roll

Add Kay R. Whitmore, chairman and CEO of Eastman Kodak Co., to the growing casualty list of America's elite chieftains.

Impatient with Whitmore's lackluster efforts to cut costs and restructure, Kodak's directors announced on Aug. 6 that they were ousting him from the job he has held since 1990. "We didn't think that Kay Whitmore was the man to head the company for the next three to seven years," says John J. Phelan, former chairman of the New York Stock Exchange and a leader of the board coup.

The man who does, Kodak says, will be an outsider--the latest in this year's string of newcomers corralled in talent hunts to head troubled companies. IBM found Louis V. Gerstner Jr. in May; Westinghouse Electric Corp. lured Michael H. Jordan. And there's more in the works. "What we have seen in the past six months is just the beginning," believes E. Pendleton James, a prominent search consultant based in New York. "For every IBM or Kodak, there's a lot of midsize-to-smaller companies going through these changes that don't make headlines. If nothing else, it's become fashionable." In the past six months, outsider CEOs have joined Egghead, Quaker State, and on Aug. 11, General Instrument.

MORE TURMOIL. In short, the age of the outsider is just beginning. Companies are looking for fresh perspective and radical change. Just ask the directors of Kodak. "This company is very much inbred," says Roberto C. Goizueta, a Kodak director and chairman of Coca-Cola Co. "That tends to accentuate the faults and also the virtues to the point where the virtues become faults. We need a third party to look at Eastman Kodak."But a new perspective brings with it certain costs and risks, including ever more volatility and upheaval as the hired guns make their marks. Even at well-managed companies, organizational dislocation can more than offset the benefit of fresh ideas.

It starts with the multiplier effect. For every high-level outsider installed in an organization, say headhunters, there are often half a dozen or more follow-on recruits within the first year. Each of them in turn brings in managers in whom they have confidence.

That can mean more turmoil in already troubled companies--and in the companies that are raided for talent. Within months of taking over at IBM, Gerstner has brought aboard new senior executives from Chrysler, American Express, and Bank of America to plot the computer giant's strategies and operations in finance, marketing, and human resources and administration. Kodak directors say they expect several other top executives will be recruited to help a new outside chairman move more aggressively at the company.

With each new outsider, boards are sending another signal: They're no longer hesitant to consider newcomers from outside the company's industry. When headhunter James was recently retained to find a new CEO for an insurance company, he asked the client to identify the attributes it was seeking. "Leadership," came the reply over a boardroom table. "I'm not too concerned if the CEO knows much about the industry."

CHANGING GUARDS. Yet outsiders must fight significant handicaps. The greatest single barrier to a successful transplant is the institutional acumen an executive is likely to lack in a new environment. An outsider doesn't know how things get done--or who can get them done. Passed-over executives often resent the new boss and are likely to be less committed to his or her success. The trust essential to teamwork suffers.

Toss in the multiplier effect, and the risks rise substantially. "A new chief who comes in and recruits `his team' from outside may wreck a turnaround effort because the new palace guard may simply replace the old palace guard," says Robert J. Brudno, managing director of Savoy Partners, a headhunter in Washington, D.C. "The company's veterans will feel the new boss is erecting a wall between them."

Most outsiders believe Kodak could use some shaking up. But can it avoid the pitfalls? Goizueta, who's heading the search committee, says he's looking for somebody with "tremendous drive and energy, solid cost-control experience, a successful business history. We would like to see a person with a strong marketing background who can think strategically and very much internationally." Adds Gerard R. Roche, chairman of Heidrick & Struggles Inc., who is working on the Kodak search: "Boards today are looking for passionate leaders who can transfer that passion to others."

All that adds up to some pretty daunting criteria. Throw in one more, just as daunting--the ability to bring on radical change without destroying what's vital about the organization--and a question arises. Do IBM, Westinghouse, and Kodak need outsiders--or superheroes?