At&T: Honeymoon In Jersey

So far, CEO Armstrong and No. 2 Zeglis are a dream team

At the Oct. 20 press conference announcing his appointment as AT&T's chairman and CEO, C. Michael Armstrong downplayed any possible rift with longtime general counsel John D. Zeglis, who had pushed hard to succeed outgoing CEO Robert E. Allen. Armstrong said he had nominated Zeglis to be president and stressed that the two planned "to operate as a team." Still, many observers bet Zeglis would walk. "None of these people got to where they are by wanting to be No.2," says David Otto, an analyst at Edward Jones.

So far, AT&T's No.1 and No.2 are defying the skeptics. One sign of their close cooperation: Armstrong is rearranging the executive suite at AT&T's operational headquarters in Basking Ridge, N.J., so he and Zeglis will work side by side. Armstrong is moving into Allen's old office on the fourth floor, and Zeglis will move into what used to be Allen's conference room, next door. "There's a lot of mutual respect," says Richard Miller, AT&T's former chief financial officer.

There's more than symbolism at work. When Armstrong made the rounds on Capitol Hill in November, Zeglis went with him and suggested meetings with key legislators and regulators, including Senator John McCain (R-Ariz.) and new Federal Communications Commission chief William E. Kennard, according to AT&T insiders. Zeglis and Armstrong have also worked closely together on several major decisions, such as putting AT&T's paging unit on the market, those sources say. And they've talked about how to achieve Armstrong's $5 billion cost-cutting goal as well as rating potential acquisition targets, including GTE, SBC Communications, and Teleport Communications Group, says one outsider.

TEST TIME. One factor in the bonding of Armstrong and Zeglis is Allen's departure from Basking Ridge. He remains chairman of the board's executive committee but now works in Berkeley Heights, N.J., 13 miles away. That makes it easier for Zeglis to critique the ancien regime and lay new plans with Armstrong, insiders say. Armstrong and Zeglis declined to comment.

Will the honeymoon last? For one thing, as Armstrong learns more about AT&T, he won't need Zeglis' institutional knowledge as much. Also, Zeglis is president, not chief operating officer--a position that, some observers speculate, is being left open in case Armstrong needs to accommodate another top exec in a merger. But the real test may come in January, when Armstrong gets specific about his plans. He'll detail his strategy and how he hopes to slash overhead from 29% of sales in 1996 to 23% or less. "They have significant changes to make in their business--that's when the relationships between senior executives get tested," says Joseph Nacchio, a former top AT&T executive who is now CEO of Qwest Communications Corp. If Armstrong and Zeglis do have conflicts, at least they won't have to walk far to discuss them.

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