Pass Go and Collect the Job of CEO
Alfred J. Verrecchia, the new chief executive of Hasbro (HAS ) Inc., America's second-largest toy company, is a suit's suit. He's tall, poker-faced, and perfectly coiffed. After working at Hasbro for 38 years, starting as a junior accountant, he can reel off stats like nobody's business. He drills managers in risk-reward analysis and has been known to curse toys that don't perform well. Over the years, it has been Verrecchia who in various guises has made the tough, sometimes painful decisions at the family-run company. "I'm probably the hammer in the organization," he says.
No kidding. For years, he has been the heavy for Alan Hassenfeld, the 54-year-old grandson of the company's founder. Hassenfeld, who controls the family's 10.8% stake in Hasbro, surrendered the sandbox in May after a somewhat chaotic 14-year reign. He'll remain chairman and work full-time, focusing on philanthropy, governance, and the creative side of the nearly $3 billion business.
Hassenfeld often appeared uncomfortable playing the authority figure at the company. Hassenfeld doesn't wear socks, keeps rubber bands on his wrists for good luck, and seems eager to slip away and play a round of Scrabble, his favorite game. When he gushes about his children, he means Mr. Potato Head, G.I. Joe, and Raggedy Ann. His conversation is peppered with quips: He loves G.I. Joe, for example, "because he put me through college." Hassenfeld hates to fire anybody or even to have to choose among underlings for promotions. In 1989, he asked Verrecchia to share the job of chief operating officer with a colleague for just that reason.
Hassenfeld's decision to relinquish the CEO role was more than a mere passing of the torch at one of America's best-loved family empires: It signals that Hasbro is growing up. To which most investors might say: It's about time. "Verrecchia recognizes what the company needs and can execute," says Sean McGowan, a managing director at Harris Nesbitt Gerard (BMO ) "Hassenfeld's leadership style was hands-off and consensus-building to the point of paralysis."
Indeed, after a failed takeover attempt by Mattel (MAT ) in 1996, Hassenfeld tried to revitalize Hasbro any which way. He brought in a consultant who rearranged parts of the organization like so many Legos. Outside executives came and went. Verrecchia, meanwhile, lost influence. "He had a role a little outside the mainstream," says Dan D. Owen, a former senior executive. The company neglected its traditional brands and instead chased hot licenses tied to movies such as Star Wars and Spider-Man. Divisions acted like unruly siblings, competing against each other for attention. "Hasbro lost focus on the consumer. We became competitive inside instead of outside," says Brian Goldner, president of U.S. Toys.
The reckoning came in 2000. That year, Hasbro's revenue fell more than 10%, to $3.8 billion, and it lost $144.6 million. Hassenfeld gave up on the outside experts and turned to the person who had always helped him out before: Verrecchia. Hassenfeld promoted him to president in August, and Verrecchia quickly initiated crucial changes -- including moving all the far-flung toy divisions to headquarters in Pawtucket, R.I., to cut costs and get them to work together; reducing $1.2 billion in long-term debt; and focusing on extending Hasbro's main brands, such as G.I. Joe, Monopoly, and Easy-Bake Oven. The situation has improved since then: Hasbro's revenue in the second quarter was $581.5 million, up 7% from the year before; it earned $11.4 million after losing $25.9 million a year ago. Hasbro's stock has risen about 60% since August, 2000, when Verrecchia introduced the new strategy. And in a switch from 2001, Hasbro has three of the top 10 toys on the market, while Mattel has just one.
For Verrecchia, now 60, the reward was becoming CEO of a company he had long served as if it were his own. When Alan's older brother, Stephen D. Hassenfeld, ran the company, Verrecchia was among his top lieutenants. Of his death in 1989, Verrecchia says: "He left Alan and me a great company. I don't think we want our legacy to be that we drove it into the ground." Now, for the first time, Verrecchia is in charge. (Hassenfeld's 34-year-old nephew, Michael Block, is president of Mexico and Latin America operations.)
Verrecchia, who came of age in a middle-class family living outside Providence, dropped out of the University of Rhode Island because he wasn't sure what career to pursue. He was pretty sure, though, that he didn't want to join his family's jewelry business. When Verrecchia returned to school, he studied accounting; while still there, a former professor who was a comptroller at Hasbro offered him a job. It was 1965, and the company's sales totaled just $30 million. Verrecchia recalls walking each morning with Alan's father, Merrill, to the mail room, where they would tear open orders to see how the company was doing. Even back then, when there was dirty work to do, like begging suppliers for more time to pay up, Verrecchia did it.
Stephen took over after Merrill died in 1979 and ran Hasbro until his death at age 47 from AIDS. That left Alan next in a short line of CEO candidates. He had worked for the company, mostly in Hong Kong, but had scant experience in finance or management. Still, he wanted the job. So the ever-loyal Verrecchia backed him up, just as Stephen had. "Al has been, next to my brother, my greatest mentor," says Hassenfeld. "He's taught me a great deal of discipline."
What some executives wouldn't give to have a mentor like Verrecchia. "The role Al plays is the extremely capable best friend," says Kevin Mowrer, a former senior executive at Hasbro. "He's the one who watches your back and is not afraid to tell you what he truly believes."
Consider just one example: Hassenfeld's pursuit of licensing deals related to movies. In 1997, Hasbro guaranteed minimum royalty payments of $590 million for the right to sell toys connected to the upcoming Star Wars movies. At the time, it was considered a smart move. But returns were disappointing, and Verrecchia had to step in to do damage control. "Al was the first to drill in on who's shipping what, what's selling, and how to manage it," says Mowrer. Under Hasbro's new strategy, it is putting less emphasis on such deals.
Of course, Verrecchia has made mistakes, too. Big ones. In the mid-'90s, he backed a project code-named Sliced Bread. It was a virtual-reality game that sucked up $40 million but never made it to market. "I use that as an example to tell people you can fail and still succeed," he says.
In the end, the world's children will be the ultimate judges of Hasbro. Last holiday season, they loved Beyblades (battling tops) and FurReal Friends (furry pets that react to touch). But industry consultants aren't enthusiastic about some of what's coming out. They had nothing good to say about Video Now, a handheld device that plays Nickelodeon cartoons but displays them in black-and-white on a tiny 2-inch screen. "Trying to pull kids away from Nintendo (NTDOY ) Game Boys to passively watch black-and-white on a small screen may prove to be a hard sell," says Frank Catalano, an independent analyst. But gadgets called Thin-Tronix, which combine electronics with toys, and a new version of the 37-year-old game Twister that uses music to direct the moves, could be more popular.
Back at toy central, one of Corporate America's oddest couples seems to have settled into a comfortable routine. Hassenfeld jokes that Verrecchia will probably serve for five years, "as long as I behave," and likes to tease the CEO about his newfound control over his old boss's spending. Hassenfeld, for the record, has yet to make a request. But you can tell how happy he is to pass the buck to Al. For years, Verrecchia has had a sign on his wall that says: "Al's problem emporium....Why go anywhere else?" Now he finally has the title to go with the job.
By Faith Arner in Pawtucket, R.I.