How Four Rookie CEOs Handled the Great Recession

Timing, as comics say, is everything. So what do you do when it's your first time on stage, and you're getting killed up there, with the audience booing and heckling and calling for the hook? Ask John Donahoe, who became the CEO of eBay (EBAY) in March 2008. Not only did Donahoe take the reins of the online retailer from one of the star CEOs of the dot-com era—the current California gubernatorial hopeful Meg Whitman—he did so at a time when the U.S. economy was imploding and eBay's business model was under assault. Suddenly, the new guy was getting pounded from all sides. One employee wrote an online post arguing that "Donahoe has made eBay a miserable debacle and it's getting worse every day." The owner of a company that sells on the auction site called his strategy a "concentrated effort to destroy the eBay marketplace." Jim Cramer weighed in on his Mad Money television show with this vote of confidence: "EBay has lost touch with reality...the company is hapless," he said in September 2008. "They ought to sell themselves to someone." You might call it CEO hell, but Donahoe didn't kid himself. "It's going to get worse before it gets better," he kept saying.

While the Great Recession was tough on just about everyone, rookie CEOs were faced with what will likely be the biggest crisis of their careers. Employees, investors, and board members looked to them for guidance, but their task was complicated by swooning stock prices and, often, mass layoffs. "It's easy to look like a great leader when everything is going well," says executive coach Marshall Goldsmith. "The real great leader shows up in hard times."

Not all the newly minted chief executives made it through the flames. Frederick A. "Fritz" Henderson stepped down in December after eight months in the top job at General Motors (GM) as the automaker continued to struggle. Owen Van Natta lost his CEO spot at the social networking site MySpace on Feb. 10, after nine months. A record-high 1,482 chief executives resigned, retired, or stepped down from public and private U.S. companies in 2008, according to Challenger, Gray & Christmas, which helps laid-off executives find work. An additional 1,227 left their jobs in 2009.

The latest recession was particularly treacherous because it was so broad, hitting Wall Street, Detroit, the housing industry, and other pillars of the economy. Yet the challenges in particular sectors may have been more severe in the past—say, in the tech industry after the dot-com bust or in manufacturing during the oil crisis of the 1970s. Robert Crandall got his first chief executive job at American Airlines (AMR) just in time for the tumult of airline deregulation and oil price swings in the 1980s. "Desperation is the mother of invention," says Crandall, who is now retired. To compete with new low-cost rivals, he came up with the first national frequent-flier program and a two-tiered labor system. "Sure, it seemed challenging," he says. "But on the other hand, [becoming CEO] was the thing that I had been trying to achieve for many years."

Rookie chiefs from downturns past say starting the job in crisis forever affects how you lead. Ron Sargent was named to the top job at office-supplies retailer Staples (SPLS) the week before the September 11 attacks and in the midst of recession. "The thing that changed in me was the willingness to make tough decisions quickly," he says. After the terrorist attacks, Sargent had to choose between cutting payroll or trimming product lines to save money. He speedily worked out a back-to-basics strategy that eliminated consumer-oriented products like Britney Spears backpacks. It hurt margins in the short term, but it saved jobs and helped keep customer service strong.

First-timers from this recession such as Donahoe and T. Rowe Price's (TROW) James A.C. Kennedy agreed to talk about how they managed through the downturn and about what they learned. Among the lessons seared into their hides was this one: Resist the inclination to hunker down and wait out the troubles. Remaining proactive and decisive improved their competitive positions as the economy began to recover. John Thompson, vice-chairman of the headhunting firm Heidrick & Struggles (HSII), says it's particularly important in a downturn for CEOs "to bring an extraordinary sense of urgency."

Many of the new CEOs solicited counsel from veteran leaders; Donahoe consulted with Cisco Systems' (CSCO) John T. Chambers. Yet leaders know they bear sole responsibility for the decisions they make. "At the end of the day the CEO has to pick a path and take it," says Jeffrey A. Stoops, chief executive of the wireless phone tower company SBA Communications (SBAC).


Donahoe's early months as eBay CEO incited such widespread vitriol in large part because he picked a path that was far different from that of Whitman. Coming into the job after three years at the San Jose company, he carried out the first round of layoffs ever at eBay. He reorganized the company's Web site in a way that gave less visibility to some small sellers, long eBay's bread and butter. And he cut a deal to acquire a consumer credit business called Bill Me Later for $945 million in the middle of the credit crunch, sending eBay's stock downward.

Although Donahoe had led the privately held Bain & Co. consulting firm before moving to eBay, he says running his first public company, with so many constituencies, required a different approach. It's not a popularity contest: You do what you think is right for the company and resist the attacks from those who prefer the status quo. "When I became CEO, there was an opportunity to take the next step," says Donahoe, 49. "And the next step was making changes that we knew were going to be unpopular in the short term." Donahoe, in fact, found that many employees and investors were more open to dramatic change than they might have been otherwise. "In a crisis, people were scared enough and uncertain enough that I could take action," he says.

Donahoe is winning over at least some of his critics now. After falling below 12 at the end of 2008, eBay's stock has risen to 23. The company is earning steady profits again, and analysts say eBay is better positioned to compete with fast-growing rivals such as Craigslist and (AMZN). "Donahoe has done a good job of getting [eBay] back on track," says analyst Colin Sebastian of Lazard Capital Markets (LAZ).

Donahoe's strategy is born of an approach he calls "servant leadership." He thinks of eBay's customers first, specifically the companies and entrepreneurs who sell goods on the site. Then he visualizes a chain of command through which the CEO can deliver what customers need. On trips around the world he takes along a Flip Video camera and films interviews with eBay sellers to share their opinions with his staff. He has even tied managers' compensation to customer loyalty, measured through regular surveys.

Far from resenting the tough circumstances of his first job atop a large public company, Donahoe calls the experience a gift. "I will be such a better leader having gone through that, vs. having had a lot of early success," he says.


T. Rowe Price's Kennedy prides himself on balancing the demands of office and home. But over the second weekend of September 2008, as Lehman Brothers was crumbling to dust, he worked the phones from his Baltimore headquarters, trying to ease investor concerns about his own firm. Family, church, and gym all had to wait. "I think God might forgive me for missing Mass that one day," says Kennedy, 56.

Promoted to the top post at T. Rowe Price in January 2007, Kennedy had a seat precariously close to the biggest financial meltdown since the Great Depression. His firm is the sixth-largest mutual fund manager in the U.S., with more than $350 billion in assets under management. "The world seemed to be collapsing around us," he says of his first two years. All the while he was trying to learn to cope with the demands of a challenging new role in an organization where he had worked for more than three decades.

That meant learning new areas of the business. When Kennedy was named CEO, he left the equities department he had been running to set up shop on the fixed-income floor. His timing was fortunate: Fixed-income analysts were just starting to spot the dangers of mortgage-backed securities in mid-2007. Alarmed by the "ugly" possibilities, the new CEO ratcheted back on growth and trimmed expenses, such as hiring, advertising, and IT. "He's been diligent in terms of cost and risk," says Daniel Fannon, research analyst with Jefferies (JEF).

When Lehman Brothers filed for bankruptcy on a Monday morning in September 2008, Kennedy's strategy looked prescient. T. Rowe Price had steered clear of many of the complex financial instruments that blew up in the aftermath. Profits dipped to a 12-year low that December, but the firm bounced back faster than almost all of its peers, in part because of Kennedy's preemptive cost-cutting. In 2009, T. Rowe Price's assets under management increased 41%, to $391.3 billion, compared with a 16% rise for U.S. mutual funds overall, according to research firm Strategic Insights. And unlike many peers, the asset manager is coming out of the downturn "with a very clean brand, a very good image," says analyst Fannon.

Kennedy made time for his personal life throughout the challenging months. He got married last year, for the second time, and kept up regular golf games with his new wife, Maureen. He also swam laps three times a week. Periodic checkups with his executive coach, Marty Seldman, helped Kennedy keep perspective on his life and career. "If leaders look like they are unraveling, it can create a vicious cycle of more fear and more stress in the company," says Seldman. "Jim stayed calm and confident."

Looking back, Kennedy sounds as grateful to have safeguarded his own health as much as his company's. "For some CEOs, this would shorten their careers pretty dramatically," he says. "Others will learn from this and be impacted for the rest of their lives."


Diane M. Irvine had no time to celebrate getting the chief executive job at online jewelry retailer Blue Nile (NILE). Hours after her appointment in February 2008 she had to tell investors that sales from the previous holiday season had been worse than expected—and the credit crunch would probably mean a dreadful next year. The company's shares sank 20% the next day. "It was very daunting," she says.

Irvine had to come up with a plan, and fast. She surprised many by using the recession as an excuse to go on the offensive. "We can gain market share," she told investors during a March 2008 presentation. She argued that Blue Nile had an edge on brick-and-mortar jewelry brands like Tiffany's (TIF) and Zales (ZLC) in a downturn because it required little overhead and virtually no inventory. Competitors would struggle and close stores; Blue Nile would invest and expand.

The strategy had its doubters. Analysts such as Imran Khan of JPMorgan Chase (JPM) had lowered their estimates in February of that year and saw little reason for optimism after Irvine announced her plans. "We were selling luxury goods in what was probably the worst economy in 75 years, so I think there was tremendous skepticism about how the company would weather the storm," says Mark Vadon, who founded Blue Nile in 1999 and led the company until Irvine took over. Adding to the challenge of waning consumer demand were diamond prices, which remained at boom-year levels.

Irvine doubled down on technology that would help bring in new customers. Blue Nile's site underwent a year-long revamp, adding new tools to help buyers search for diamonds by budget, shape, and quality. The new CEO also pushed into overseas markets, tweaking the Web site to accept 23 different forms of currency.

Credit was a barrier to many potential sales. So the Seattle company joined up with Bill Me Later (the company eBay would later acquire) to offer customers no-interest financing for six months on large purchases.

Although Irvine, now 51, worked as chief financial officer at the company almost since its founding, her button-down demeanor as CEO has been a turnaround from the blue-jeans vibe of founder Vadon, 11 years her junior. "She added discipline to that company from the day she walked through the door," says Scott Devitt, analyst at Morgan Stanley (MS). It's a work ethic Irvine says she developed in her youth, growing up on a farm and working summer jobs in the cornfields of Illinois.

Irvine's offensive is beginning to pay off. In October, Blue Nile posted its first year-over-year growth in revenues since mid-2008. Fourth-quarter revenues also increased, by 20%, although profits missed Wall Street forecasts. The company's stock, which had tumbled to less than 20 a year ago, is now trading at 49. "She's done a great job of stabilizing the business," says Deutsche Bank (DB) analyst Herman Leung. Meanwhile, three of the top traditional jewelry retailers have filed for bankruptcy, and competitor Zale appears poised for a major restructuring.

Having made good on her initial promises to investors, Irvine feels assured the hardest part of becoming a chief executive is over. Her only regret? She's all on her own in the corner office. "You don't have that set of peers anymore," she says.


Molson Dry. Coors Light. Miller Genuine Draft. Carling. Just reading all the beer brands sold by Molson Coors (TAP) could make you tipsy. The company, jointly headquartered in Denver and Montreal, has grown into one of the world's largest brewers through a series of 10 acquisitions and joint ventures over the past decade. Yet all the deal activity left a mishmash of workforces when Peter Swinburn became head of the company in June 2008. So even as sales began to slide going into the downturn, he decided his priority would be forging a cohesive corporate culture. "If you spend five years developing a brand, why shouldn't you spend five years developing a culture?" asks Swinburn, 57.

The challenge was getting a staff of 15,000 workers on three continents to think as one. There were different languages and work practices. The U.S. and British operations even disagreed over the proper size for a beer barrel. (It was 117 liters in the U.S. and 163 in the U.K.) "You had people who were focused on their individual businesses and their own regions," says Rob Borland, a top marketing executive.

Swinburn spent his first six months as CEO sketching out a framework for the new approach. In conversations with senior executives and in town hall meetings with employees, he came up with an unofficial motto—"Challenge the expected"—that he hoped would entice employees at all levels to think outside their roles. Swinburn also made sure employees had better tools to interact with one another. On the suggestion of one worker, he signed the company up for Yammer, a site for short messages similar to Twitter that would be visible only to colleagues. Some 2,000 employees now utilize the site to provide updates and collaborate on projects. Denver-based IT staffer Miguel Zlot recently used the site to communicate with colleagues from afar while working on a Web project. "We needed to grasp ahold of something common," he says.

Employees are also getting together in person more frequently. Benoit Maillette, the brewery manager in Toronto, says he meets with counterparts from around the world once or twice a year to socialize and share business ideas. One January gathering was in the company suite at a Montreal Canadiens hockey game, with a lot of time "around the bar," says Maillette. Swinburn's efforts appear to be having an impact. The employee research firm Towers Watson says that in independent surveys, 87% of Molson Coors (TAP) employees said the company had a "clear vision for the future" in 2009, up from 73% in 2008. The average for global high performers surveyed by Towers Watson was a one-percentage-point decline over the same period.

Swinburn, who started working at Bass Brewers in his 20s, takes the beer business personally. "When Peter goes to the grocery store with his wife, he typically wanders off after just a few minutes," says Leo Kiely, who heads a joint venture Molson Coors has with SABMiller. "He's gone off to the beer aisle, and he's over there rearranging the shelves, making sure his beer is displayed properly and there are no torn packages."

The brewer is eyeing more deals in the fast-consolidating beer market. Last May it bought Cobra Beer, a British brand popular in curry restaurants. Swinburn intends to keep expanding through acquisitions. "Our balance sheet is strong, so if the right opportunities come around, we can move," the CEO says.

For these new chief executives, survival was the first test. Still, their trials are far from over. As the economy recovers, they have to shift out of crisis mode and focus on long-term strategy and investments. If you come of age in a firestorm, your job has to change when the flames die out.

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