At AT&T, the answer would appear to be no. Every time you think things can’t get worse for poor AT&T and its long-suffering stockholders and employees, the company manages to pull off yet another bonehead play. Last week’s was one for the highlight films: the departure of president John Walter, whom AT&T hired a mere nine months ago to be its chief-executive-in-waiting. Walter, 50, used the escape clause in his contract when AT&T’s board of directors told him he wouldn’t become chief executive officer next January, as originally contemplated. What a spectacle. ““I believe I am perfectly qualified to be CEO of AT&T right now,’’ Walter said in an AT&T news release. At a subsequent news conference, Walter Elisha, who’s running the board’s search for a new CEO, said the directors felt Walter lacked the ““intellectual leadership’’ to do the job. In other words, the board felt Walter wasn’t bright enough to be chairman. Which makes you wonder how bright the board was in October when it hired him after an extensive search.
If you compare Walter’s shrewdly drawn employment contract with the endless bungling in recent years by chairman Robert Allen and the board, you have to think that if there’s someone stupid here, it’s sure not Walter. As part of his deal Walter got AT&T to lay about $27 million in cash, stock and options on him when he signed up in October (box). Throw in about $4.5 million in severance pay and salary, and Walter has made more than $30 million for nine months’ work. Not as lucrative as Michael Ovitz’s severance package from Disney, currently valued at around $100 million for slightly more than a year as president. But enough to keep the Walter family off food stamps for the foreseeable future.
Lest you think I’m beating up on Allen and AT&T’s board just for fun, let me remind you of some of AT&T’s recent debacles. Among other things, the company blew its warm-and-fuzzy image, decades in the making, by brutally announcing 40,000 job cuts - and then didn’t make anything like that many. It lost $9 billion on the computer business, firing more than 10,000 workers in the process. The company was embarrassed when Walter’s predecessor, Alex Mandl, left the AT&T presidency to run a start-up telecommunications company, and then looked even sillier when its semi-public romancing of its onetime Southwestern Bell subsidiary failed, at least in part because of an op-ed article chairman Allen wrote in The Wall Street Journal. Meanwhile, AT&T continues to lose market share in its core long-distance business, its international expansion flounders, many managers are hunkering down rather than attacking competitors.
Was Walter really up to running AT&T? We’ll never know. But we do know that Allen and the board have failed in their most important task: to ensure continuity of top management. Allen has now recruited three guys with CEO-caliber credentials in the past five years - Walter, Mandl and recently departed chief financial officer Richard Miller - but none of them got the top job. Meanwhile, AT&T’s continual hiring of outsiders for top jobs has led many of its best homegrown executives to leave.
Allen wouldn’t talk to me, but an AT&T spokeswoman asked me to point out that Allen hired outsider Henry Schacht to run Lucent Technologies, which AT&T spun off last year. Schacht is generally considered to have done an excellent job. She also asked me to say that only Walter was ever officially designated Allen’s successor.
Forgive me, but I don’t think Walter or Mandl or Miller is the real problem at AT&T. If the directors put mirrors in the boardroom, they will see the real problem. The guilt is shared by big shareholders who have sat by watching America’s most widely held company put on a bush-league performance. It took the Mets seven years to get their act together and win the World Series. AT&T hasn’t got that kind of time.
Here’s what AT&T shareholders paid Jon Walter for less than nine months of work:
ITEM MILLIONS Payment to tax-deferred account $7.0 Stock 6.7 Supplemental pension* 5.7 Cash hiring bonus 5.0 Severance 3.8 Stock options* 2.8 Salary (10/96-7/97) 0.7 Total $31.7 *AT&T VALUATIONS. SOURCE: AT&T
