Navigating rough waters: steering their companies through an economic storm, America's leading...

ACTS OF TERRORISM. AN ECONOMY IN RECESSION. A TURBULENT stock market. Waning consumer confidence. Rising unemployment. If it weren't for scant inflation and low interest rates, corporate America would have steered right into the middle of a perfect storm. Like their white counterparts, America's

Take Kenneth I. Chenault, the hard-charging CEO of American Express. His $23 billion financial services giant has been hit by the equivalent of a tsunami. By mid-year, the company announced 5,000 layoffs and poor second-quarter results due to the weakened economy and an $826 million write-down of junk bonds in the investment portfolio of its financial services unit.

Then came another crashing wave in the form of the September 11 terrorist attacks. More than 5,000 employees were displaced when their corporate headquarters, adjacent to the World Trade Center area, was wrecked. To make matters more tragic: the company lost 11 employees.

The bad news didn't end there. On December 12, the company further reduced headcount, this time eliminating 5,500 to 6,500 jobs in a move expected to result in expense savings of $230 million to $260 million pre-tax in 2002. This brings the total layoffs at the company to roughly 13,200 to 14,200, or about 15% of the company's workforce since the start of 2001.

Most of the latest cuts were expected to lead to a fourth-quarter restructuring charge of roughly $150 million to $180 million (after taxes) due to severance and related expenses. In addition to creating "greater flexibility in our cost structure," Chenault continues to focus on the development of innovative financial products and new ways to reach consumers. "Over the last few years--in addition to enhancing our competitive strength through the expansion of our product portfolio and the broadening of our distribution channels--we have engaged in a variety of initiatives to make our business model more flexible," Chenault told BE. "Our objective is to improve our ability to manage through volatile times and to adapt to a wide variety of business conditions."

The world has changed dramatically in two years. The last time we listed our top executives--defined as senior-level professionals who run major revenue-generating divisions or have been placed on the CEO track--the economy had entered its seventh year of expansion. The unemployment rate was at 4%. The Dow Jones industrial average was in spitting distance of the 11,000 mark, and the Nasdaq composite index skyrocketed past 3,000. Business spending was up, and consumer confidence soared.

By November 2001, the jobless rate rose to a six-year high of 5.7%. In fact, U.S. companies cut payrolls by 799,000 in October and November, the highest two-month payroll reduction since 1980. After pulling out of bear territory at the beginning of December, the Dow dung to 10,000, while the Nasdaq barely surpassed 2,000. There is no telling whether another event will send the indices into a downward spiral.

Most of the sectors represented by the top executives--from food and beverage companies such as Coca-Cola to telecommunications companies such as Lucent Technologies--have been rocked by economic conditions. Just look at what companies have been forced to do. According to the Society for Human Resource Management, major companies have engaged in the following practices: 63% have cut costs through attrition; 49% have instituted hiring freezes; 21% have reduced contract workers; and 20% have forced their staffs to take vacations. And, in an unprecedented move, some, including Ford Motor Co., are reportedly suspending their 401(k) contributions to save bucks.

There's also been a sea of change in the configuration of our 2000 Top 50 executives: 10 members have either taken early retirement or left their company to pursue entrepreneurial ventures, while an equal number have been promoted to higher-ranking positions. The rest of the pack still hold the same positions. There are now four black CEOs of major companies: Chenault, Franklin D. Raines of Fannie Mae, John Thompson of Symantec Corp., and Erroll B. Davis Jr. of Alliant Energy Corp. No longer in the corner office: Clifford L. Alexander Jr. of Dun & Bradstreet, A. Barry Rand of Avis Rent-A-Car, and Lloyd D. Ward of Maytag (see sidebar). But there will be a new addition soon: Richard D. Parsons will become CEO of AOL Time Warner by May (see "A Time for Bold Leadership," this issue). And, as president and COO of Merrill Lynch, E. Stanley O'Neal is next in line to take the reins of the financial services giant.

Whether they have been promoted or remained in the same positions, these execs are using tactics ranging from cutting costs to employing the Internet to increase profitability and market share.

OPERATING AFTER SEPTEMBER 11

The biggest challenge has been operating in a post September 11 world. Look at what Cal Darden has had to deal with at United Parcel Service (UPS). The terrorist attacks had a profound impact on how parcels will be handled. As senior vice president of U.S. operations, Darden oversees 330,000 employees and nearly $30 billion in revenues, and ensures that the concern meets its daily commitment to deliver 13.6 million packages for roughly 8 million customers.

He has yet to determine how much of an impact anthrax-related fears surrounding the U.S. Postal Service have had on UPS' increased business because, "there are so many variables involved." In the weeks leading up to the terrorist attacks, however, UPS' volume showed a decrease of 3% compared to the previous year. Darden says this performance was an improvement from September 12, when volume slid 10% as a result of the attacks. "The economy has played the biggest role in the overall decline and to what extent that will continue, is something that I can't predict," he says. "What I do know is the economy will recover; I just don't know when."

Darden, however, maintains the greatest challenge these days is actually not related to the economy. It's the development of employees. "Although I'm not charged with hiring people, it is my job to ensure that UPS has the right managers in key operational positions," he says. At UPS, 59 district and nine regional managers report to Darden. They are each responsible for an average of $300 million in revenues. Since UPS has an internal policy of promotion from within, he monitors the careers of scores of employees. "I want to help ensure this team represents UPS' commitment to diversity."

BOOSTING THE BOTTOM LINE

In an effort to reduce expenses and boost profits, Merrill Lynch's O'Neal has initiated an aggressive austerity program. Recently, he slashed its investment banking staff by 15%, reduced the network of regional trust centers from 30 to five, and offered voluntary buyout packages to all of its 66,000 employees--about 4.4%, or 2,900 employees, opted out the company. Moreover, O'Neal recently shuttered the firm's Canadian brokerage unit as well as considered downscaling its 18-month online banking venture with HSBC. The moves appear to be meeting investors' approval: In early December, Merrill's shares jumped 58%, from its 52-week low of $33.50 to $52.94.

In embarking on a strategy that he started two years ago as head of private client services, the silver-manned exec has earned the reputation of an ax wielder. O'Neal told BE in a recent interview: "I'm not a cost cutter solely. I do believe ... we have to be disciplined in our use of all resources, including human resources. But that's just a label people want to hang on me."

Others have adopted innovative strategies to bolster the bottom line. For example, Todd C. Brown's focus changed when Kraft Foods went public last year. (On June 13, Kraft spun-off from its parent, Philip Morris.)

As executive vice president of Kraft Foods North America and president of the food and beverage giant's e-commerce division, Brown is responsible for all Internet marketing. One of his charges is the creation of Websites that provide activities consumers are interested in and, in turn, drive sales. As a result, his team developed Kraft Interactive Kitchen, which supplies information about recipes and usage for Kraft products through the Web. "We're bringing millions of consumers every month [to Kraft] through these sites, and we know they're spending quite a bit of time after they get there," he says. "But we've not been able to do the kind of direct measurement [on the Internet] that we do in some of the other areas." One of his projects for the upcoming year is developing a system to accurately measure Internet-related sales.

WILL TECH BOUNCE BACK?

Over the past year, no sector has received more press about being in the doldrums than technology. Executives such as Al Zollar, general manager of Lotus Software, IBM Software Group in Cambridge, Massachusetts, however, continue to push technology as a driving force in business--despite the sluggish economy. (Zollar was president and CEO of Lotus Development Corp. until the company restructured the software group.) In his current capacity, he oversees one of Big Blue's four major software brands within the $12.6 billion division.

These days, Zollar's agenda is the identification of new revenue streams within the market. He asserts: "We must create strategically innovative solutions to meet the needs of our customers."

In fact, John W. Thompson, chairman, president, and CEO of Symantec Corp., has been successful in plugging into such opportunities. For example, the Cupertino, California, Internet security firm has developed gateway software to protect e-mail and Web traffic from malicious computer viruses and worms. Thompson, whose company's Norton AntiVirus recently won its 15th Virus Bulletin 100% award, believes Symantec will show profits in the coming year with the increased need for comprehensive security solutions.

PROFITING FROM SHELTER

Chairman and CEO Franklin D. Raines' company, on the other hand, has been flooded with activity as a result of current economic conditions. Low interest rates and high demand for housing and mortgage refinancing gave Fannie Mae, the nation's largest mortgage lender, a banner year. In October, Baines announced that the company had made commitments to purchase a record $33.6 billion in mortgage loans, surpassing the previous high of $30.2 billion in October 1998. The amount represented a dramatic increase from the $16.4 billion Fannie Mae bought in September when loan production dipped due to terrorist attacks.

What's driving the activity? Fannie Mae is reaping the benefits from a boom in housing and refinancing spurred by 11 interest rate cuts from the Federal Reserve in 2001, which lowered the 30-year mortgage rate to a record low of 6.45% in early November. Raines doesn't expect such activity to stop soon. "This decade could well be the greatest decade in history for housing," he told U.S. Chamber of Commerce members in November, as he announced that mortgage debt would more than double by 2010 to as much as $14 trillion.

In viewing the upcoming year, these BE executives are eagerly awaiting a rebound, hoping for a strong economic current instead of stagnant waters. In any event, most have sufficiently battened down the hatches, just in case storm clouds may still be on the horizon.

Turnaround In The Cards

Kenneth I. Chenault AMERICAN EXPRESS

AGE

50

BUSINESS CHALLENGE

Weakened economy and reduced consumer and business spending has produced a significant decline in revenues. Because of the September 11 attacks, Chenault is in the process of relocating workforce and motivating the troops.

TITLE

Chairman & Chief Executive Officer

CURRENT STRATEGY

Staying true to his business mantra of not standing still and focusing on long-term survival and growth, this turnaround expert is executing a strategic plan to lower operating expenses while growing existing business and providing top-drawer customer service.

Banking On A Cost-Cutting Program

Stanley O'Neal MERRILL LYNCH

AGE

51

BUSINESS CHALLENGE

Trying to increase profitability at the financial services giant as investors continue to be skittish about an ever-volatile stock market. Investment-banking activities have suffered, in part, due to a moribund IPO market.

TITLE

President and COO

CURRENT STRATEGY

Continue the aggressive cost-cutting program similar to the one O'Neal implemented as head of the firm's domestic private client group two years ago. In addition to slashing the investment banking and trust departments, he has offered voluntary buyout packages to the company's 66,000 workers.

Seeking Growth Through Computer Security

John W. Thompson SYMANTEC CORP.

AGE

51

BUSINESS CHALLENGE

Meeting the growing demand for comprehensive software solutions for customers seeking protection of e-mail and Web traffic from computer viruses and worms.

TITLE

Chairman, President and CEO

CURRENT STRATEGY

Development of more innovative and effective computer security software, while ensuring that the company holds its leadership position in the creation and marketing of personal computer utilities and antiviral software.

RELATED ARTICLE: A wave of departures among the Top 50.

along with the changing tide in corporate America there has also been a wave of departures in the executive suite. A number of skippers recorded among BE's list of the Top 50 most powerful executives in corporate America two years ago decided to end their corporate voyages. Some retired. Others pursued entrepreneurial ventures. And at least one of them because of boardroom intrigue.

The most notable departures were the CEOs of major corporations. Lloyd Ward, 51, rose to become CEO of Maytag and one of the few blacks to ever hold the corner office in a Fortune 500 company. He quit about nine months after making our list. He left after battling the board of directors over the strategic direction of the appliance maker. Following a quick stint running an Internet venture, the athletic exec vaulted from the corporate and entrepreneurial worlds to become head of the U.S. Olympics Committee--the first African American to hold the post (see "From Boardrooms To Snowboards," Newspoints, this issue).

Last January, A. Barry Rand, 56, resigned from his position as chairman and CEO of Avis Group Holdings Inc. after successfully overhauling operations, increasing revenues, and cleaning up its balance sheet. After Rand gave the car rental company a new finish, Cendant Corp., the nation's largest hospitality company and an 18% Avis shareholder, acquired the remaining shares and added Avis to its portfolio of companies. Rand's package: roughly $15 million.

Another CEO, Clifford L. Alexander Jr., vacated the top spot as chairman and CEO of Dun & Bradstreet Corp. (D&B)--but didn't leave the company. The 67-year-old former Secretary of the Army was slated to serve as interim chairman at Dun & Bradstreet, a New York financial research firm. Alexander assumed the role of chairman of Moody's Corp., a D&B subsidiary, in a non-executive capacity, and was instrumental in arranging the spin-off from the business-rating service into a public entity in 2000.

Other top execs resigned to take on other challenges. Ann M. Fudge, 50, a 14 year veteran of Kraft Foods Inc. who rose to become group vice president, left for an opportunity to work in another industry, and Kenneth Coleman of Silicon Graphics Inc. retired from the outfit to pursue new ventures. Professionals such as Sylvester Green, executive vice president of insurance giant Chubb & Son, and Roy Roberts, the vice president who oversaw North American vehicle sales and marketing for General Motors, retired from their powerful posts, and decided to bring old economy sensibilities to new economy companies. In fact, Roberts discovered just how brutal his brave new business world could be: After six months running M-Xchange.com, a $35 million Internet venture designed to link minority suppliers with Fortune 500 companies, he shut down the operation when the dotcom bubble started to burst two years ago.

Another member of the Top 50, 47-year-old Paget Alves, decided to embrace the risks of entrepreneurship in the hopes that it will bring future rewards. Last year, he left his position as president of Sprint Communications Corp.'s Business Service Group, a mammoth operation that generated $8 billion in revenues and employed 8,000 workers, to run Austin, Texas-based PointOne telecommunications, a small. 120 person start-up. At the time he took the position, Alves asserted: "Small firms like ours really offer a great opportunity to impact the marketplace and leave a mark on what is taking place from a technology and a services standpoint. It's just an overall challenging, more interesting opportunity for me."

The most recent retiree, Elliot S. Hall, vice president of dealer development and 15 year veteran at Ford Motor Co., has decided to stick around. In his former capacity, he oversaw the development of minority-owned Ford dealerships, which currently accounts for roughly 7.5% of the companies total dealership body of 5,200 dealers.

Hall, 63, who announced his plans at the end of 2001, decided to remain with the company as a consultant to help ease the transition for his second in command, George Frame, who will take up the reins.

Like many of the departing top execs, Hall, too, steps down at a tumultuous time at the organization. Former CEO Jacques A. Nasser was removed and succeeded by founder Henry Ford's well-liked great-grandson, William C. Ford Jr. Meanwhile, the automaker struggles to make profits, introducing 0% financing with the hopes of boosting unit sales, while what he refers to as an "unjustified cloud" continues to loom over the Ford Explorer due to reports that SUVs equipped with Firestone tires caused numerous fatal accidents. (Ford recalled the tires in 2000 and severed its relationship with the tire manufacturer. This resulted in lower sales in the U.S. For 2000, Ford's net income in America totaled $4.88 billion on sales of $103.9 billion, compared with $5,418 million in 1999 on sales of $99.2 billion.)

With that stigma attached to the vehicle, even a year later, Hall's focus will be damage control. "We told all our dealers to invite their old Explorer customers in for a test drive [of the 2002 Explorer]," he says. "We told them to take the article out of Consumer Reports [ranking the SUV No. 1 on its list] and mail it to their customers. Whatever you need to do to market the product."

It is not yet known whether other members of the 2000 Top 50 list will join Hall and the others. One thing is clear: These brilliant, enterprising leaders will make a lasting mark in business. --D.T.D. and A.H.