Failure Is an Option

Poor stock performance? Weak sales? No matter! If you were once a C.E.O., you can surely be one again. Here's why.

In the world of curious business decisions, nothing inspires as much furious head-scratching as a mystifying chief executive hire. And the past decade has seen a lot of scratched heads-primarily after a once publicly trashed C.E.O. is snatched up by another firm.

To wit: After Robert Nardelli stepped down from his perch at Home Depot under pressure following the company's poor stock performance in 2007, he promptly floated his golden parachute over to Chrysler, where Cerberus Capital Management gave him another go as a C.E.O. Don Carty hastily left American Airlines after very publicly botching negotiations with the company's union in 2003, but three years later, he landed a job as chairman of Virgin Airlines. And George Shaheen took the helm as C.E.O. of Siebel Systems in 2005 after previously driving the online grocer Webvan into the gutter.

Given the critical importance of C.E.O.'s and the stratospheric salaries they command, one would expect that a candidate's past record of success would be of utmost importance and thoroughly examined. But executive recruiters acknowledge that this isn't always the case.

Instead, companies prize any kind of experience at the C.E.O. level, even over a stellar performance record at any other executive level. And for companies that are in a hurry to hire a new C.E.O., as often happens when the current chief is ousted or coming under pressure, the safest, easiest, and quickest bet is to choose someone with previous C.E.O. experience-good or bad.

"Under those circumstances, you want to take as little risk as possible and find someone who's proven," says Jay Gaines, who heads his own executive search firm in New York. In this case, Gaines says, the proof is in the title: "It's what we call a 'value candidate,' someone who has been there, done that."

Moreover, there's a tendency in the C.E.O. selection process to be blinded by familiar names who have worked at well-known companies.

Case in point is Carl Yankowski, who's something of a poster child for seemingly unsuccessful C.E.O.'s who get rehired. After a good run as president of Sony Electronics in the mid-'90s, Yankowski became C.E.O. of Reebok in 1998. But his time at the struggling shoemaker lasted only 14 months, as sales dropped almost 10 percent over the first nine months of 1999. Consumer electronics company Palm, then a division of 3Com, proceeded to give the C.E.O. reins over to Yankowski in 1999 following the sudden departure of then-president Robin Abrams.

"Given his background, it seemed like it was a good résumé," says an executive who worked under Yankowski at Palm who requested anonymity. "He was clearly the 'world-class C.E.O.' who was going to take the company public and then drive its scale to be big."

Yankowski was able to take the company public and presided over its growth into a $30 billion market cap during the tech boom, and for several months he was lauded for that. But he seemed ill-prepared for the economic slowdown that followed. Palm's market share plummeted and critics lambasted his tendency to discuss future products in public, a habit that weakened demand for those already in the market and led to inventory problems.

"He just wasn't driving the bus," says the former Palm executive of Yankowski, who resigned from the company in November 2001 when Palm's stock plunged form a high of $60 to just $2. For several years, Yankowski worked as a management consultant and corporate board director.

In 2005, however, gaming company Majesco hired Yankowski to be its C.E.O.; less than a year later, he resigned amid news that Majesco was going to miss its 2005 revenue projections by more than $50 million.

But even that didn't prevent another company from asking him to serve as its C.E.O. In the autumn of 2007, the small consumer-electronics company Ambient Devices inexplicably tapped Yankowski to be its new C.E.O.

David Rose, the founder and former C.E.O. of Ambient who helped choose Yankowski as his successor, says that the company felt lucky to nab Yankowski. "We were all impressed that someone with these qualifications could be wooed into the company," says Rose. "In business, experience typically means being associated with brands. Carl Yankowski happens to [have held executive roles at] Pepsi, Procter & Gamble, Palm, Sony, and Reebok. You've heard of these companies."

Ambient declined to make Yankowski available to comment for this story, but the company says that Yankowski's engineering and marketing experience were key reasons for hiring him, and notes that Yankowski has led a successful first round of equity funding for Ambient.

Venture capitalists, who are often in charge of or heavily involved in the C.E.O. searches for their companies, are part of the problem as well. Since they tend to be less ingrained in the day-to-day operations of a company, they may be more likely to recommend a known name who's good at selling him or herself over a good fit.

"We've had a couple of [candidates] come by, and we're thinking, why did you give us these guys?" says Pejman Roshan, founder and interim C.E.O. of Agito Networks, a wireless technology startup in Santa Clara, California. Agito is knee-deep in its second C.E.O. search in two years; the first C.E.O., Rob Markovich, left the company after just 18 months (Roshan declines to give a reason for the departure, saying only that his company's needs changed as it moved out of "stealth mode"). Roshan says that this time around he's spending "lots and lots of time" with each candidate, so as to increase the chances of making a good culture fit.

Not surprisingly, the recent economic crisis has had a couple of positive effects on executive searches. For one thing, the candidate pool may grow, since C.E.O.'s who already have jobs are more likely than ever to consider new opportunities, even if they are doing well, because job security has become so tenuous.

More significantly, though, recruiter Gaines says that companies appear to be vetting candidates more carefully than ever, looking for those with real operational experience and past records of success. In the financial world, Gaines says the gold standard has become someone like J.P. Morgan C.E.O. Jamie Dimon, who has a reputation for sweating operational details and who has weathered the storm better than most of his counterparts.

"The real truth is that on the big searches-C.E.O. and C-level searches-sure, you're usually looking for the total packages, and the track record has always counted, but the candidate's presence, articulation, charisma, and chemistry have far outweighed the orientation toward the details," Gaines says. "But in the financial industry, we're seeing a sea change. The world has changed pretty dramatically."

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