The CEO's Challenge

Early one morning around Christmastime, Rick Wagoner was running on the treadmill in his suburban Detroit home, flipping TV channels. Way up the cable dial he came across an old movie he'd never seen: "Roger & Me." In the 1989 documentary, the angry populist filmmaker Michael Moore pursues General Motors' chairman, Roger Smith, attempting to lambaste him for laying off workers. Wagoner, GM's current CEO, was working overseas when the film came out; he'd never seen it.

SO HE JOGGED ALONG, watching as Moore torments one of his predecessors. Wagoner stopped running before the ending, but he'd seen enough to give his own blurb-worthy review: "Glad it wasn't me."

Michael Moore's wrath is now focused on the Oval Office—which is a rare break these days—for a new generation of corporate chieftains. Like Wagoner, 50, they've ascended to top jobs during the worst economic environment in decades. These men and women—many still in their 40s—have spent their careers managing through prosperous times; some of them were barely out of school during the long recession of the early 1980s. And thanks to the scandals left behind by Ken Lay and Dennis Kozlowski, they're leading at a time when distrust of corporate executives has never been higher. Restive shareholders, emboldened regulators and demoralized workers—together they're enough to make Michael Moore look like a pussycat.

To manage through this mess, they're approaching their jobs with a style different from the old guard they've replaced. Bull-market CEOs fancied themselves visionaries; who was to argue in a market where every stock went up? They believed in the motivating power of stock options, and that any tech investment was a good tech investment. They went the extra mile to please Wall Street analysts, and worked evenings on their memoirs. Next-generation CEOs spend less time speechifying; they're all tied up in audit-committee meetings, making sure there are no Enron-style surprises hidden in their financial statements. They're trying to bolster morale by telling employees there are brighter days ahead, even if everyone's nervous about layoffs and stock options are underwater. They have a more clear-eyed view of technology and are less beholden to analysts, who've suffered their own share of disgrace lately. And in the most striking change, many of the new bosses are limiting their visibility. Says Avon chief Andrea Jung: "The era of the celebrity CEO is definitely over."

Few top bosses face a stiffer challenge than Jeffrey Immelt, who succeeded the world's biggest business celebrity. Jack Welch tapped Immelt as General Electric's CEO-in-waiting in November 2000, just as the U.S. economy was downshifting into recession. Battered by skepticism over GE's complex finances and its growth potential, GE's stock has declined more than 40 percent since then. "But it's never once made me think 'Oh, this is horrible, I should have gone to 3M'," he says in a laughing reference to the job taken by one of his competitors for the GE post.

Since taking over, Immelt has spent much of his time answering a basic question: in the 21st century, what should GE sell? Increasingly, the answer involves technology—but not the simple PC or Internet technologies that drove the '90s boom. When Immelt talks tech, he's talking jet engines, MRI scanners, turbines, locomotives and water-filtration systems—all of which GE sells and services. "I view those as being rich and deep technologies that are very difficult to do," he says. "How many companies are making cell phones? How many make laptops?" He dismisses these "me too" products as commodities, where innovations are quickly copied and profit margins are hard to sustain.

Other new CEOs have a vastly different job: cleaning up the tech-related disasters overseen by their predecessors. At toymaker Mattel, former CEO Jill Barad spent billions during the boom to acquire Learning Co., an educational-software firm. The acquisition turned into a quagmire, the board fired Barad and brought in Kraft Foods president Bob Eckert. Eckert has turned Mattel around by focusing on Mattel's tried-but-true low-tech products, like Barbie and Hot Wheels. Instead of trying to create wild new computerized playthings, Eckert's Mattel aims to expand overseas, licensing and selling more of its core products. "Our business model doesn't rely on hit products—it relies on the power of our brands," he says.

At Avon, CEO Jung has had to take the company's low-tech sales force into the Internet era. When she took over in 1999, the —tech bubble was still in full swing. Some observers suggested ditching the Avon ladies and becoming a dot-com cosmetics powerhouse. Instead, Jung hired more reps and set up a system where they'd reap commissions from Internet sales, which helped Avon sell more products at lower cost. Today this enlarged army of Avon ladies is keeping sales growing even as the economy lags. "We now have 50 percent of our sales reps online, and it's become an obvious game-changer for us," Jung says.

During the boom, CEOs had to contend with their best and brightest jumping ship to dot-coms. During this bust, they're trying to rally troops who feel overworked and worried that they'll be caught in the next round of layoffs. Few leaders face this issue more squarely than Patricia Russo, chief executive of Lucent Technologies. Lucent, which sells telecommunications equipment, soared during the late '90s, propelled by predictions of ever-expanding Internet usage and rampant growth by telcos. Since the bust began, Lucent's business has been in free fall; last year alone, revenue fell by 40 percent. To survive, Russo has pushed her company to generate revenue by servicing the equipment it's already sold. Mostly, though, she's been cutting expenses. That creates a tricky balancing act: she's trying to simultaneously convince the workers she hasn't laid off that brighter days lie ahead. The key, she says, is candor. "They're adults," Russo says. "All they really want you to do is tell the truth, tell it like it is so they can digest it, deal with it and be prepared for whatever might happen." Her message to the worried workers: "This is a great industry; [the downturn] is not a permanent condition; it will recover. We just can't tell you when."

Immelt sings a slightly different version of the same tune. Relentlessly optimistic, he says the soft labor markets are giving GE advantages when it recruits on campuses, since students now see GE's size and stability as big pluses. He makes the same point to current workers. "My best selling point to people, in the beginning and today, is the fact that I have more great jobs here than anybody in the world," Immelt says, rattling off examples of GE employees in their 30s who are running $500 million businesses. "People can stretch themselves here; they have the resources to build, to take small things and make great businesses."

During the boom, these CEOs might have spent valuable time courting powerful Wall Street analysts. Today the nature of this relationship has changed. Consider —Mattel. Prior to Eckert's arrival, executives spent a lot of time helping analysts refine their quarterly earnings estimates, as most companies do. Eckert halted the practice. "The company was deteriorating, [and] it didn't make a lot of sense to spend time trying to tell Wall Street what might happen in the next 90 days," Eckert says. "We were interested in the long-term turnaround." Instead, he sketched out broader business goals and spent time helping analysts understand the company's strategy. Despite the lack of guidance, the Street is applauding Eckert's approach: Mattel's stock is up 86 percent since his arrival.

These new-style CEOs are also reacting against the celebrity status many of their predecessors achieved. Among current CEOs, it's hard to find a leader who's less of a rock star than GM's Wagoner. The best evidence of his willingness to cede the spotlight is shown by his knack for making high-profile hires. In 2001 Wagoner hired former Chrysler vice chairman Bob Lutz, a flamboyant, media-savvy design guru, and John Devine, former Ford finance chief. Wagoner has let Lutz take the lead to hawk GM's products at auto shows, while Devine has become the company's face on Wall Street. Most CEOs would worry about being overshadowed. Wagoner shrugs it off. "I'm a much better basketball player than I am a golfer, so you can draw your own conclusions," he says. "I don't think you come to work for General Motors with the idea that you individually want to become a star. If you want to do that, you go be an investment banker or an entrepreneur."

For a public tired of self-promotional corporate bosses, there's something refreshing about this quieter breed of leader. But Jeffrey Sonnenfeld, associate dean at the Yale School of Management, sees their lower profiles as a mixed blessing. "Charisma still counts, having a compelling vision still counts, but instead they're retreating and not speaking out on public issues," Sonnenfeld says. "The positive is they're not egomaniacal, and they're really focused on doing their jobs."

They're also focused, like many Americans, on a single question: when will the economy start growing again? At GE, Immelt holds little hope for a quick postwar economic recovery. "It's not going to happen—the excess capacity that existed before the threat of war still exists," Immelt says. GM has kept sales strong by offering zero-percent financing and other incentives. Last month it expanded the program to offer interest-free, five-year loans. As consumers' attention stops being diverted by war, Wagoner says, those enticements should keep GM's business brisk. At Lucent, the best spin Russo can put on the outlook is that sales are falling more slowly than they were last year. "It feels as if the industry is moving toward more stability... [but] we don't see anything that could be considered a recovery," she says.

—Amid these tough times, it's natural to look for the silver lining. Like marathoners who train at high altitudes, some of these new CEOs say they'll emerge from these days better conditioned for tomorrow's travails. "It's always easy to stand up in front of employees and say, 'Earnings are up 25 percent, the stock's up, everything's great'," says Immelt. "Clearly Jack [Welch] saw a lot of different economic times, but I've probably had to get involved in some things that he didn't see even during a 20-year run." Outsiders agree. "Jack Welch got the crap beat out of him the first five years—that's what made him strong," says University of Michigan business professor Noel Tichy. Immelt and his cohort have "compressed a lot of CEO life experience into a very short period of time."

And thanks to their youthfulness, they can afford to wait for their stock options to regain value—and their turn in the spotlight, if they so choose. Some will continue measuring their success in different ways. "Did you ever see the movie 'Patton'?" Wagoner asks. (Apparently his treadmill routine is turning him into quite a movie buff.) He describes the closing scene, in which the general has been eased out of power and is alone walking his dog. Patton quotes a Roman emperor who whispers to his successor: "All glory is fleeting." "That's probably true," Wagoner says. Better to measure an executive's success, he says, by whether he leaves the business stronger than when he took the job. As a bevy of once celebrated, now scandalous former CEOs await their legal fate, shareholders may welcome a new breed of leaders who stay out of the headlines—and keep an intense focus on the bottom line.