Last Updated: May 31, 2000
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One of five winning entries by John Keller of The Wall Street Journal
that won the Jesse Laventhol prize for deadline reporting by an individual
in 1998.
July 17, 1997
AT&T Corp. President John R. Walter, whose relations with Chairman
Robert E. Allen had grown increasingly strained, resigned abruptly after
the company's board said it wouldn't name him chief executive as planned
by Jan. 1.
The stunning decision by AT&T's board, which hired the former printing-industry
executive only last November after a high-profile search, capped an unusually
public drama played out in the executive suites of a telecommunications
giant struggling with seismic changes. AT&T's board took the extraordinary
step of airing its low opinion of Mr. Walter in a conference call with
reporters yesterday, during which outside director Walter Elisha declared
Mr. Walter lacked "the intellectual leadership" to run AT&T. TD Mr.
Walter, 50 years old, was told of the board's decision yesterday morning
after an evening of intense talks among outside directors and Chairman
Allen. These directors, including Mr. Elisha, will launch yet another search
for a successor to the 62-year-old Mr. Allen, an indication that Mr. Allen
will have a lesser role in this search than in Mr. Walter's hiring. Mr.
Elisha made it clear last night that AT&T is looking for a new CEO.
Mr. Walter's exit seems to leave AT&T adrift at a time when it can
least afford to be distracted. The company's core long-distance business
continues to erode. AT&T is under intense attack in virtually every
one of its markets, including wireless services. And its international
strategy is in disarray as competitors such as the team of British Telecommunications
PLC and MCI Communications Corp., as well as Sprint Corp. and the Baby
Bells lock up key alliances.
AT&T's shares closed yesterday at $36.3125, up $1.3125 in New York
Stock Exchange composite trading.
Mr. Walter defended his tenure as president yesterday, in a statement
in the very AT&T news release that announced his resignation. "I believe
I am perfectly qualified to be CEO of AT&T right now," he stated. "I
have worked tirelessly on behalf of the shareholders of AT&T."
Mr. Walter, who declined to comment, will leave the job much richer
than he began it. He received a $5 million bonus in October when he left
his job as chairman of R.R. Donnelley & Sons to join AT&T. And
now he will get $3.8 million in severance, plus $22.8 million to cover
what he would have potentially earned at Donnelley had he stayed.
"Mr. Walter's services will be in great demand," said Mr. Walter's attorney
Robert Barnett, of the Washington law firm Williams & Connolly. "He
is one of the world's experts on information services and communications.
John Walter will be just fine."
Now with Mr. Walter gone, scrutiny of Mr. Allen's troubled tenure is
certain to intensify. Mr. Elisha acknowledged last night that Mr. Allen
has become "a lightning rod" of blame for AT&T's current malaise, but
he defended the chairman as "doing a terrific job under very trying circumstances."
Many analysts and AT&T watchers had been skeptical of Mr. Walter's
abilities to run AT&T since he had never worked in the telecom industry.
"He wasn't even close to the best person that could have been tapped to
run this company," said David Beirne, a corporate headhunter who has lured
several top AT&T executives to other companies.
However, while some questioned Mr. Walter's capacity to run far-flung
AT&T, people close to the company said a bigger reason the telecom
novice was dumped might have been Mr. Allen's inability to get along with
his No. 2. It is a problem that has plagued AT&T's chairman during
his nine years in the top job. Mr. Allen had gradually taken away much
of Mr. Walter's responsibilities, including merger talks AT&T had been
conducting, while offering only lukewarm public support for his colleague.
Mr. Allen wouldn't comment.
People close to AT&T weren't surprised by Mr. Allen's actions. For
eight of his years as CEO, he refused to name a president with his board's
full compliance. Mr. Walter, brought in under an agreement in which Mr.
Allen agreed to retire two years early, is now the second president to
quit AT&T in a year. Alex Mandl resigned last summer after Mr. Allen
wouldn't designate Mr. Mandl as his heir apparent.
Mr. Walter was tapped in October after a three-month search by AT&T's
directors and the recruiting firms Spencer Stuart and Korn Ferry. Among
those considered for the job were current Eastman Kodak CEO George Fisher,
who turned AT&T down at the time. Mr. Fisher has since been elected
to AT&T's board, igniting speculation once again that AT&T will
try to offer him the job. Mr. Elisha will only say he admires Mr. Fisher
and that he would be an obvious candidate, but he wouldn't say whether
AT&T would make him a new offer. Mr. Fisher hasn't commented on such
speculation. He has a couple of years left on his contract with Kodak.
Only a few weeks ago, Mr. Allen said he had "full confidence" in Mr.
Walter. But AT&T insiders knew differently. "Bob very reluctantly agreed
to accelerate his own retirement by two years to get John, but when the
day for that to happen got closer he didn't want to give up the reins,"
said one executive.
The tension at the top of AT&T rose during the recent failed merger
talks with Bell giant SBC Communications Inc., when Mr. Walter was cut
out of the negotiations by Mr. Allen and AT&T's chief counsel, Vice
Chairman John Zeglis. It turned out that it was Mr. Walter who first got
the call from SBC Chairman Edward Whitacre to do a deal, angering Mr. Allen.
"After that, Bob took the SBC deal over for himself and Zeglis," cutting
Mr. Walter out of the loop, said one executive.
And all the time Mr. Allen was critiquing Mr. Walter's performance to
Mr. Elisha and other noncompany directors. The increasingly critical reviews
came during private sessions between Mr. Allen and the board's outside
directors, dating back to mid-April, said Mr. Elisha, who is Chairman of
Springs Industries Inc. "Bob talked to us for awhile [at the April meeting]
and expressed concerns to us," the director said, but he he wouldn't elaborate
on what Mr. Allen told the directors. Later in May at another session,
"the caution light was on," Mr. Elisha added.
The AT&T board met in a special executive session late into Tuesday
night over the Walter succession issue. The final showdown came yesterday
morning in a 90-minute session between Mr. Walter and directors in a small
conference room in AT&T's lower Manhattan headquarters where he outlined
what he felt were his accomplishments at AT&T. The directors left the
room and caucused among themselves. Mr. Elisha later met with Mr. Walter
again and told him of the board's decision to refrain from naming him CEO
in January. Mr. Walter decided at that point to leave, and later working
out a suitable news release with the company.
"John was very able" as an executive, Mr. Elisha said yesterday. But
he noted the CEO's job at AT&T requires more than just good management
acumen. As Mark Twain used to say, Mr. Elisha recalled, the "difference
between president and vice president is like the difference between lightning
and a lightning bug."
But it remains to be seen whether the telecom experts who remain at
AT&T will be able to dust the company off from the latest brouhaha.
AT&T said the company's counsel, Mr. Zeglis, now would assume all of
Mr. Walter's responsibilities for operations, while AT&T moved Mr.
Zeglis's responsibilities for legal, human resources and public relations
under Mr. Allen's direct control.
Mr. Allen's closest confidant, Mr. Zeglis was recently elevated to vice
chairman, undercutting Mr. Walter's position significantly. Mr. Zeglis
gets high marks for his intelligence, particularly in navigating the current
regulatory issues surrounding the competitive telecom market, but his new
assignment is bound to cause controversy, since he has never run a business.
Mr. Elisha defended the choice of Mr. Zeglis as operating chief, calling
him a "very able, knowledgeable and insightful executive. . . . who's also
a lawyer." But he would only endorse him as one of a "final 10" list of
executives that might be qualified to someday run AT&T. AT&T will
look inside and externally for its next CEO, a search that might necessitate
Mr. Allen having to stay on longer than expected, he said.
Mr. Walter had grown popular with the troops and senior managers at
AT&T, some of whom called analysts incessantly in recent weeks to see
if speculation was true that the new president might soon quit. "There
are going to be a lot of executives looking to jump ship after this," said
one executive recruiter last night. "People here loved John and hated Allen."
The two executives made for an extremely odd couple. The laconic Mr.
Allen rarely meets informally with his top executives and is slow to give
praise. Executives close to AT&T said that in the past year he has
grown increasingly remote after having endured several years of blistering
news coverage over his multibillion-dollar failures in the computer business
and other investment misfires.
Mr. Walter, on the other hand, "is a born salesman," noted one AT&T
executive. "He's energetic, he has charisma; he takes charge."
Mr. Walter adopted an aggressive tone at AT&T almost from the moment
he arrived, telling The Wall Street Journal in a front-page story that
he hadn't taken the job at AT&T "to be No. 2."
In only a few months, he took command of AT&T's disparate operations,
ordering a wide-scale cost review; survived a showdown with the company's
hard-charging former consumer-services president, Joseph Nacchio, who resigned;
promoted several senior executives to command AT&T's core businesses;
and traveled extensively to meet with corporate customers and AT&T
employees.
Those workers must be thinking "what now," said Brian Adamik, a senior
analyst at Boston research firm Yankee Group and a former AT&T executive.
"Nothing amazes me about AT&T anymore," he added. "The company appears
to be out of control with a lot of senior defections, a very publicly failed
merger attempt with a Bell and its core long-distance business continues
to erode."
A committee of independent directors of AT&T will conduct the new
CEO search. The group includes Mr. Elisha; Kenneth Derr, chairman and CEO
of Chevron Corp.; Donald McHenry, president of IRC Group; Ralph Larsen,
chairman and CEO of Johnson & Johnson; and Thomas Wyman, senior adviser
of SBC Warburg Inc.
