Last week, Richard Parsons, the well-liked chairman and CEO of the world's largest media company, Time Warner, announced that he'd pass the leadership baton to the company's president and COO, Jeffrey Bewkes, as of Jan. 1, 2008.
I spoke with Parsons recently, as I have many times over the past few years, and was able to draw a few conclusions about the succession at Time Warner.
A CEO's balance sheet
When he assumed the CEO mantle in May 2002, Parsons inherited a series of challenges that would've tested the mettle of any executive: dealing with the fallout from what's been commonly described as the worst merger of all time; settling a colossal government investigation over accounting issues within AOL; restoring morale in a fractious company; establishing credibility with the investment community; reducing the choking $30 billion of debt on the balance sheet; and fending off a war-mongering Carl Icahn. This was in addition to all the "normal" challenges of guiding a complex global media company at a time of unprecedented changes in technology and consumer behavior.
In assessing Parsons' performance, critics say that despite all of his words and efforts, his tenure has to be judged in the cold light of a share price that's stagnated at around $18 on his watch, while the S&P 500 has increased over 40 percent. Moreover, they say Parsons failed to convince Wall Street that he had a clear and compelling strategy for the digital age.
Supporters contend, however, that he righted a mortally listing ship by addressing the aforementioned challenges. They also say that from the time Time Warner's stock hit its low point of about $10 a share in the August 2002 post-Internet bubble -- and in the midst of the government investigation -- Parsons built the company's value back up, increasing the share price by nearly 80 percent.
Inheriting turbulence
Assessing the truth of Parsons' reign requires looking back at the situation he inherited when he became CEO and contrasting it to what he's turning over to Bewkes. At the time that Parsons took over, the company was coming off of a merger that, 16 months after the deal was announced, was working very poorly. There was an epic culture clash between the gun-slinging, centralized leadership of AOL and the fiercely independent leaders of Time Warner's traditional entertainment, cable, and publishing businesses.
With the underlying philosophy of the merger -- transforming "old line" media businesses into digital businesses distributed over the Internet to the company's immense subscriber base -- in tatters, there was no common agreement on what the company was trying to accomplish. There was also mammoth dissatisfaction among the company's employees due to the massive collapsing of value, driving their stock options down and causing their 401(k) accounts to be badly hit.
Then there was the uncertainty, distraction, and embarrassment associated with the major government investigation into AOL's accounting and business practices leading up to the merger. So great was the threat of that investigation that Parsons has said that it could've literally brought the company down.
Playing the hand he was dealt
In that context, Parsons had no choice but to become a problem-solver, working simultaneously to heal the crippled emotional state of the company's employees, resolve the government investigation, and start performing well at the business-unit level. He made some important organizational changes that allowed the company to work its way through the challenges of the merger integration and to free it up to focus on execution.
One of Parsons' important early moves, for example, was the July 2002 appointment of two highly regarded operating leaders. Jeffrey Bewkes, who had built HBO into one of the dominant media brands, and Donald Logan, the longtime, highly successful leader of Time Inc., were made group presidents, each responsible for running half of the company's divisions.
Parsons also instituted some important changes designed to create a single corporate culture. According to top executives across the company, he genuinely believed in the statement "people are our most important asset" and was dedicated to making it real. For example, he instituted strategy and mission-building meetings with the executive team and put a 360-degree feedback process in place that all the top managers went through, including himself. Parsons also deployed his remarkable people skills by listening, cajoling, and coaxing managers to leave the past behind and get on with things. He frequently said, "We can't undo what's been done. We have to play the hand we've been dealt."
Missions accomplished and otherwise
Slowly but surely, the divisions began to work collaboratively, AOL was dropped from the parent company name, several extraneous businesses were shed, the $30 billion debt load was cut in half, and the government investigation was resolved. Everything was operating according to Parsons' plan -- with one exception.
The share price was stuck in the doldrums. This provided the opening for Carl Icahn to come into the stock and, with the effective use of the media, push for gigantic share buy-backs, division spin-offs, dramatic overhead reduction, and other fundamental restructuring moves. As most observers know, Parsons handled this attack by simultaneously working with Icahn on a personal level and by accelerating some of the plans that were already in place. In the end, Parsons' credibility carried the day.
Today, Parsons' fundamental goals have been accomplished. Most of Time Warner's operating companies are in good shape, with some performing above expectations (such as Time Warner Cable and Turner Broadcasting), some in line (like Warner Bros. and Time Inc.), and some below (AOL).
The current challenge is for the company to grow beyond its status as the largest media company in the world; to work with rapidly changing digital technologies that present both opportunities and challenges; to expand outside the United States; and to persuade the investment community that Time Warner has the right approach to capitalize on its assets and competitive position.
The right time for a change
In short, Parsons and the Time Warner board determined that now was the right time to name Bewkes as CEO. It's clear that the company has had a succession plan in place for some time. When Logan retired, it was logical and well-received that Bewkes would be appointed sole president and COO.
Over time, he assumed more responsibility for the day-to-day leadership of the company, and Parsons has often said that his goal was to get the company in good shape to enable a smooth leadership succession. Bewkes was widely considered the best possible choice given how well he's known and respected within the company, in the industry, and on Wall Street.
As the Parsons era gives way to the Bewkes era, many investors expect Bewkes to take an aggressive approach to reshaping the company by spinning off or selling divisions in an effort to boost the stock price. However, others point out that he and Parsons worked closely together running the company for several years, and that he's therefore been a key architect in leading Time Warner to where it stands today. The latter investors don't expect a radical departure from the current course come 2008.
A new era
What is clear is that Bewkes will have an opportunity to stand back and look at the company and its portfolio of businesses and determine how he thinks it should move forward. One of the most important opportunities in any leadership change is to bring a new perspective to a company and a new approach to working through important issues.
As of January 1, it'll be up to Bewkes to take Parsons' legacy forward. The pressure to get the stock price up comes at a time when investors hold media conglomerates out of favor. Given what Parsons has accomplished over the past five and a half years as CEO, the table is now set for Bewkes to start building his own legacy.
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