July 13, 1999, 09:25 p.m.
Compaq chief may come from
TRW
Board members meet with candidate
By DWIGHT SILVERMAN
Copyright 1999 Houston Chronicle
An executive with ties to the diversified manufacturing
company TRW has emerged as a leading candidate in
Compaq Computer Corp.'s search for a chief executive.
The candidate met in Houston last Thursday for about 2 1/2
hours with Compaq Chairman Benjamin Rosen and the two
other board members who make up an interim "office of the
chief executive," sources familiar with the search say.
The candidate also met at an undisclosed location Sunday
with another board member, one source said. That was
followed by a conference call among board members.
Compaq officials declined to comment on the company's
CEO search.
Of the executives associated with TRW, one likely
candidate is Peter S. Hellman, 49, the former president and
chief operating officer of TRW, who left the company in
February.
TRW is known to most people as a keeper of credit reports
-- a business it sold off several years ago. The Ohio
company has businesses in auto parts, aerospace,
information systems and defense contracting. It had sales of
$11.9 billion last year.
Choosing an executive from that company would provide
what Compaq has been looking for -- someone who
understands technology but also could bring an outsider's
viewpoint to the company.
Compaq board members have been saying privately that
their search, which began with the ouster of Eckhard Pfeiffer
in late April, is coming to a close. Rosen said on July 2 that
he expected the search would be over in four to six weeks.
A source close to Compaq said the company hopes to name
its new chief executive officer when it reports quarterly
earnings on July 28.
If Hellman is Compaq's choice, he brings a set of skills to
the computer maker's top management that could serve it
well in its current crisis.
Analysts say Hellman was instrumental in helping pare TRW
down, making it more efficient. And he oversaw a part of
TRW with challenges that are similar to those facing
Compaq.
Hellman rode herd over TRW's automotive parts group. A
TRW spokesman said that business is facing increasing
pressure from automakers to decrease prices. This puts a
squeeze on parts makers' profits.
In the computer industry, both business and consumer
buyers are being attracted to machines that are low-cost, but
still powerful enough to run most common software
packages. As a result, the average selling price of a personal
computer is dropping quickly, forcing PC makers to become
more efficient to protect their profits.
Compaq, which sells most of its PCs through resellers and
retailers who charge a markup, is facing tough competition
from manufacturers like Dell Computer Corp. of Round
Rock, which sells PCs directly.
Last month, Rosen warned analysts that Compaq would
post a loss of as much as 15 cents a share for the second
quarter.
Hellman was instrumental in paring down TRW by selling off
parts of the company that had little to do with its core
business. The most visible of these sales was that of its credit
reporting division in 1996.
TRW spokesman Jay McAffrey described Hellman as "easy
to get to know, but demanding. He's a perfectionist, which is
important in business."
Hellman could not be reached for comment.
Hellman left TRW in February when the company bought
LucasVarity, a British auto parts maker, for $7 billion in
cash. Analysts say he was pushed out to make room for
Victor Rice, LucasVarity's chief executive. Rice later
backed out, however, citing business differences with
TRW's chief executive, Joseph T. Gorman.
Hellman came to TRW in 1989 from British Petroleum's
American unit, where he was the general manager for crude
oil supply and trading. He started as TRW's vice president
and treasurer, and in 1991 became executive vice president
and chief financial officer. He was named president and chief
operating officer in 1994.
The new chief executive at Compaq will face a company
that is struggling to keep up with industry changes that
appear to have taken it by surprise.
Compaq also still faces challenges in integrating Digital
Equipment Corp., which it bought a year ago for $9 billion,
into its operations. Analysts and Compaq insiders say there
is a "culture war" between Digital and "Compaq classic"
managers.
"The original Digital hadn't been a successful company for
10 or 15 years, and all the really good people left," said
Gary Stimac, a former Compaq executive who still maintains
close ties to the company. "So what kind of people were left
at Digital? Survivors -- people good at holding onto their
jobs. These are not necessarily business entrepreneurs,
which is the original culture of Compaq."
Compaq's situation bears striking similarities to the problems
it confronted during its earlier crisis of 1990-1991. But there
are also significant differences.
Then, a shift in the market for Compaq's core product --
personal computers aimed at businesses -- caught the
company unaware. Compaq had been charging big bucks
for its computers, even though the systems were not much
different from the no-name clone PCs being offered by
smaller vendors.
Businesses were quickly catching on that the clones were
more affordable and just as powerful as Compaq's pricier
models. Compaq's sales began to skid, along with its profits.
When then-Chief Executive Rod Canion balked at changing
how the company did business -- Compaq's board wanted
to focus on lower-cost, high-volume systems -- he was
replaced.
But unlike the current situation, Compaq had an heir
apparent in Pfeiffer, who had been waiting in the wings as
chief operating officer. That allowed for a relatively smooth
transition to a new chief executive.
When Pfeiffer was ousted in April, however, there was no
one ready to fill his shoes. Rosen, along with board
members Frank Doyle and Robert Ted Enloe, formed an
office of the chief executive to run the company on a
day-to-day basis. At the same time, Compaq's board
embarked on a hunt for a new chief executive.
The search has been going on for 2 1/2 months. Meanwhile,
the company has not stood still. It has launched new
products, cut prices on others, dramatically changed its
distribution system and reorganized its internal structure.
Compaq's managers are responding to what one analyst
called the "shifting sands" of the PC industry by making
tough decisions. But those are exactly the kinds of decisions
that a chief executive might want to make.
"If I am a CEO candidate, I might be thinking, 'Do I have
enough freedom to succeed, or is the path so well defined
that I cannot have an impact in setting its direction?' " said
William Conroy, a technology analyst in Houston with
Sanders Morris Mundy. "And if I don't have the freedom,
do I want to come into this thing?"
Rosen's decisiveness turned off at least one prime candidate.
Sources say Greg Brenneman, president and chief operating
officer at Houston's Continental Airlines, was offered the
Compaq chief executive's job.
Brenneman announced in a June 28 news release that he
was withdrawing his name from consideration. He worried
that he would not have the control he needed, sources close
to Compaq's board said.
Brenneman declined to comment beyond his prepared
statements. Compaq officials also would not comment about
the negotiations.
Former Compaq executives say that, in the past, Rosen and
the rest of the board have not become involved with the
day-to-day operations of the company.
"Absolutely not -- if things were going great, he didn't
participate," said Stimac, who as Compaq senior vice
president was credited with starting the company's
file-server business. "He was not micromanaging at all."
"Compaq has always been considered a great company
because it has an activist and informed board, led by Ben
Rosen," said Robert Stearns, a former senior vice president
for Compaq. "The idea that this same board is now being
represented as a detriment to a new CEO candidate is a
perverse logic."
Compaq's chief executive search also has been hindered by
the fact that another big computer company,
Hewlett-Packard, is seeking a new top manager.
The same crop of candidates linked to Compaq -- including
AT&T President John Zeglis; James McNerny, president of
General Electric's jet engine division; IBM executive Sam
Palmisano; and Intel Executive Vice President Paul Otellini
-- also have been mentioned as Hewlett-Packard
candidates.
Raymond Lane, president and chief operating officer at
Oracle, withdrew his name from consideration for both jobs
last week.
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