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Military Model: Image-Conscious Firms Snap to Attention

By Holly Hubbard Preston
International Herald Tribune

In late April, the board of directors of Nortel Networks took the daring but deliberate step of ousting the company's chief executive, Frank Dunn, and replacing him with a retired U.S. Navy admiral, William Owens.

The daring part is that Owens, at one time the country's second-highest-ranking military officer, had never run a company before - although he had sat on the boards of several, including Nortel and DaimlerChrysler. His most intensive business experience was as part of the management team that tried to salvage Teledesic, a satellite telecommunications company founded by the mobile phone pioneer Craig McCaw, which folded in 2003 amid slack demand.

The deliberate part is that Nortel had little choice but to do something drastic. The Canadian company's image, along with its stock price, was reeling after revelations of accounting irregularities that will force Nortel to restate earnings for 2002 and 2003 - a revision that is likely to produce huge losses. Nortel's books have been subpoenaed for as far back as 2001. The stock, which hit a high of $60 in June 2000, now trades around $5.30.

Nortel's board described the Owens appointment as one of a series of actions aimed at restoring confidence in the company's "leadership and financial reporting."

Jeff Kagan, an independent technology analyst based in Atlanta, was more blunt. "Nortel is at a serious credibility crossroads," he said. "They need a credible CEO to find and fix everything that stinks and regain the trust of the marketplace before permanent damage is done."

The fact that Nortel would turn to a military man to pull itself out of a credibility hole speaks volumes - not only about the benefits of a military background in an executive but also about a shift in the perception as to what those benefits are.

The cross-pollination of the military and the modern Western corporation is nothing new, of course. For much of the post-World War II era, big U.S. companies were organized along strict hierarchical lines, in part because that was the model that managers - the vast majority of them veterans - were comfortable with. AT&T, perhaps the archetypal big U.S. company, had 14 levels of management - roughly the same number as the U.S. Army. In continental Europe, even though military service is no longer required in most countries, elite schools of business and engineering are still organized along military lines.

What is different today is that while companies are shedding their military-style hierarchies in an effort to become more nimble - even AT&T has pared back to seven levels to "get closer to the customer," a spokesman said - they are placing an increasing value on a military background for their executives. Time spent in the armed forces, the thinking goes, is shorthand for discipline, courage, leadership and integrity - qualities that are increasingly viewed as important to any company, no matter how tight or loose its organization chart.

Peter Felix, president of the New York-based Association of Executive Search Consultants, attributed the shift in part to the rash of corporate scandals, many of them starting in the executive suite. That, he said, has led companies to seek more old-fashioned values - and to put their faith in results, not in talk.

"We're in a market today where execution, not strategy, determines 90 percent of a client's success," Felix said.

The positive image of a military background persists even in an era when most veterans of the military, until recently, were unlikely to have been tested by battle, and despite recent reports of command failures and improprieties among the occupying forces in Iraq.

Jeanne Branthover, director of the New York office for Boyden Global Executive Search, reported seeing a concerted effort among her Fortune 500 clients to recruit top-level executives with military experience.

"Ten years ago, I could have brought my clients a person with a military background and they'd say, 'Oh, that's nice,'" Branthover said. "Now they're asking for it."

It's not just the uniform they want, but the experience. "They want to know what the person did in the military and if they were able to lead under stressful circumstances," Branthover said. "Leadership is everything."

Sim Sitkin, a professor at the Fuqua School of Business at Duke University, said that the military not only prepared people to accept "high levels of responsibility at a relatively young age" but also provided the sort of crisis management training that businesses need.

"Today's military model is not the hierarchical one it was years ago," Sitkin said, "but a decentralized one." Officers, he said, are trained to work in a rapid response environment where they have to think independently and creatively.

Business schools are picking up the signals: The Fuqua school at Duke, in conjunction with the U.S. Military Academy at West Point, is rolling out a new program this autumn that will offer a subsidized master's of business administration degree to active military personnel. A former West Point cadet who was studying at Duke helped drive the creation of the program as a way of encouraging other military officers to round out their leadership training with business skills.

The Henley Management College in Oxfordshire in England - an institution set up after World War II in part to help soldiers make the transition to the private sector - has seen a "sudden surge" in enrollments from military personnel from throughout Europe, according to Michael Pitfield, director of international business.

The Naval Postgraduate School and the War College in Monterey, California, recently started a defense-focused executive MBA program. It will cover such nonstandard military fare as electronic commerce and marketing, along with more customary disciplines such as supply chain management, strategy and operations.

In Britain, the Royal Military Academy at Sandhurst, in conjunction with a London consulting firm, has a program that provides corporations with leadership training that melds "civilian methodology and relevant military best practice," according to the program's director, Craig Preston.

While not everything the military does is relevant in a corporate setting, Preston, a retired British army officer and Sandhurst alumnus, said the "soft skills" or people management the military teaches is "very transferable."

"The first two principals of war are selection and maintenance of aim," Preston said. "That means figuring out what you are going to do and then knowing how to maintain morale." Without the cohesion of team under a strong leader, nothing is going to happen, he said.

At least 50 companies have sent executives through the program since its inception in 2000, including Lloyds, UBS Warburg, Compaq Computer and Coca-Cola Enterprises, the bottling arm of the soft-drink maker.

Coca-Cola, in fact, is the reason that Preston left the military after 18 years of service. In 1999, a regional director at Coca-Cola Enterprises recruited Preston and two retired officers to help turn around one of its bottling depots. The director, Preston recalled, was looking for someone with a "proven track record in people management, under pressure and in difficult circumstances."

The fact that he knew little or nothing about the commercial side of business didn't deter the company. "They felt they could teach us the commercial side business if we could get people to perform," he said.

Not every management expert buys the argument that military training is a precursor to business success. Robert A.G. Monks, a corporate governance expert and founder of Institutional Shareholder Services, has sat on 10 corporate boards and reviewed the policies and profiles of many more. In one of his board roles, he sat for eight years alongside General William Westmoreland, who once commanded U.S. forces in Vietnam.

As a corporate director, Westmoreland was "conscientious," Monks said, "but not really conversant in the languages of business."

He added, however, that "at a midlevel administrative level, many military people could participate very well" in corporate life.

Christopher Michel, a former naval officer and president of an American military membership organization called Military Advantage, has a Web site, military.com, that helps armed-forces veterans make the transition to the private sector. In this capacity, Michel's company, which was recently acquired by Monster Network, has worked with Procter Gamble and PepsiCo, both of which he says regularly recruit senior and junior executives from the site's more than three million members.

Michel, who holds a graduate business degree from Harvard, noted that "one meaningful difference between executives in the military and the business community is the lack of the profit and revenue function in the public sector.

"Specifically, military leaders are responsible for accomplishing the mission within the assigned budget. In contrast, private sector business executives are focused on maximizing shareholder value by driving both revenue and profit."

Investors in companies that have polished up their leadership with military brass have a right to wonder whether they are going to be getting value for the appointment.

Sitkin of the Fuqua school at Duke recommended that investors look at the whole package, beginning with whether or not the person has the appropriate background for the job.

For example, Owens distinguished himself during his navy years as a technology expert. He is credited with helping to reorganize and restructure the U.S. armed forces for the post-cold-war era. He is also a former submarine commander - a high-pressure job in any era. And he reportedly took a pay cut while putting in 20-hour days in order to keep Teledesic from going under.

Larry McDonald, a columnist for MoneySense, a Canadian online investment publication, and author of a book on Nortel, said he thought it was Owens's connections as much as his skill set that Nortel's board was after.

"He comes with a lot of knowledge about applying technology to commercial and military market and the contacts to go with it," McDonald said. "He could open a lot of doors for Nortel, allowing it to become a major supplier to the U.S. military."

Whether or not Owens succeeds in his mission to right Nortel's foundering ship, this much is certain: His background has prepared him to fight - and to answer for the results. "In the military, when you are given responsibility, you own that responsibility," Michel of Military.com said. "Nobody else does."

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