Whitman had rough time in previous turnaround try

AP News
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Posted: Oct 26, 2010 10:25 AM
Whitman had rough time in previous turnaround try

Former eBay chief executive Meg Whitman says California needs a turnaround specialist with business experience to lift the nation's most populous state out of its economic despair and streamline its bloated bureaucracy.

Yet in perhaps her most high-profile turnaround attempt, Whitman says she fell short and conceded defeat well before her contract was up. Her experience at FTD, the iconic floral company, provides a parallel from the business world with what Whitman acknowledges she will inherit if voters elect her governor Nov. 2 _ a troubled state beset with outdated and ineffective systems.

Whitman, the Republican nominee, has spoken often about her decade-long tenure at eBay, where she became a corporate star in an era of ever-growing resources. But she rarely mentions her only other job as a chief executive officer, during the mid-1990s at the flower-delivery company, now FTD Group Inc.

She quit over what she called investors' unrealistic goals, telling them, "This company is not fixable, at least not by me," Whitman writes in her book, "The Power of Many."

She calls her tenure there "probably the most frustrating and, ultimately, least successful executive experience of my career."

A former board member, however, says Whitman may be undervaluing her contributions at FTD and credits her with launching its turnaround.

Whitman was brought into FTD in early 1995 by her former colleagues at the investment firm Bain & Co., where she began her business career. The goal was to help FTD transition from a member-owned nonprofit cooperative association to a profitable corporation.

She said she was under intense pressure and unrealistic expectations from the company's new owners to transform an antiquated behemoth into a 21st century leader in the floral business.

It's a situation that is similar to what the next governor of California would face. California has struggled to emerge from the Great Recession, which has led to a steep drop in tax revenue and multibillion-dollar budget deficits for several years. The next governor is expected to face an immediate $12 billion budget deficit.

Whitman and others have worried about the state losing its competitive edge, its college and university systems declining, and its public school system continuing a downward trajectory unless major changes are made. At the same time, the political atmosphere in Sacramento has become highly polarized, leading to gridlock.

Whitman was named president of the former flower shop cooperative in late 1995 and became CEO shortly afterward at a time of intense competition in the industry. Her short-lived predecessor had slashed the work force, leaving employees in a sour mood.

From the day she arrived at FTD, Whitman writes, "I could see that it was full of lovely people _ lovely, angry, unhappy people."

"Morale was terrible, remaining staff were paranoid, and the investors who bought the company had no idea why I couldn't just snap my fingers, cheer everyone up, and get them motivated to help us grow," she wrote.

One former staffer, Peggy Thompson, who was Whitman's executive secretary at FTD, agrees morale was low. She says Whitman gave the illusion of a "fresh-start," changing the dress code to business casual and moving executives out of the corporate offices.

But Thompson faulted Whitman for a detached managing style, rarely interacting with her rank-and-file employees. She came across as cold and disinterested, Thompson told The Associated Press in a telephone interview from her Michigan home.

"It was pitched as, 'This is change,' but it never really materialized, because she still was segregated from everybody. She sat in the corner ... never meshed with anybody else," Thompson said. "It was the pretense of making it all less formal and more integrated, less stodgy and more of that type of thing."

If she is elected governor, Whitman would inherit another dispirited work force, after months of furloughs that have cut state workers' pay by nearly 15 percent, severe cuts to some state agencies and sustained public criticism over the costs of their pensions, which Whitman would seek to reduce dramatically.

Whitman also has pledged to cut about 33,000 state positions if elected and has pilloried public employee unions during her campaign.

But just as government can't be reformed overnight, Whitman's tenure at FTD, while tumultuous, set the company on a path to future success, says Steve Pagliuca, a managing partner at Bain Capital and FTD board member while Whitman was CEO.

"I'll say in retrospect, I would say she's probably undervalued her contribution. It was a tough time," said Pagliuca, a co-owner of the Boston Celtics who ran as a Democrat last year for the late Sen. Edward M. Kennedy's seat. "It had to get a different kind of accounting, it had a set of shareholders, it had management change. She put a lot of things into place."

Those included better products and marketing, a technology overhaul and greater efficiencies, he said.

"I credit her with starting the turnaround of this company. ... It became a public company, it became a very successful public company, so it was a successful turnaround."

Whitman signed an employment agreement for five years with an annual salary of $250,000, but left after less than two years, earning about $550,000 in total compensation.

Among the frustrations Whitman experienced was an effort to relocate some parts of FTD's Detroit-area operations closer to her family's Boston home. The board rejected that plan and later opted to move to the Chicago area, where it already had some operations.

Thompson, her former assistant, said Whitman spent a lot of time working out of Boston and "spent as little time in Detroit as she possibly could."

Whitman has promoted her business experience as the main reason California voters should support her in November. Her tenure running a troubled company is one gauge of how she might fare running the world's eighth-largest economy.

Whether voters see the comparison as fair may depend on whether they embrace the philosophy that a business mindset is needed to transform government, said Thad Kousser, an assistant political science professor at the University of California, San Diego.

"People fail in business as much as they fail in government," he said. "There's a group of voters who think that any time you've had to put together a balance sheet and hire and fire people, that's an asset."

A key difference, Kousser said, is that business leaders typically aren't subjected to the same type of public scrutiny as elected officials.

"When you come out of business, you largely get to define your own resume and you get the chance to talk about your successes because the general public wasn't watching your failures," he said.