Hiring a Celebrity CEO
from Winter 2000
by John R. Engen
At about the same time that John McCoy stepped down as CEO of Chicago’s Bank One Corp. last December, Jamie Dimon was delivering a speech in New York City that outlined what he was looking for in a job. “There’s a very good chance I’ll end up with a company in a very senior role,” Dimon told his audience. “I have a preference for financial services, but it doesn’t have to be.”
Both men were corporate celebrities, albeit at different turning points in their lives. Unemployed for a year, Dimon, now 45, was the former crown prince of Citicorp, the protégé-turned-victim of Chairman Sanford Weill. For his part, McCoy, 57, bestrode the powerhouse he’d created out of a sleepy Columbus bank through more than 100 mergers and acquisitions, most recently with First Chicago NBD.
McCoy’s decision to step down in late 1999 did what the business crises that followed the First Chicago merger had not managed to do. It stemmed the bickering among the 21 other board members of the country’s fourth-biggest bank. Finally unified in purpose, the board hastily appointed Verne Istock, former CEO of First Chicago, as temporary CEO and named one of its members, John Hall, the former head of Ashland Inc., the oil company, as interim chairman.
Hall’s primary purpose was to head the search committee for a permanent successor to McCoy. As the box on page 43 shows, the committee included three directors from each of the two merged banks, just as the main board had 11 directors from each side. Old loyalties died hard; initially, veterans of the First Chicago board pushed for Istock to get the job permanently.
But as Hall tells it, the search committee members soon came to see that the company needed a high-profile outsider, someone with a financial services reputation big enough to transcend the fractiousness within the bank and restore its prominence in the outside world. “We viewed our task as no less than to find the best person in the United States to lead us back to the top,” says Hall.
Whoever got the job would have a lot of catching up to do. Integrating McCoy’s freewheeling Banc One and blue-blooded First Chicago was proving far more difficult than anyone had expected, operationally, culturally, and politically. Among the challenges: First USA, the big credit card unit that Banc One had brought to the party, was suffering from a botched pricing strategy that had fueled customer defections, losses, and investor despair. As the share price declined, the hybrid board squabbled frequently, one camp versus the other.
McCoy didn’t help. As the company stumbled through 1999, he stood characteristically aloof, refusing to abort a long-planned European vacation. And when he was on U.S. soil, it sometimes seemed that McCoy, a passionate golfer with a 10 handicap, was spending more time at bank-sponsored tournaments than at the institution’s headquarters. Former First Chicago executives peppered “their” directors with phone calls and faxes, charging that McCoy wasn’t taking the problems seriously enough. Even some of the former Banc One directors shared the sentiment. Finally, in November, a battered McCoy met privately with his last loyal few, and with their help won an early retirement settlement valued at $10.3 million. In December the company announced his departure and the Istock and Hall appointments.
From the start, the search committee made it clear that Istock, 60, would be on its list of finalists. Only his die-hard fans thought he’d make it beyond the role of contender, however. Istock was an able but unspectacular manager, shy of the charisma and stature with investors the search committee thought the bank needed.
Bank One’s erratic stock price underscored the need to move fast, and Hall’s committee gave itself 90 days to have someone in place. Searches of this nature usually take twice as long.
The committee’s first move was to select a recruiting firm. Committee members met with three of the biggest recruiters, Heidrick & Struggles, Spencer Stuart, and Russell Reynolds Associates. Russell Reynolds won the day, largely because it promised to devote two of its Chicago-based managing directors, Charles Tribbett III and Andrea Redmond, exclusively to the search.
Tribbett and Redmond asked all 21 directors, insiders and outsiders, to come up with a list of the qualities they were looking for in a CEO. Since flagging share prices were a key board concern, the two headhunters also met with security analysts who covered the company. When news of this aspect of the search leaked out, individual investors called the search firm. These included many retired employees of the bank, who, says Redmond, were worried because they had almost their entire nest eggs in bank stock.
Financial services experience and branding know-how came out high on everybody’s list, says Redmond. The directors also sought the prestige that a celebrity manager would bring. People wanted “somebody who had credibility with Wall Street,” Redmond recalls. Most important was to find a CEO with strategic vision and the ability to make the year-old merger work. “Leadership, leadership, leadership,” says Redmond. “That was the ultimate mission.”
As is common in such searches, Redmond and Tribbett had no difficulty in putting together a long list of talent. By early January, just days after landing the assignment, they had some 150 names, a Who’s Who of global finance that included high-profile CEOs of smaller banks, proven leaders from the worlds of specialty finance and brokerage, and promising vice chairmen from some of the world’s largest banks. Within a week, the two headhunters whittled that list down to 25, including some women and minorities, and handed members of the search committee a book with short profiles on each of them.
Even as those 25 candidates were being examined and measured, the search firm began to schedule preliminary interviews with those that it felt were the best and brightest. Nobody will confirm which candidates qualified for those interviews. But rumor places a number of intriguing names on the list, among them William Aldinger, CEO of consumer lending giant Household International Inc., Marc Shapiro, a vice chairman of Chase Manhattan Corp., and David Coulter, former chairman of Bank of America.
One other experienced banking executive was on the list as well: Jamie Dimon. After logging 80-hour work weeks at Citi, Dimon relished being able to devote ample time to his wife, Judith Kent Dimon, and their three school-age daughters. He spent some of his days on the lecture circuit. People were fascinated to hear from this whiz kid who’d spent loyal years at Weill’s side, even quitting American Express when Weill was forced out. Together Weill and Dimon transformed a series of mergers and acquisitions first into Travelers, an insurance and financial services behemoth that included the Salomon Smith Barney brokerage subsidiary that Dimon ran, and later into Citigroup. Of his bitter falling out with Weill, about which lecture attendees most wanted to hear, Dimon has admitted, “I never saw it coming.”
Throughout that down year, Dimon was entertaining job offers. Amazon.com called, as did Barclays Bank plc and Starwood Hotels & Resorts, among others.
All were turned down, and why not? Published estimates put Dimon’s net worth at more than $125 million, so he was under no immediate financial pressure. More important, these were out-of-town opportunities, and if there was one thing that Harvard-educated Dimon held dear, it was his native New York. He maintained a Manhattan office from which he managed his job search in casual fashion—often arriving late in the morning and leaving before rush hour—and dined frequently at the Four Seasons and other expensive restaurants. He was committed to serving on a collection of nonprofit boards, including the Center on Addiction and Substance Abuse and the NYU School of Medicine Foundation.
Late one night in January, Redmond and Tribbett wrapped up a preliminary interview with a candidate in California and boarded a red-eye flight to New York. The next morning, they were sitting in Dimon’s office, trying to gauge his interest and what he might offer a large but struggling midwestern bank.
As Dimon tells it, he’d had enough interviews with Internet start-ups, real estate firms, and the like over the previous 12 months to recognize a truth about himself—what he really liked was the idea of running a large bank or brokerage. “I kind of look at financial services as my craft,” he says. “It’s what I learned to do.” Dimon says he also knew that big-bank CEO jobs don’t come around every day. To be courted by Bank One was something he had to consider seriously.
At the first interview, Dimon probed Redmond and Tribbett on details about Bank One’s business lines, its employees, the board, and the company’s strengths and weaknesses. In turn, and to nobody’s surprise, Dimon demonstrated a firm grasp of banking and related financial service businesses.
But would Dimon leave New York? The Bank One board was adamant that its new CEO should live in the Chicago area, and the search team knew that Dimon was a committed Manhattanite and that his wife, who was active on the board of the Children’s Aid Society and in other local nonprofits, might also be reluctant to move. The Dimons’ young daughters, moreover, would likely protest moving to the totally uncool Midwest.
As it turned out, Dimon had already broached the subject to his family. It was one of the most crucial negotiations of his career. After much discussion, his wife and children agreed to support the move if it became necessary. “One of my kids said, ‘Dad, we’re doing this just for your job,’” Dimon recalls. “And it was true. But we were trying to do what was good for the family in the long term.”
Back in Chicago, the committee received the news of the Dimon family’s readiness to pull up stakes with some suspicion. Twenty years ago, Barry Sullivan signed on as CEO of First National Bank of Chicago, a corporate ancestor, promising to move to the Windy City. He never did. “It’s a typical Chicago thing,” says Redmond. “Chicago companies are uncomfortable with commuting CEOs.” Dimon sympathized, but said, “There’s a big difference when you’re facing something seriously, rather than just talking about it.”
By early February the committee began its first round of face-to-face interviews with the front-runners on the list. Secrecy was a must, and the logistics were a challenge. Only one of the committee members, James Crown, a general partner at Henry Crown & Co., an investment firm with a big stake in the bank, actually lived in Chicago, and other than Istock, all the candidates were out-of-towners. Redmond quietly arranged for two or three candidates at a time to fly in to O’Hare, always on separate flights; they were then driven off individually to interviews with search committee members. Twice those meetings occurred on the days of board meetings, which offered an opportunity for assembly line-like efficiency. After the board’s main business was done, the six members of the search committee were chauffeured a few blocks down the street to Russell Reynolds’ office, where they split into groups of three and moved into offices on separate floors. This corporate square dance enabled the directors to interview two candidates simultaneously, and then swap so that everybody got to meet everybody else. Except for the candidates, that is. Redmond choreographed the interviews so that they were always coming and going at different times and places.
An important factor was how the candidates fared on the “matrix of weighted skills.” This was a scoring system compiled by Russell Reynolds that enabled the headhunters and search committee members to rate candidates numerically on their ability to make the merger work, their strategic vision and product knowledge, and other areas the committee had deemed important in a CEO.
By late February four top candidates remained. Again, nobody will confirm their identities, but they are likely to have been, in alphabetical order, Coulter, Dimon, Istock, and Shapiro.
By now, Dimon knew he wanted the job. “I had slowly made the decision that yes, Bank One would be a good opportunity for me,” he recalls. “I liked that it was a fixable challenge. There are many situations in life where there really is no basic fix, and I didn’t want to come in simply to preside over a sale or a liquidation.”
But while Dimon was convinced, the search committee wasn’t quite done with its due diligence. It launched a series of final interviews with each of the four candidates and began an exhaustive round of checking references, talking with five or six people who had worked with each candidate.
While references for most of the candidates were mixed, says Hall, Dimon got straight As. “We didn’t get any negatives,” Hall says. “People raved about his ability, and almost everyone who had ever worked for him said they would do so again in a second.” Did they check with Weill? No.
On a chilly day in early March, just two weeks before the deadline to find a new CEO, the search committee heard final presentations from Dimon and at least one other contender. Dimon, who pressed his case over a two-hour lunchtime session, concentrated largely on his “philosophies of management and finance,” Hall says. “Simple things, like how you treat people, how you make them understand their duties to get things accomplished, how you lead.”
As Dimon recalls it, “I told them how I think a company should be run. I went through a whole litany of issues, including how I thought my first 100 days as CEO would play out. I thought it was very important that we all understood what needed to be done, and how it would get done. It’s kind of like getting married. If they didn’t think I was the right person for the job, that was fine. But I didn’t want to deceive them about who I really was in the hopes that it would get me the job.”
Dimon laid out his ideas with confidence and bluntness, speaking in the same smart, easy way he used to do on road shows with Weill, who often sat like a proud parent and listened. On this occasion, Dimon talked at length about the hard things he would do, biting the bullet on costs, for example, and restructuring parts of the organization. He also discussed his own management style. Hall says he described “how you should expect a lot from people, while helping them understand their duties and treating them kindly. And how you should always try to maintain a strong financial position but not let the balance sheet lie to investors.” And yes, he reassured the doubtful directors that he would, indeed, move to Chicago. “It was a binary decision,” he explains. “If I wanted the job, I would move to Chicago—and I wanted the job.”
Dimon seems to have left the search committee breathless. “Everyone knew he was brilliant, but the presentation showed just how brilliant he was,” says Hall. “He answered all the fears people had about him: Is he really going to embrace Chicago, or is he just coming for a short time? Is he mature enough for the job?”
That afternoon the committee voted unanimously to recommend the New Yorker to the full board as Bank One’s next chairman and CEO. Hall, as the chairman, was authorized to begin negotiating a contract and called Dimon the next day with the news.
Over the next five days, attorneys for both sides and Bank One administrators honed the details of his contract. Minor disagreements emerged. When they did, Hall and Dimon—now on vacation with his family in Colorado—would get on the phone and work out the issues. Both Dimon and Hall characterize the negotiations as cordial and say there were no side agreements or demands made on either side beyond what had already been discussed. “There was nothing where I said, ‘Either you do this or I’m not doing it,’” Dimon says. “I was very upfront about it. I wasn’t taking the job because of any specific offers or promises.” The next Sunday, Dimon cut his Colorado trip short at the search committee’s request and flew back to Chicago to wrap up the negotiations. His oldest daughter traveled with him, a Dimon family gesture of good faith to the board.
Dimon’s five-year contract spells out a base annual salary of $1 million, plus a $2.5 million bonus in his first year and future cash bonuses ranging from nothing to $4 million, depending on the company’s performance. He also receives 35,242 shares of restricted stock, which vest at 20% over each of the first five years of his employment, and 10-year options on 3.24 million shares, exercisable at $28.375, vesting at various times and price levels over the contract’s life. He’s been doing well. In mid November, the stock was trading at more than $37. All of the options vest immediately if the company is acquired.
Dimon’s base salary is about par for the job, but his pension deal is a rich one. For example, every year he works will count as two when his retirement money is calculated. If he steps down within five years, he’ll still get credit for 10. To put his contract together, Dimon used Joseph Bachelder, a New York lawyer who has a name for putting together fat contracts for CEOs. (See box on page 47.)
Among the things Dimon agreed to was a clause in his contract that read: “Executive understands that, as a condition of his employment by the company, he is required to relocate his residence to the Chicago area.”
For all this, the job wasn’t yet officially his. On Monday, March 27, as Dimon hunkered down with his daughter at the Four Seasons hotel, Istock’s candidacy arose from the ashes. A few remaining supporters still backed him, and Istock himself argued strongly against Dimon.
According to Hall, the board engaged in “a thorough discussion of the merits of an inside candidate versus someone from the outside”—diplomat-speak for a debate that, at times, turned very nasty. Finally, the Istock forces conceded. Dimon received a call at his hotel and then a limo picked him up and took him to Bank One’s offices, where he was officially appointed chairman and CEO. It was decided that Istock’s fate would be left to Dimon.
Since his appointment, Dimon has followed through on many of his promises. In July, he announced a $1.9 billion after-tax charge and cut the company’s dividend in half. He’s also attacked the bank’s cost structure, noting, among other things, that it was spending $500 million a year on consultants, $500 million on an array of 20,000 pagers and 12,000 mobile phones and phone calls, and $30 million maintaining seven separate deposit systems and 20 bank charters. “There’s a lot of expense that we were not focusing on in this company,” he told analysts.
At the same time, he pledged to beef up customer service, in part by adding 12,000 new computers to the bank’s branches. He also gave the analysts a peek into the future. By 2001, he said, “the company should be in a position to do certain kinds of acquisitions.”
Perhaps most significantly, Dimon has worked with Hall to tackle the prickly issue of Bank One’s unwieldy board structure. He has thrown himself into the task, conducting “best practices” reviews of the boards of companies he admires, such as Home Depot, Wal-Mart Stores, and Southwest Airlines, and reading up on the roles of directors.
“Everyone agreed that the board was too big, especially at a time when we need to be more nimble and speedy,” Dimon says. He managed to cull the herd to 14. Some of the departed left voluntarily; others needed a nudge. As for Istock, Dimon claims the two got along fabulously—while it lasted. In September, after helping out with the transition, Istock stepped down as president and director. “He said, ‘I’ve done what I can do to help, and there’s not really a job here that would be fun for me, so it’s time to move on,’” Dimon recalls. Istock could not be reached for comment. That brought the director head count to 13, but only briefly. In October, Heidi Miller, then CFO of Priceline.com, joined the board.
The Dimon family, meanwhile, has made its move. The girls are ensconced in their new schools. Judy Dimon, though shorn of volunteer work, is being kept busy by the new real estate—a mansion in the Lincoln Park area on Chicago’s north side that some have described as “a massive renovation project.”
In other words, both Dimons have their hands full with turnarounds.
