The New Finance Chief
At Kodak Has a Style
Quite Unlike His Boss's
While Chairman Whitmore
Abhors Cutting Workers,
Steffen Doesn't Flinch
Yellow Giant's Little Steps
By Joan E. Rigdon
The Wall Street Journal
(Copyright (c) 1993, Dow Jones & Co., Inc.)
ROCHESTER, N.Y. -- Kay R. Whitmore is the sort of boss most
people would want: Kind, generous, collegial. Sure, he's chairman of
Eastman Kodak Co., but Mr. Whitmore, 60 years old, often wears his
name tag on his shirt just like the regular Joes. The question is whether
Mr. Whitmore is a charming anachronism in an age that requires
Christopher J. Steffen.
Mr. Steffen, 51, favors limited-edition Trafalgar suspenders and matching
tie and kerchief sets. He relishes confrontation. Referring to his earlier
experience at Chrysler Corp., he says that when half the workers at a
troubled company must be laid off, "the other half buy in pretty quickly."
Since Mr. Whitmore hired Mr. Steffen as chief financial officer in January,
Kodak stock has gained $3.45 billion in value. The two men's disparate
values say a lot about the challenge of managing large corporations in the
difficult 1990s. And there is no question that Kodak has challenges:
Today, it is expected to report lower first-quarter operating earnings due
to declining film and copier sales.
Investors are hoping Mr. Steffen can turn the ship around. He promised
as much just two weeks into his new job while dining with Wall Street
analysts in a private room at New York's Helmsley Palace Hotel. Over
filet mignon, he accomplished in one evening what others at Kodak have
been unable to do in years: instill confidence in the company's future.
About two weeks earlier, Kodak had held a meeting for analysts in New
York that left many feeling decidedly negative. As Kodak executives
offered vague projections for the company's future and showed charts
without numbers, attendees fidgeted and some even walked out. Jack
Kelly of Goldman, Sachs & Co. flashed a thumbs down to a colleague.
The next day, the stock plunged 6% in New York Stock Exchange
trading before recovering somewhat by the session's end.
By contrast, Mr. Steffen held lively court at the Helmsley. He set specific
financial goals and promised a turnaround plan by Aug. 24. Since Kodak
has tried and failed to restructure before, analysts asked why they should
believe Kodak now. Mr. Steffen's reply: "This is the post-Stempel
world." The reference to the General Motors Corp. chairman who was
forced out by his board positively impressed the analysts. The next day
Kodak stock jumped 5.2%, or $2.62 a share, to $53. (Yesterday it
closed at $52.375.)
Although Mr. Steffen is just one outsider in a company that is proud of its
home-grown management tradition, investors are betting the newcomer
can cut fat at Kodak as he did earlier at Honeywell Inc., where he
assisted in a three-year turnaround of the engineering and industrial
But while investors applaud, Mr. Whitmore, Kodak's chairman and chief
executive officer since June 1990, expresses reservations. Although he
personally recruited Mr. Steffen -- after the board pushed him to hire an
outsider -- Mr. Whitmore thought he was simply getting a first-rate
numbers cruncher, not someone who would upstage him. "If Chris Steffen
comes in here assuming he's the Lone Ranger, he will not last very long,"
Mr. Whitmore says in an interview. "He can't do it all by himself."
The man clearly under pressure is Mr. Whitmore. Kodak earnings, which
hit $1.4 billion in 1988, haven't reached that level since, although last
year's did show a rise over 1991. The board is demanding earnings
improvement again this year. The company is projecting "solid" earnings
growth in 1993.
With a new sense of urgency, Mr. Whitmore has been scrambling to cut
costs. This year, before Mr. Steffen arrived, the CEO vowed to slash
research spending and let 2,000 workers go, although he softened the
blow by offering four months of medical benefits and a retraining
allowance of up to $5,000. The cutbacks, Kodak's first major layoffs in
more than a decade, were "extremely painful for Kay," says a former
manager. "It's people being fired unceremoniously with no regard for
length of service" that disturbed Mr. Whitmore, the former manager says.
But investors seem to be hoping for no less than a blood-letting:
thousands more layoffs, and the sale of entire businesses. And some
believe Mr. Whitmore, who seems to prize consensus over speed, isn't
the person for the job. "Kay may be the right guy to be the pilot of a
glacier," says Robert Monks, a shareholder activist who has targeted
Kodak as a company where he will try to force change. "The trouble is,
the water has gotten hot."
Enter Mr. Steffen. The image he cuts is in sharp contrast to that of his
new boss and the Kodak culture. Shunning the conservative look that
prevails in Kodak's army of executives, Mr. Steffen combs his hair in a
mini-pompadour and wears a large gold-chain bracelet. While Mr.
Steffen has hopped from one Fortune 500 company to another (Price
Waterhouse, Whitman Corp., Hyatt Corp. and Chrysler before
Honeywell, and now Kodak), Mr. Whitmore has spent his entire 35-year
career with the Yellow Giant, as Kodak is called in the trade.
Mr. Whitmore is so methodical that he plans his entire calendar for the
new year by September and sometimes spends years mulling decisions.
For instance, Kodak's new requirement for top officers to buy big chunks
of company stock had been under consideration since the mid-1980s,
one former manager says.
While it pains Mr. Whitmore to make any cuts in his company's payroll,
Mr. Steffen is proud -- even boastful -- of his role in some bloody
corporate restructurings. The one he took part in at Honeywell involved a
spinoff of its defense and marine businesses, the buyback of stock and
the elimination of 4,000 jobs, including 300 positions at headquarters. In
a speech to the Turnaround Management Association in New York in
February, he said inflicting pain is a given in any restructuring.
Mr. Steffen left Honeywell after losing out in a three-way race for the
So far, the new Kodak CFO has been extremely politic about his new
role, politely sidestepping any specific suggestions on changing the
company. "It's going to take time to tell where the businesses are," he
Kodak's basic problems aren't unique in American industry. After a
century of dominating the U.S. market in its main business, photo film,
Kodak is getting stung by competition from private-label products and
archrival Fuji Photo Film Co. of Japan. Also, camcorders are hurting all
film sales, and the sluggish European and Japanese economies have cut
into sales overseas. The result: Kodak can no longer rely on its little
yellow boxes of film to offset slow growth in other businesses.
Kodak has tried to diversify into prescription drugs and electronic
imaging, but so far, both have gobbled up research dollars without
producing blockbuster products. The drug business, Sterling Winthrop,
has cancer drugs and other potential winners in the pipeline, but most are
at least two years away from market. In electronics, Kodak bet on
high-volume copiers, only to watch customers flock to low-volume
machines instead. To stay in that business, Kodak enlisted Canon to
make low-volume copiers that Kodak sells under its own name.
Kodak's most solid business is chemicals. Eastman Chemical is the
largest supplier of polyethylene terepthylate, or PET, resins for recyclable
soda bottles. Some analysts think Mr. Steffen may suggest spinning it off
as a separate company.
But Kodak's first priority, no doubt, is cutting costs. Its research and
development budget, $1.6 billion, or 7.9% of last year's sales, is among
the fattest in the Fortune 500; also high is spending on sales, advertising,
distributing and administrative costs, which were $5.9 billion last year, or
29% of sales.
In other areas, Kodak has appeared to be wasteful, even after Mr.
Whitmore became CEO and was given a mandate to cut costs. In May
1991 Kodak cut the ribbon on an extravagant $10 million Center for
Creative Imaging on Penobscot Bay in Camden, Maine. The center was
designed to promote Kodak's new Photo CD technology, a way of
storing photos on compact disks that can be viewed on television or
edited on computers. A big hit with professional photographers and
graphic artists, the center offered such courses as "Digital Music
Mastering" and "Browsable Movies and Surrogate Travel."
"It was like an idyllic retreat," says multimedia teacher Tom Nicholson.
"Money wasn't an object." But some of Kodak's top officers were
appalled. In February, Kodak agreed to sell the center to a private
investor group on undisclosed terms. "We thought it was a great idea to
showcase the latest imaging technology," Kodak says in a written
response to questions. "We simply have chosen to allow someone else"
to run the center.
Even when Mr. Whitmore tries to cut costs, he has sometimes been
generous to a fault. His first effort at cutting Kodak's payroll wound up
costing the company $1 billion.
In July 1991, with two weeks to go before reporting declining
second-quarter earnings, most of the senior management team decided
Kodak needed to shed 4,000 workers. Mr. Whitmore balked at the
number, says a former executive. According to this person, "Kay said,
`Let's do three. Four would create too much turmoil.'" Mr. Whitmore
declined to comment.
The severance plan Mr. Whitmore approved was, as he later said, "too
rich": lifetime health and dental benefits, bridge payments until age 62
roughly equal to the employee's future Social Security payment, and a
year's pay for those who retired by the end of the year. The plan was
quickly oversubscribed, attracting 8,321 employees at an average cost of
And while Kodak could have limited acceptance in the program, it
decided not to, fearing that any worker who missed out would become
bitter. Kodak lost some specialized managers as well as 2,000 factory
workers with decades of experience. Unable to rehire them because of
the plan's rules, the company was forced to recruit about 2,000
temporary workers, some of whom are still on the payroll.
Mr. Whitmore's generosity to employees is in many ways a reflection of
his upbringing and religious beliefs. A devout Mormon who prides himself
on his civic involvement, he is a family man both at home and at Kodak.
He once apologized to a manager about scheduling a 7 a.m. meeting that
disrupted her child-care arrangements -- and promised never to do it
Mr. Whitmore acknowledges that his management style has contributed
to a lack of urgency at Kodak. "I regret we didn't move faster," he says in
an interview, adding that he has been taken by surprise by "the speed
with which change has taken place" in corporate America.
If he doesn't move more swiftly, he could face a boardroom mutiny.
Since the mid-1980s, Kodak's board has changed from one dominated
by insiders to one that is now two-thirds outsiders -- and playing a more
In addition, Mr. Steffen is expected to be elected to the board at the May
12 annual meeting. He says no one has hinted that he will get the top job
at Kodak upon Mr. Whitmore's expected retirement at age 65 in five
years. There are three group vice presidents who would also be
candidates. "No one has promised me that job," Mr. Steffen says. Still,
heading a Fortune 500 company "is certainly on the list of things I want to
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