News

Parsons Takes Chair

1/19/2003 7:00 PM Eastern

Richard Parsons capped his rise to power at AOL Time Warner Inc. last week, adding chairman to his existing CEO role less than one week after former chairman Steve Case abruptly resigned.

Case submitted his resignation Jan. 12 — almost three years to the day of the then-celebrated $106 billion merger between of America Online Inc. and Time Warner Inc. — saying he wanted to remove the distraction of speculation of regarding his tenure at the company. Case's resignation will take effect in May.

In appointing Parsons on Jan. 16, AOL Time Warner's board of directors apparently wanted to avoid any further distractions by filling the open chairman's space in near-record time.

The speed at which the board came to its decision also means that Parsons, who has made moves in the past to consolidate his power, is firmly in control.

"I am highly gratified that the board shares my determination to maximize AOL Time Warner's tremendous potential," Parsons said in a statement.

Case also backed the appointment in a statement. "I am delighted by this decision and look forward to working with Dick to ensure a smooth transition," he said.

The decision by the board to consolidate the chairman and CEO roles appears to fly in the face of recent concerns about corporate governance. In the light of recent scandals, there has been a groundswell of support for keeping the two executive positions separate.

Several corporate-governance watchdogs have suggested companies create a non-executive chairman to oversee other company executives on the board.

AOL Time Warner's board said in the statement that the company will continue with its strong corporate-governance measures, which include holding executive sessions of all non-management directors without the CEO and other management present.

"These executive sessions are held in conjunction with every board meeting, and are chaired in each instance by the non-management director who serves as chairman of the appropriate board committee," the board said in the statement.

Combining the position is common and presents no governance problems, said Kathryn Rudie Harrigan, the Henry R. Kravis professor of business leadership at Columbia University.

"I didn't see anything unusual about this," Harrigan said. "It's much easier in the way that Americans do business to have both positions together. Splitting [the two roles] is very symbolic."

Case is the last of the architects of the AOL Time Warner merger to fall. In July, former AOL president and AOL Time Warner chief operating officer Robert Pittman resigned, after failing to turn around the online unit. Last May, former AOL Time Warner and Time Warner CEO Gerald Levin retired after weathering much criticism about the deal's failure.

Parsons effectively consolidated his power last July, when he split AOL Time Warner into two divisions, naming former Time Inc. chairman and CEO Donald Logan as chairman of the Media & Communications Group and former Home Box Office Inc. chairman and CEO Jeff Bewkes as chairman of the Entertainment & Networks Group.

Parsons praise

Now righting the AOL Time Warner ship is squarely on Parsons's shoulders, a task for which his fans in the industry believe he is well-suited.

"I think Dick is an almost unparalleled leader for a premium company going through a transitional period," Insight Communications Co. president and COO Kim Kelly said, adding that Parsons's reputation as a diplomat sometimes overshadows his other strengths.

"I can't imagine anyone better," Kelly said. "He's not just a diplomat. He's a strategic thinker, and also quite hands-on, which I don't think people give him enough credit for."

Parsons outlined his five-point plan for AOL Time Warner when he was named CEO in May, and it is unlikely to change — restoring investor confidence, fixing the AOL online-service provider unit, simplifying the structure of the company, protecting the balance sheet and improving employee morale.

Parsons has made headway in simplifying the corporate structure — unwinding the complicated Time Warner Entertainment partnerships — and employee morale, at least on the Time Warner side of the house, may get a big boost just through his appointment.

But Parsons still has a long road ahead on the remaining points of his plan. A federal investigation into the accounting practices of the AOL unit has dragged on for months; and the company has said that it expects this year to be a rebuilding year for the online business.

Crucial cable IPO

AOL Time Warner also is carrying a large amount of debt — about $26 billion — and may have to sell assets, including its stakes in Court TV and Comedy Central, to pare that down.

In addition, the company is expected to take another big goodwill write-down in the fourth quarter because of the declining value of the AOL business, on top of the $54 billion charge the company took last year. Some analysts estimate that the fourth quarter write-down will be between $14 billion and $18 billion.

Investors have speculated that the AOL unit could be spun off into a separate unit, but most analysts don't believe that will happen. More focus, they said, will be placed on the pending initial public offering of the company's Time Warner Cable operations, slated for sometime in the second quarter.

That IPO, expected to be worth between $2 billion and $4 billion, will be key for AOL Time Warner. Already several investment banks are clamoring for the underwriting business, with Bear Stearns & Co. expected to be the front-runner. Other investment banks expected to collect at least some of the $160 million in fees from the offering include Salomon Smith Barney Inc., Merrill Lynch & Co., Morgan Stanley, Bank of America, Goldman Sachs & Co., Deutsche Bank Securities and J.P. Morgan Chase & Co.

But perhaps more importantly, a successful cable IPO could allow AOL Time Warner to use the cable unit as a consolidation vehicle, snapping up other MSOs with its stock and growing its customer base beyond its current 10.8 million. A larger subscriber base could also help its own cable networks and entertainment properties.

Case will remain on the board of directors and will continue in his role as co-chair of the strategy committee; Parsons is the other member. But most analysts don't believe Case will have much say in what happens to the company he helped to create and build into the Internet space's dominant power.

In a statement Jan. 9, Case said he felt that the speculation surrounding his continued tenure at the company had become a distraction. But in later interviews, he appeared clearly torn by the decision to step down.

Case speaks

"I loved being chairman. I love this company," Case said in an interview with Cable News Network last Monday morning. "And so I have some mixed feelings about stepping aside. But I do think it's the right decision.

"I've thought about this hard over the last few months and decided it shouldn't be about Steve Case and what he wants, it should be about the company and 90,000 employees of the company and the millions of people, families who are investors in the company."

Case has been under fire for months. Early last year, speculation was rampant that he would be forced out.

Although Case had dodged similar bullets in the past — in September, he narrowly avoided an effort by AOL Time Warner vice chairman Ted Turner and two large shareholders, Liberty Media Corp. chairman John Malone and Capital Research & Management senior vice president Gordon Crawford, to force him out — he couldn't avoid what many company observers believed was inevitable.

Case denied reports that he had lost the support of his board. In the CNN interview he said "only one investor ever came to me and suggested I step down and only one director on our board ever came to me and suggested that I step down. So I felt I had considerable support, and that would likely to be continued through the next few years."

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