THE ART OF TAKING CHARGE
THE HEIDRICK & STRUGGLES LEADERSHIP JOURNAL
HOW JAMES A. JOHNSON
AND
FRANKLIN D. RAINES
THE SUCCESSION AT
MANAGED
FANNIE MAE,
ONE OF THE WORLD’S
LARGEST FINANCIAL COMPANIES
V O L U M E
F O U R
■
N U M B E R
O N E
The Art of Taking Charge, The
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THE ART OF TAKING CHARGE
The Heidrick & Struggles
Leadership Journal
EDITOR
Joel Kurtzman
MANAGING EDITOR
Jennifer Silver
ART DIRECTION
Ken Silvia Design Group
The Art of Taking Charge
(ISSN 10856617) is published
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Transitions are rarely flawless in the executive suite. Succession planning is often left to the last
minute, and, since every company and corporate context is different, no one is ever really quite sure
what constitutes best practices.
For that reason, this issue of The Art of Taking Charge focuses on one of the most significant —
and one of the smoothest — leadership transitions. It is the C.E.O. transition at Fannie Mae, one of
the world’s largest and most important financial institutions.
As this issue demonstrates, the transition at Fannie Mae actually took a year to implement.
During that time, James A. Johnson, Fannie Mae’s chairman and chief executive, “reintroduced” his
successor, Franklin D. Raines, to the organization he would take over. I say reintroduced because
Mr. Raines, who was director of the Office of Management and Budget in the Clinton
Administration when he was tapped by Mr. Johnson, had been a vice chairman of the company
before that.
What can we learn from the transition at Fannie Mae? I believe there are five major lessons.
First, as a recent issue of the Harvard Business Review argues, you cannot have a smooth transition at the top if you bring in the wrong person. In some companies, the best person is already present, hard at work, in a job close to the top job. In other organizations, the right person must be
sought from the outside. In either case, the new C.E.O.’s temperament, style and skills must fit the
organization and the challenges it faces. I am not equating succession with cloning. Far from it. I
am only stating that different organizations require different types of leaders.
Second, it takes time to make succession work. Unless an organization is in crisis, boards should
spend sufficient time getting to know their C.E.O.’s successor. In the case of Mr. Raines, the board
knew him well because of his prior service with the company. But he was also well known to two of
the firm’s main constituencies: to Wall Street, where Mr. Raines was a partner at Lazard Frères
before coming to Washington, and to Congress, where he frequently testified.
Third, even a well-known successor must be introduced into the company gradually. In the case
of Fannie Mae, for several months after his selection but before he took office, Mr. Raines joined
Mr. Johnson at Fannie Mae’s major internal meetings. In addition, Mr. Johnson gave Mr. Raines
larger and larger tasks, culminating in the firm’s strategy-setting exercise. As a result, he was no
stranger to the organization he now heads.
Fourth, the successor must be introduced to the firm’s most important constituencies. In addition to Wall Street and Congress, Mr. Johnson and Mr. Raines conducted joint news conferences in
the United States and abroad and met with key business partners around the world.
Fifth, the people who were passed over for the top job must understand that they still have
value. When an outsider is brought in, the new leader should take the opportunity to interact with
the people in the organization who were passed over in order to avoid creating an exodus of talent.
No transition is ever perfect. But so far the change at the top at Fannie Mae appears to be about
as good as they get.
I hope you enjoy this issue of The Art of Taking Charge.
whole or part without the
express consent of Heidrick &
Struggles International, Inc.
Postmaster: send changes to
Sincerely,
P.O. Box 9340, Boston, MA
02209-9340.
PATRICK S. PITTARD
President and Chief Executive Officer
Heidrick & Struggles International, Inc.
Photos by Anthony Loew
MANAGING SUCCESSION AT THE TOP
An exclusive conversation with James A. Johnson, former chairman
and chief executive officer, and Franklin D. Raines, chairman
and chief executive officer, of Fannie Mae
F
annie Mae — once more stodgily known as
the Federal National Mortgage Association —
was chartered by Franklin Delano Roosevelt in
1938 during one of the darkest periods of the
Great Depression. But with its singular and popular mission of making housing affordable for
low- and middle-income borrowers, it not
only survived those bleak years but
prospered, transforming itself in
1968 from a government agency
into a private corporation with
publicly traded stock that has soared
over the last 10 years.
With the growth in its primary business —
buying and securitizing single-family home
mortgages originated by other lending institutions — Fannie Mae has become one of the
largest and most powerful financial institutions
in the United States. Its assets totaled just over
$500 billion at the end of the first quarter this
year. And over the last three decades, it has provided more than $2.6 trillion in homeowner
financing.
Even more impressive, it hopes to provide a
full $1 trillion more in the few short years from
1994 through the end of 2000. Just three years
after James A. Johnson took charge as Fannie
Mae’s chairman and chief executive, he challenged the company to provide $1 trillion in
new mortgages to 10 million low- and middleincome borrowers within just seven years —
and, with $700 billion lent as of the end of last
year to 8.3 million families, that goal looks to be
well within reach.
In its growth and transformation, Fannie
Mae offers an enlightening study of leadership
on several levels. Besides its financial goals, the
company illustrates the power that comes from
recognizing diversity as an asset in the workplace; one of its biggest goals, and successes, has
been to increase the number of minorities in its
work force and on its board. Furthermore, the
Fannie Mae experience demonstrates the importance of selecting executives whose
backgrounds fit the unique circumstances of the organizations
they will lead. In the case of
Fannie Mae, with its Washington
headquarters and links to the
Government as well as to the world’s financial
markets, only an executive with facility across
the spectrum of finance, management, business
and politics can truly take charge.
Both James A. Johnson, 56, and Franklin D.
Raines, 51, have been so blessed.
From his first dealings with Fannie Mae, Mr.
Johnson demonstrated a wealth of political acumen. The son of a politician — his father was
speaker of the Minnesota State House — Mr.
Johnson was elected president of the student
body at the University of Minnesota and vice
president of the National Student Association.
He received his masters in public administration
from Princeton University after which he went
to work for Dayton Hudson as director of government and public affairs.
Mr. Johnson then garnered even more political savvy when he became a top aid to Vice
President Walter F. Mondale in the 1970’s. After
the Carter-Mondale ticket was defeated in 1980,
he set up a Washington-based consulting firm,
Public Strategies. And when that firm was sold
to Shearson Lehman Brothers in 1985, Mr.
Johnson and his partners became managing
T HE ART
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1
directors, and Fannie Mae became one of Mr. Johnson’s
clients. Having built what he calls “a very solid background
in the company,” Mr. Johnson agreed to join Fannie Mae in
1989 and was elected its vice chairman. Thirteen months
later, after a transition that served as a prototype for the current handoff, Mr. Johnson succeeded David Maxwell as
Fannie Mae’s chairman and chief executive.
Last year, it became Franklin Raines’ turn. Chosen by the
board to become the new chairman and chief executive
when Mr. Johnson stepped down at the start of 1999, Mr.
Raines has shown himself to be no less impressive than his
predecessor in ably straddling Wall Street and Washington.
Raised in Seattle, Mr. Raines rose from poverty to earn a
law degree from Harvard and become a Rhodes Scholar.
After Harvard, he worked as an assistant director of the
White House domestic policy staff during the Carter
Administration, and then he joined Lazard Frères, the New
York investment bank, where he specialized in municipal
finance. Mr. Raines left Lazard at the end of 1990, and in
1991 Mr. Johnson lured him to Fannie Mae with the post of
vice chairman. Five years later, he joined the Clinton
Administration as director of the Office of Management
and Budget, a Cabinet-level position. Two years after that, he
rejoined Mr. Johnson as his designated successor.
The transition from Mr. Johnson to Mr. Raines has gone
so smoothly not simply because both men worked so closely
together at Fannie Mae in the first part of the decade but
also because Mr. Johnson involved Mr. Raines in the current
process early on. It was Mr. Raines’ responsibility, for
instance, to develop the 1999 business plan. As part of the
transition, the two men traveled together to meet with
Fannie Mae’s customers, visit its regional offices, talk to its
employees, canvass Wall Street and sit down with partners
in Asia and Europe. Together they took the opportunity —
“a powerful opportunity,” Mr. Johnson called it — to inform
the nation’s major newspapers and magazines of their transition and mission. Equally important to the orderly transition is the fact that Mr. Johnson is staying on the board
through the end of the year to help wherever he can.
So how do you deftly manage such a delicate maneuver
as succession at one of the nation’s largest financial
2
institutions? What follows is a conversation on that question between Mr. Johnson, Mr. Raines and Joel Kurtzman,
editor of The Art of Taking Charge, at the Fannie Mae offices
in Washington.
JK: Transition is a tricky topic for many companies. Yet
Fannie Mae has confronted it head-on and you two are perfecting a process that could — perhaps, should — become a
model for companies that balk at the challenge. You already
had the example of David Maxwell passing the baton to Jim
in 1991 in a very orderly and measured fashion. So how did
you prepare for this transition, and what is left to do?
MR. JOHNSON: It’s actually about 90 percent over now,
and all has gone very smoothly. As planned, Frank took over
from me as chairman and chief executive on Jan. 1. And I’m
going to be around for the rest of this year, helping him out.
But that is, at most, 10 to 15 percent of the story.
The real story of the transition revolves around selecting
Frank and reintroducing him into the company. He was my
vice chairman from 1991 through 1996 but he needed some
lead time to get reacquainted with the company after serving
on the President’s Cabinet as director of the Office of
Management and Budget. So he rejoined Fannie Mae last
spring as my designated successor, and from that point
through December we essentially worked in partnership. I
was still the C.E.O., but we worked together to position the
change that was needed. That way, when Frank took over, he
was fully prepared to accelerate the momentum of the company instead of lose momentum, which would have happened if he had had to wait until he actually became the top
guy to start looking at people, studying issues, creating task
forces, undoing what I had done, undoing my budget, my
business plan, my investment plan.
All of those things were done, but cooperatively, with
Frank taking the lead on all of the dimensions of the ‘99
business plan, budget and investment plan. Then, when he
took over, he was taking over a company that was already
his. And that’s what I think is so unusual about the Fannie
Mae approach.
MR. RAINES: In reality, the biggest thing that happened
when I took over was the moving of the furniture from one
office to the other — I moved into Jim’s office and he moved
into mine. So, literally, for our people, there was only this
symbolic changing of place to represent the change in
responsibility. The organization was not thrown into any
upheaval because of the new guard; it didn’t have to stop
and figure out where to go from that point.
MR. JOHNSON: On Frank’s first day, I think that most people in the organization felt they were pretty much done with
the changeover to the new C.E.O., as opposed to just starting
it, with all the fear and anxiety that usually accompany this kind of change.
JK: Still, despite all your preparation,
there must have been some surprises?
MR. JOHNSON: I’d add one thing to the surprise list that is
material to what happened during the transition, and that is
that from August through November last year we had the
biggest strain ever for us in our financial markets. Virtually
every part of the real estate industry was fundamentally
repriced in the market, and we had a dramatic and unprecedented set of challenges as a company. We took $10 billion
from our liquidity portfolio and reoriented our capital to take
care of new mortgage growth. We had huge international capital flows from Asia and Europe that were coming off of the
Russian collapse in August, and that required an unusual level
of corporate response, which we managed. All of this underscored the vital role our company plays.
But this huge market dislocation
happened in the midst of the transition, and it became an unexpected learning experience for all of us
going through the transition.
“The transition period
MR. RAINES: The only surprise to me
was how many bases there were that had
to be touched in the transition. So many
people had a stake in understanding the
change, all over the world. By the time
we were finished, we’d done a lot of traveling, met a lot of people, made a lot of
contacts. And if you had asked me how
intense that part of it would have been, I
would have way underestimated it.
I think, at least from my standpoint,
the transition played out the way Jim and
I said it would. Of course, we had an
advantage there, since how it would work
was basically up to the two of us. But I
can’t think of another surprise. Since I
took over, I can’t think of anything where
I would now say . . .
itself gives the company an
MR. JOHNSON: . . .if only I’d known?
for the company”—
MR. RAINES: Yes, if only I’d known such
and such, boy, would this have been better.
extraordinary opportunity
to invite focus. Now, if
your transition in leadership is a mess, the focus is
all counterproductive. If
your transition, however, is
well-organized and wellexecuted, it’s a huge asset
Mr. Johnson
JK: Frank, you mentioned the
enormous amount of base-touching you had to do in the transition. How much of it did the two
of you do together?
MR. RAINES: Basically, all of it.
MR. JOHNSON: We did all the
customers. We did all the regional
offices. We did all the employees.
We did Asia. We did Europe. We
did Wall Street. Over one twoweek period, Frank and I together
met with the editors of The
Washington Post, The New York
Times, The Wall Street Journal,
Forbes, Fortune, the American
Banker and USA Today, plus a
couple of others. We did every one
of them together. We said, here’s
who we are, here’s what we’ve been
T HE ART
OF
TAKING CHARGE
3
doing, here’s where we’re going.
The transition period itself gives the company an extraordinary opportunity to invite focus. Now, if your transition in
leadership is a mess, the focus is all counterproductive. If
your transition, however, is well-organized and well-executed, it’s a huge asset for the company. Every one of those
meetings provided us with a powerful opportunity to make
important people aware of our mission and goals and our
new leadership.
said, we’ve done a lot of work in passing on both my relationships and institutional ones, but if there’s somebody
who is vital to the company, whether it be a customer or
head of a Wall Street firm or a Congressman, who happens
to be a friend of mine, Frank can just pick up the phone and
say, “Jim, by the way, would you go see Hank Paulson now
that he’s the head of Goldman, Sachs. I know he’s a friend of
yours, and we’d like to talk something over with him.” And
I’m here to do it, without hesitation.
JK: How about on the political side?
JK: So what can other companies learn from your transition process?
MR. JOHNSON: Same thing. We did an enormous amount
of political work here in Washington. For one thing, we had
multiple going-away events attended by many members of
Congress and the Administration.
MR. RAINES: I think too many companies believe that all
they need to do for succession is to pick a person. They say,
we’ve decided, that’s done — and they start trying to run the
company with the new regime. But they wouldn’t do anything else in the company like that. They treat this unlike
they treat anything else. They don’t manage it, they don’t
plan for it, they don’t focus on execution, they don’t evaluate
how it is going.
MR. RAINES: To illustrate the high-level of interest we generated, the principal speakers at one going-away event I
hosted for Jim were Treasury Secretary Bob Rubin and Fed
Chairman Alan Greenspan and Commerce Secretary Bill
Daley. Colin Powell was there. Everybody in Washington was
there. But it’s very clear two things were
important. One, they all wanted to be there
OMMITMENT TO
INORITIES
to honor Jim. And, secondly, they weren’t
Percentage of Fannie Mae employees who are minorities,
strangers to me either. It wasn’t as though
at the end of each year.
they had to start getting to know this new
PERCENT
person and figuring out how to deal with
45
him and wondering how he would deal
40
with them.
AC
I already knew many of these people
and, for those I didn’t, Jim has been able to
do many of the introductions. It’s very
unusual in a transition to have someone be
able to pass on such important relationships with such ease. In most places, the
relationships dissolve with the departing
executive, and the new guy has to go out
and recreate them or create new ones.
MR. JOHNSON: That’s part of the importance of my staying on in ’99. As Frank
4
THE HEIDRICK & STRUGGLES LEADERSHIP J OURNAL
35
M
Fannie Mae work force
30
25
20
15
10
Fannie Mae officers and directors
5
0
1987
’88
’89
’90
’91
’92
’93
’94
’95
’96
’97
’98
MR. JOHNSON: Basically, they don’t position themselves
in advance.
JK: There are probably more examples of sudden transitions than there are examples of smooth transitions like the
one you two have achieved together. What is the difference?
Is it institutional? Does it depend on personalities? On the
singularity of mission?
MR. RAINES: Like most things, it’s something that is
learned. I think the fact that David Maxwell put so much
effort into the transition from himself to Jim laid the seeds
for Jim to put that kind of effort into the process this time.
MR. JOHNSON: I started thinking about it virtually from
the time I became C.E.O. When I chose Frank as vice chairman in 1991, part of what was on my mind was the question: Am I getting someone here who might ultimately be
positioned well to succeed me by virtue of capability and age
and such? And, it turned out, I was.
JK: So why is it other institutions can’t master this?
MR. RAINES: It’s a question of how much value you put on
a successful transition. If you don’t value it very highly,
you’re not going to do it very well.
MR. JOHNSON: And how much priority you put on a
coherent strategy and a clear set of values so that you know
what it is you’re passing on.
MR. RAINES: If you’re going to have a successful transition,
you first have to decide you’re going to have a transition; then
you have to plan for it, and, finally, execute it. In many cases,
companies don’t confront, or the leaders don’t confront, that a
transition is about to happen. So, by denying it, they never get
around to planning for it. They may ask any number of managers how they plan to replace this one or that one, but they
never ask the C.E.O. for a succession plan. Or if they do, they
seldom take it beyond that, never confronting how they are
going to get smoothly from a designated successor to the point
where that person is actually sitting, comfortably, in the chair.
JK: What role does the board play here?
MR. JOHNSON: In our case, a very substantial one. I started
talking with our board three years ago about the transition
process. We didn’t discuss the exact timing of any of it, but I
had said from the beginning that I would not stay for more
than 10 years, and my 10 years will be up at the end of ‘99.
When it came time to actually look at successors, the key
directors were very active in considering all potential candidates. We had a number of candidates, in fact, but there was
an immediate coalescence on Frank. So, with the board’s
approval, I went to Frank, and my timing and his timing
meshed, so we went forward and his selection was approved
at our April meeting last year.
I always had in my mind that I might have a sort of postC.E.O. period of at least a few months, but that worked best
into a full year — and still we are within six months of our
original timetable on this.
JK: Jim, you said you started thinking about how to arrange
for your successor almost from the moment you took over
the company nearly 10 years ago. Can you describe more
specifically how you were influenced in this process by your
transition to the chairmanship and C.E.O. post under
David Maxwell, and how that transition helped you to take
charge?
MR. JOHNSON: That was a very successful experience.
I had already worked for three and a half years as an outside adviser to the company while I was a partner at Lehman
Brothers, and in that time I learned both the financial challenges as well as the culture that had been created by David.
So I had a very solid background in the company when he
asked me to join and the board elected me vice chairman in
1989. I then had 13 months in that job before I became the
C.E.O., including a five-month overlap with David after I’d
been designated to be the new C.E.O.
This allowed me to do a very thorough assessment of the
public responsibilities of the company plus a very thorough
assessment of its business strategies, since I had worked on
significant dimensions of those strategies at Lehman Brothers.
It also allowed me to get to know the people very well.
T HE ART
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5
qualitative goals, in terms of our contribution to solving
Once I actually took over, I was well-prepared and ready
housing problems and our contribution to building a quality
to lead right away. I actually felt comfortable enough to
work force. There are also some quantitative dimensions
move quickly on my agenda and in my own style. For
within those goals.
instance, I have a very strong predisposition to large, publicly stated goals, so over the course of my initial months as
JK: What more specifically would some
C.E.O. I made a number of big commitof the qualitative goals be?
ments — to Wall Street, for example,
R
EACHING HIGH
that we would deliver a double-digit
How Fannie Mae has fared
MR. JOHNSON: One is to be a worldannual earnings increase, and to the
in meeting the goals it set in 1994
class example of diversity. And this isn’t
for the end of the year 2000.
housing community that we would do
numbers-driven for us. It means creat$10 billion of targeted lending in cateGOAL: Providing $1
…to help finance
ing an overall corporate environment
trillion in targeted
homes for 10
gories where, at that time, we only had
mortgage financing…
million families.
that clearly commits the corporation to
about $200 million of that kind of lend$TRILLIONS
MILLIONS OF FAMILIES
diversity, to encouraging a work atmosing on our books.
1.0
10
phere that values people of all kinds. It
I believe very strongly in the power
also involves corporate justice, so that
of publicly articulated strategic goals. I
.8
8
there are avenues for remedying probthink it allows the organization to pull
lems when people feel you’re not living
together because it gives people in the
.6
6
up to the principles you’ve embraced.
company a sense of excitement, a sense
Our quantitative numbers here are
of having a higher mission. People may
.4
4
strong, but becoming a world-class
be motivated significantly by money,
example of diversity is as much a qualibut that is never the whole story.
.2
2
tative challenge as it is quantitative.
We’re pleased to have been designated
JK: How then did you determine
0
0
by Fortune magazine as one of the best
whether or not you were accomplishing
Achievement through
Goal for end of
places for minorities to work.
those goals?
end of 1998
year 2000
Another of our qualitative goals is to
broaden homeownership to people who
MR. JOHNSON: All of the goals we set
have previously not been able to own their own homes. We
had numerical, quantitative dimensions. The biggest quantibelieve that lack of information is a huge barrier here.
tative goal we ever set was in ’94, when we said we would
People are too often uncomfortable with financial instituprovide $1 trillion in targeted mortgage financing by the
tions, uncomfortable with the words that are used and the
end of the year 2000 to help finance homes for 10 million
terms of the mortgage process, with escrow accounts and
low- and middle-income families. We’re well on our way to
points and title searches. There are more people than you
meeting this goal. On the qualitative side, there were 11
think who believe that, even though they hold a steady job,
dimensions of transformation.
they would not qualify for a mortgage.
In our goal setting, in fact, we have tried to be a leader in
And there are 33 million Americans for whom English is
measuring qualitative goals. We recognize that, with very few
not their first language. So, through the Fannie Mae
exceptions, there are not only long- and short-term dimenFoundation, we created a television, print and radio outreach
sions to goals, but also qualitative as well as quantitative
program where we are trying to invite these people into a diadimensions. And so, for example, in our incentive program,
logue with us to teach them how to pursue homeownership.
50 percent of our long-term pay at Fannie Mae rests on what
We’ve actually had six and a half million families call us on
we call the report card, and the report card is a series of
6
THE HEIDRICK & STRUGGLES LEADERSHIP J OURNAL
the phone in response to our advertising. And we’ve sent
them information — in Spanish or Chinese or Korean or
Portuguese or Polish or Russian or whatever — and then have
invited them to call back if they’d like further counseling.
Now, some of this is quantitative, too. For example, we
sponsor 12 teams in the National Basketball Association
because the people we’re after watch the N.B.A. games. And
since we make it sort of a condition of our sponsorship that
the team will get behind the revival of urban neighborhoods, we’ve had a lot of the players themselves out working
with us, actually pounding nails and doing real work.
JK: So you’re obviously working hard and apparently faring well at communicating your message to the outside
world — but what about internally? Many C.E.O.’s are frustrated by the fact that, hard as it may be to fashion their
goals and strategy, it is harder still to get them embedded in
the culture and to inspire people to work toward them.
MR. JOHNSON: We are so fortunate in
that regard. In our latest company survey,
91 percent of our employees said they fully
understood and embraced the core strategy
of this company.
MR. RAINES: I think that number is so
high because, for one, we have only 4,000
employees. That’s a big advantage in being
able to communicate fairly easily with everyone. In addition, our work is something that
is very tangible, very visible and very rewarding on several levels. Our people not only see
results numerically, but every day they
understand that by virtue of what they do,
other people are fulfilling the No. 1 aspiration in their life, which is to own their own
home. And that is very fulfilling on a personal level to the people who helped make
that happen.
What’s involved here is a whole theory of
corporate and communication strategies.
Very often people have trouble communicat-
ing a mission or strategy because they don’t really have one.
But more important than having any mission, I think, is to
have one that is beyond the product or service of the day.
Our corporate mission is homeownership and that transcends how we are doing our job today. It is something people can understand, which frees them to think of it broadly
and innovatively. It’s not a strategy that is owned by senior
management, that only senior management can articulate.
It’s a strategy that every one of our people can embrace and
encourage because they can identify with it.
Everything for us goes back to homeownership. And
when you have such a strong, shared purpose, you can communicate more easily with people.
JK: It’s interesting to note that that mission has stayed the
same throughout some considerable changes Fannie Mae
has undergone since it was created as a Government entity
in 1938. More recently, over more or less the past two
decades, the business has truly been transformed by the
securitization of mortgages and financial innovations
affecting your market. How do you lead and communicate,
both inside and outside the organization, amid such change?
“Very often people have trouble communicating
a mission or strategy because they don’t really
have one. But more important than having any
mission, I think, is to have one that is beyond the
product or service of the day.”
—Mr.Raines
T HE ART
OF
TAKING CHARGE
7
MR. RAINES: The company has definitely changed dramatically from when Jim’s predecessor came in here in terms of
how we do the business, the ingredients to the business, our
mix of people – there’s been a huge change.
MR. JOHNSON: And it was only 30 years ago that we
became a totally privately owned institution. Then we got
into the mortgage-backed securities business and into other
dimensions of the mortgage market. And so, even before the
last 20 years, where we’ve
had huge change, we were
transforming ourselves
repeatedly.
MR. RAINES: But I think
the change with the biggest
impact on how we lead has
been the change in the skills
of the people we need to
attract to meet each new
challenge. As these skills
change, the culture of the
workplace changes, and
management must adjust
how it goes about communicating and implementing
strategy depending on that
new culture.
When Jim became chairman, for example, probably
10 percent of our employees
were technology people and
probably 30 to 40 percent were operations people who had
been doing a lot of manual things to make the business happen. Today, a third of our employees are technology people,
and the operations side is probably closer to 10 percent.
That’s a huge change in skill sets. And the technology people
obviously have their own culture and way they think about
things and how they like to interact — so that now, for
instance, we have the intranet as a major means of communication, instead of the operating memo.
8
THE HEIDRICK & STRUGGLES LEADERSHIP J OURNAL
Still, as you said, our overall mission has remained the
same across all these big changes and, from a corporate
standpoint, that’s the hardest thing to do. Usually what happens is you have an enduring bureaucracy and a changing
mission; we’ve really had an enduring mission while the
bureaucracy has changed.
JK: Has all this change required a different type of leader?
“ If you’re going to have
a successful transition,
you first have to decide
you’re going to have a
transition; then you have
to plan for it, and, finally,
execute it .”
—Mr.Raines
MR. JOHNSON: Well, the fact that Frank is more technologically capable and informed and experienced than I am is,
I have no doubt, going to be a tremendous asset for him and
the company. Now, could Frank have been a great C.E.O.
choice without that? Yes. But his expertise will definitely be
an asset as the technology of mortgage finance continues to
change. So, yes, David had strengths, I had strengths, Frank
has strengths, and they become vital at different times, in
different ways. But certainly on this big dimension of tech-
nological change, the fact that Frank is a technology strategist is an enormous asset as he comes into this.
MR. RAINES: And I think an innovation that Jim brought
about when he took over was very important in the recent
evolution of the company. When David was chairman he
had five presidents, and he was struggling to get the leadership formula right until he landed on one, Roger Birk,
where the fit was finally good. In his turn, Jim then asked
By setting up the office of the chairman, therefore, I
think we reduced our risk on the leadership side by expanding our definition of leader.
JK: In essence, then, you have a team approach. But let’s
discuss that a little more fully. I have interviewed C.E.O.’s
who adamantly reject teams, insisting that one person must
be accountable, even if there are five others working with
him. Others would say a team is responsible for its actions
and that results should be evaluated based on the whole team.
“When I chose Frank as
vice chairman in 1991, part
of what was on my mind was
the question: Am I getting
someone here who might
ultimately be positioned well
to succeed me by virtue of
capability and age and such?
And, it turned out, I was.”
why we were stuck with just a chairman and president in
terms of the mix of leadership skills, and so he created an
office of the chairman that consists of the chairman, president and the vice chairman. Each of them has a different
interest and focus within the organization, which greatly
increases the likelihood you will get the leadership right.
More important, you can actually work on three things at
the same time; it’s a high-risk bet to put everything on the
shoulders of just one person.
MR. RAINES: You can have a
team and still have someone
responsible for ensuring that the
team is on the field, with all
players going on with the same
plays, all working together.
There has never been any doubt
here about who the C.E.O. was,
no doubt at all. But that doesn’t
mean the C.E.O. is a lone actor.
JK: So teams can have captains, in other words?
MR. RAINES: Teams can have
captains, teams can have managers.
Problems arise, I think, when
a manager asserts: I’m in
—Mr. Johnson
charge, leave me alone, I’ll
come back at the end and tell
you what happened. At the other extreme are teams where
the members say: We’re all in charge.
I think our approach has been much more one in which
someone takes the lead on a project but we’re all in close
communication on it, and when an important decision
looms, we’ve got a C.E.O. who can make that decision. But it
doesn’t mean the C.E.O. has to go out and actually take the
lead on everything that the company is trying to do, nor does
it mean the C.E.O. has only a binary choice on leadership:
T HE ART
OF
TAKING CHARGE
9
Now, I must add that there’s also a dimension of tough
grading in all of this, whether you’re assessing your own performance or that of others. Organizations have different
standards of excellence, but part of what we’ve tried to do —
and David Maxwell is really the father of this — is to introduce and reinforce a management culture of being the best
and of performing the best analysis, the best research, the
best customer service. And we’re continually pushing ourselves to achieve that excellence.
Either I do it myself or I give it up entirely to someone else.
I can’t remember any issue where Jim said, O.K., you handle this and I don’t want to see it again. On the other hand,
there have been a ton of issues where he said, all right,
you’ve got the lead on that one, keep me in the loop. It
becomes very much a collaborative process.
JK: It sounds very collegial.
MR. JOHNSON: It is very collegial. And I think Frank and I
think the same about the way to handle a very large number
of things in the context of collegiality. For instance, I spent
most of my time as C.E.O. engaged in what I would call
high-level scanning of issues and scanning of the horizon.
And one of the things I did as part of that was to set aside
four hours every Monday morning to hear from a total of
about 35 people, face to face, on what they were doing, what
they were working on and what they were worried about.
My input was really minimal. I might point out a recent
article in The Wall Street Journal that bore on an issue we
were discussing, or mention a pertinent talk with Senator
So-and-so. What was really important was what I heard
from everybody involved.
More than anything else, my management style was to try to get individuals or teams of individuals handling virtually everything. Then I
could continually scan to see whether
$90
or not I thought that they were prop80
erly aligned with the overall corporate
70
strategy; and if I decided somebody
was off course, then I would get
directly involved in getting them back
on course.
60
JK: In those instances, were you the
one that determined when to get
involved?
30
MR. JOHNSON: Yes. And I think
that’s a very useful power for the
C.E.O. to retain.
0
1987 ’88
10
JK: Is it something you measure?
MR. JOHNSON: Yes, in dozens of different ways. We do all
kinds of customer surveys, we do employee surveys and we
do supplier surveys. And we have lots of internal feedback
arrangements and external feedback arrangements.
MR. RAINES: The only thing I’d add is that there’s also a
push to have a sense of urgency. In any company, there’s
always a tendency to want to be careful, to take your time, to
not do anything until it’s totally had a chance to percolate
and everybody’s had a chance to look at it. But that can be
death for a company trying to be innovative. And so main-
SOARING VALUES
Fannie Mae’s yearend stock price
50
40
20
10
’89
*Through April
THE HEIDRICK & S TRUGGLES LEADERSHIP JOURNAL
’90
’91
’92
’93
’94
’95
’96
’97
’98 ’99*
taining a sense of urgency as the company’s gotten bigger
and more successful has been an important part of our leadership process.
JK: One measure of that success has been your stock price,
which is now trading for many times what it fetched in
1990. You mentioned earlier several forces that motivate
your people, but what about stock ownership? How much
of a stake do your employees have in Fannie Mae?
MR. RAINES: Almost every employee has some stock participation in the company. And members of the board also
have an ownership stake; most of their compensation, in
fact, comes from stock options. So everybody involved in the
company has a financial stake in it.
JK: So would you say the company is particularly focused
on shareholder value issues?
MR. RAINES: I think that everybody, including the board, is
very focused on our mission. We have a fundamental belief
that if we do this mission right, the shareholder value will be
just fine. If we get the mission wrong, there’s nothing we can
do to overcome that for the shareholder. We can’t perform
for the shareholder without also getting the mission right. So
H&S
for everyone involved, we must get the mission right.
THE ART
OF
TAKING C HARGE
11
Heidrick & Struggles
International, Inc., is one of
the world’s leading executive
search firms, operating in major
business centers throughout
North America, Europe, Latin
America, Asia Pacific, Africa
and the Middle East. The firm’s
consultants help public and
private corporations and
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build high-performance
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Visit our web site at:
www.heidrick.com
ABOUT THE EDITOR
The Art of Taking Charge is edited by
Joel Kurtzman, former executive editor
of the Harvard Business Review and former business columnist at The New York
Times. Mr. Kurtzman, an economist and
international business consultant, is the
author of 14 books and numerous articles that have appeared in newspapers
and magazines around the world. He has
testified before the U.S. House of
Representatives as well as the General
Assembly of the United Nations on economic matters. Mr. Kurtzman has lectured widely, at Columbia, Georgetown,
Harvard and Oxford universities, at the
Keidanren, Tokyo, and at many companies. He was the host of the PBS TV special “Four Weeks in the Life of the Global
Economy.” In Japan, he was host of “The
Death of Money!” an NHK TV special.
He has also hosted “Hodotokushyu,” the
Japanese equivalent of “60 Minutes.” Mr.
Kurtzman appears frequently on CNN.
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