Compaq's Rosen known to hold CEOs to high standard

The last time Ben Rosen wielded the axe at Compaq Computer, the foundering PC company embarked on a period of remarkable growth under the leadership of Eckhard Pfeiffer. Now finding Compaq on the bad side of Wall Street, Rosen once again has taken action, and the question remains whether Compaq can come back again.

The last time Ben Rosen wielded the axe at Compaq Computer, the foundering PC company embarked on a period of remarkable growth under the leadership of Eckhard Pfeiffer. Now finding Compaq on the bad side of Wall Street, Rosen once again has taken action, and the question remains whether Compaq can comeback again.

Rosen's actions this time resulted in the sudden resignations on Sunday of both President and Chief Executive Officer Pfeiffer and Earl Mason, senior vice president and chief financial officer.

Rosen, 65, has been a major force in the microcomputer industry for almost 20 years, starting as a venture capitalist. In late 1981, Rosen ran across a young entrepreneur by the name of Mitch Kapor, who had just developed a spreadsheet called Lotus 1-2-3. Rosen quickly funded the startup and brought the spreadsheet to market, which gave corporate users a reason to buy PCs, and single-handedly helped establish IBM's PC as the desktop standard in the process.

He also had the courage and foresight to listen to the plans of three young engineers from Texas Instruments, one of them was Rod Canion, about a "portable computer" sketched out in a Houston restaurant on the back of a restaurant place mat. That product turned out to be the first notebook computer, and the company that launched it was Compaq.

But Rosen has always been as demanding of the performance of his CEOs, holding them to a high degree of accountability no matter what their past performance has been.

In the early 1990s, Rosen and then-Compaq CEO Canion argued heatedly over the decision to enter into the lower-cost PC market. Canion argued that he was unwilling to compromise on the much-vaunted quality of components used in Compaq's line of PCs. Rosen argued that the company could deliver a much lower-cost PC without sacrificing quality and gain entry to new markets in the process.

Impatient with Canion's unwillingness to compromise, Rosen secretly hand-picked a small team of engineers within Compaq and set off to prove he could piece together and bring to market a price-competitive desktop PC. Rosen's stealth team accomplished its mission in short order, putting together a system from off-the-shelf components for half the cost of what it took Compaq to do.

On the strength of this project, Rosen won his internal political battle against Canion. By early 1992, he was able to wage a voracious and successful pricing war against the competition that not only won Compaq huge hunks of market share but also essentially was responsible for the explosion of sales in desktop PCs during the past seven years. Shortly after the launch of Compaq's low-end line of PCs, Canion was ousted, making way for Pfeiffer, who was a major supporter of Rosen's vision of things to come.

Since then, Rosen has been content to remain in the background while Pfeiffer led an extraordinary revival of the then PC-based company, building its revenues from US$3 billion in 1991 to an expected $40 billion by the end of this year. But Rosen never took his eye off the ball, and when the time came for a change, he clung tightly to one of his most prized business tenets.

"There is a vital importance to corporate governance," said Rosen in a speech given to Columbia University's Business School in fall of 1997. "Governance counts. Governance is important. Governance affects shareholder value."

Though Compaq's stock is off about 2% for Monday, the message to the stock holders was clear, and if history is any indication, Rosen will find the right person to take over Compaq at this crucial juncture.

Pfeiffer was seen by many observers as a businessman that understood how to market and price PCs to beat the competition. When the time came for Pfeiffer to address the myriad concerns of large corporations, from PCs to data centers, he was in over his head.

"This should be interpreted as a good thing because they're cleaning house," said Roger Kay, an analyst at International Data. "Rosen's been in the background, but he just stepped back into the fore. He doesn't really want to run the company and he'll need to find someone that can manage a far more complex landscape than what Pfeiffer first had to work with."

So the search begins for the executive that can bring Compaq to the next level. Rosen has made the right choices in the past, and beaten IBM in its own game of PCs back in the early 90s. Can he make another Compaq comeback?

Some behind the scenes at Compaq think he can.

"Morale is good. Every company needs a sea change," said an insider at the company who asked not to be named. "Rosen is a highly capable person who has a vested interested in ensuring Compaq reaches its goals."

As for Pfeiffer's sudden departure this week, the Compaq source said most people inside the company expected it.

"Everybody realises that a CEO of company like Compaq has got to continue to perform well," the source said. "Ben Rosen and the board of directors of Compaq have clearly evidenced that they will make tough decisions."

(Ephraim Schwartz contributed to this article.)

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