Making the Tough Decisions

Michael Capellas has faced down some of the toughest turnaround situations in corporate America. He took over as CEO of Compaq when the struggling computer company was getting mauled by Dell and feuding with Microsoft. He steadied it and then sold it to Hewlett-Packard in 2001. The next year he took the reins at MCI, one of the poster-
children of corporate fraud, and steered it though a massive accounting restatement, out of bankruptcy, and eventually to an acquisition by Verizon with a hefty price premium. He then took the obligatory turn in the private-equity sector as a senior adviser at Silver Lake Partners. This past July, he was named CEO of First Data Corp. (see sidebar). Capellas, interviewed on the lofty topic of courage by Pepperdine University’s Ron Ford for Directorship, answered questions with the same no-holds-barred, quick-witted, and sometimes irreverent manner that typifies his leadership style.    

You have walked into some unbelievable challenges. How did courage manifest itself?
I’ll admit I have a fatal attraction to tough things, and the great thing about being in a crisis situation is that you need to make changes. The reason you’re in crisis is because something has broken down, so you have to decide how you want to handle it or if you want to move on.

I was at MCI—and remember we made all of our margin from this wonderful product called long distance—and I was going before the board to ask for hundreds of millions of dollars more to invest in long distance. I said, “Look, we all know this is dead. Why are we going forward? Let’s just kill it and move on to a new business.” And every one of them said, “Thank God.”

How do you draw upon your strength when you’re sitting in a boardroom and everything you hear is wrong?
Whether it’s boards or senior executive teams, they succeed or fail on their social structure.I absolutely go nuts [when I hear] the governance idea that the board is supposed to be the policeman of the CEO. You’ve got twelve smart people; you’re all supposed to be working together. You’re supposed to be able to say, “I screwed up.” You’re supposed to work together. I think when you’ve got that chemistry and you create an environment where people push back—and there have been times when I have pushed back hard and times when I have been pushed back hard—that’s a better environment.

How do you find the right kind of chemistry among board members?
I went to MCI WorldCom and we had this little accounting problem. I had met some of the [board members] in the bar the night before, and I looked around and said, “It’s really nice to meet you all. Of course, you’ll all be leaving. How would you like to handle it?” I got a couple of dumb looks, and I said to them, “What do you expect me to do?”

It’s rare that you get a chance to build a board from scratch. You need to blend skills, so it’s not about getting nine or twelve people who think alike. You need people who know different things. Whenever I was in technology, I always liked having someone from a consumer brand on my board because they bring a different perspective. I generally think it takes six months to a year to recruit a board member, and you’ve got to work at it. There’s no substitute for personally throwing yourself into it. I’m of the belief that you’re always working on three or four board members at a time. Like anything in life, you’re building a pool and a pipeline.

How does one assess a candidate’s courage and truthfulness?
Instincts take you a long way. If it feels right, it generally is. When you first have a conversation, do you get a sales pitch or do you have a candid conversation? You know there’s some management leadership that you’re going to have to work with, and if that chemistry doesn’t work, it’s pretty unlikely that it’s going to be a great experience.

What goes through your mind the night before you walk into a difficult situation?
At Compaq, I had no qualifications for the job [as CEO], and I simply couldn’t get through the rehearsal [for the press conference]. I finally said, “Look, this is just not who I am. I don’t want a script. I don’t want slides. I just want to take questions.” I’d never been in a press conference before. If you try to fake it, that puts incredible pressure on you. You just can’t do it. The truth always sets you free. I thought to myself, “Answer the questions you know and don’t answer the ones you don’t know. Just be yourself.” MCI was no different: If you fake it, no matter how much you prepare, it just doesn’t come off right, especially in times of stress.