AUSWR
The Association of U S West Retirees
 

 

 

Here Today, Here Tomorrow
Many Retired CEOs Retain Offices at Firms They Led; To Critics, It Is a Costly Favor
By Joann S. Lublin
The Wall Street Journal
Monday, January 22, 2007

Larry Kellner, chief executive of Continential Airlines Inc., wanted to discuss his industry's consolidation with an expert.  So one day last month, he rode an elevator up 23 floors to see his predecessor, Gordon M. Bethune.

In light of US Airways Group Inc.'s hostile bid for Delta Air Lines Inc., "maybe you should get your defenses ready," Mr. Bethune says he urged Mr. Kellner.  Through a spokeswoman, Mr. Kellner declined to comment on the conversation but said he and Mr. Bethune "continue to enjoy a close personal friendship."

The practice of companies offering former CEOs the courtesy of an office and assistant -- sometimes for life -- is longstanding, widespread and occasionally declined.  More commonly these days, chief executives head for the golf course after retirement, never setting foot in their old office again.  A surprising number, however, regularly stay on at headquarters.

Procter & Gamble Co. houses three retired CEOs at its Cincinnati headquarters.  A.G. Lafley, the current chief, seeks counsel from at least one of them every quarter.  P&G pays for an office elsewhere for a fourth former leader, Durk Jager, who left under less than happy circumstances in June 2000, just 17 months after taking the top job.  Defusing a potentially volatile situation, Mr. Jager turned down P&G's offer of headquarters space, according to a company spokesman.

Lee R. Raymond still occupies the third-floor corner office he used before stepping down as CEO and board member of Exxon Mobil Corp. at the end of 2005.  Mr. Raymond's successor as CEO, Rex Tillerson, occupies another corner office on the same floor of its Irving, Texas, headquarters.  Mr. Raymond was paid $1 million last year as a consultant.

Other businesses providing headquarters offices to one or more retired CEOs include Intel Corp.,  DuPont Co. and International Business Machines Corp.  Edgar S. Woolard, a retired DuPont chief executive, began to pay for his headquarters office in January 2005 after the five-year retirement perk ended.

Elmer Winter, 94 years old, still shows up most weekdays at Manpower Inc., the temporary-help concern he co-founded in 1948.  He runs a family foundation from Manpower's Milwaukee offices.  He addressed U.S. employees at a conference last February, blessing a new global brand.  "It was important to have his seal of approval," a Manpower spokeswoman explains.

Proponents say free office space for retired CEOs gives executives easy access to predecessors' expertise and institutional memory.  But critics claim the perquisite wastes investors' money.  Exxon's latest proxy statement says Mr. Raymond's office and administrative assistant cost about $200,000 a year.  The Continental spokeswoman declines to discuss the cost of Mr. Bethune's space.

"There is not a departing CEO of a public company who cannot afford his own office space and support staff," contends Nell Minow, editor of the Corporate Library, a corporate-governance research firm in Portland, Me.

No one tracks how many CEOs get retirement offices, which typically are guaranteed by their contracts.  Tough new pay-disclosure rules that take effect this year may shed more light on the prevalence of the perk when it's promised to recently retired chief executives.

Staying on after their time at the top is over, these lions in winter interact with current management and staff in ways as varied as the personalities and the companies involved.  Some CEO candidates aren't too pleased to learn their retired predecessor will hang around at a headquarters office once they arrive, say executive recruiters.  They would prefer "to be able to perform without having the former CEO look over their shoulder and be a physical presence," says Gerard Roche, a leading CEO hunter and senior chairman of recruiters Heidrick & Struggles International Inc.  In a few instances, he adds, the arrangement proves awkward and the new leader persuades the board to move the elder corporate statesman to a different building.

The disparate experiences of retired CEOs who stick around are illustrated by two retired CEOs named Gordon.

Mr. Bethune, 65, relinquished his 10-year command of Continental in December 2004.  The former mechanic is revered by many Continental workers for pulling the airline from the brink of bankruptcy in the mid 1990s, improving its image and mending union relations.

Rank-and-file employees regularly greet Mr. Bethune by name when he strides through the lobby of Continental's Houston headquarters three days a week.  Under his retirement agreement, Continental guaranteed him an office and secretarial assistance for a decade.  Mr. Bethune requested headquarters space "because it's close to my house."  His office, Continental's only presence on the building's 42nd floor, is a third smaller than his 19th-floor perch as CEO.

Mr. Bethune remains an important industry player.  He became chairman of Aloha Airgroup Inc., parent of Aloha Airlines, last August.  And, shortly after his chat last month with Mr. Kellner, he was hired as an adviser by creditors at Delta, which is operating under bankruptcy-court protection.

Mr. Kellner visits, calls or emails Mr. Bethune an average of once a month.  The Continental chief occasionally asks Mr. Bethune how he would have handled a thorny labor-relations issue and alerts him about key corporate announcements.  But Mr. Bethune says Mr. Kellner never mentioned Continental's exploratory talks with UAL Corp. about a possible business combination.

Mr. Bethune avoids popping into his successor's office uninvited.  He declined Mr. Kellner's offer to retain his CEO parking space, taking the adjacent spot instead.  "I wanted employees to see that he was in charge," Mr. Bethune says.

During his frequent lunches with other Continental executives, Mr. Bethune says, "I make it a point to be supportive of [Mr. Kellner]."  When flight-crew members and airport agents grumbled to him about pay cuts won by Mr. Kellner, Mr. Bethune replied, "If I were here, I'd do it."

By contrast, Gordon Heffern draws little notice inside KeyCorp's Cleveland headquarters.  The 82-year-old retiree led Society Corp., a KeyCorp predecessor, from 1983 to 1987.  The financial-services concern provides offices to Mr. Heffern and another former CEO.

Mr. Heffern, who still is involved with local charities, visits his 10th-floor office once a week when he's in town.  (He lives in Florida about half the year.)  "I love my location," he says.  "I'm out of the mainstream all by myself.  But I'm right next to the executive dining room and right next to the men's room."

KeyCorp continues to pay Mr. Heffern about $25,000 a year to advise CEO Henry L. Meyer III.  But the company's top brass pay him little heed.  Messrs. Heffern and Meyer meet for lunch twice a year.  Mr. Heffern believes Mr. Meyer isn't very interested in his advice -- and understands why.  "I don't think I have any special wisdom to offer," the retired executive concedes.  A KeyCorp spokesman agrees, saying "there's no real business content" to the discussions.

Through another spokesman, Mr. Meyer says he values time spent with Mr. Heffern because "he's a friend and great source of insights" about everything from local philanthropy to employee volunteerism.  At a holiday party for about 100 retirees last month, Mr. Meyer asked Mr. Heffern to say a few words.  He described how he identified Mr. Meyer as a rising star 30 years ago and persuaded him to pursue a master's degree from Harvard Business school.  "That was a good decision, wasn't it?" Mr. Heffern asked the applauding crowd.

Mr. Meyer gave a thumbs up.  The gesture "made me feel very good," Mr. Heffern says.

Write to Joann S. Lublin at joann.lublin@wsj.com

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