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A Compelling Case For Lawyer-CEOs

December 12, 2004
By Mike France, with Louis Lavelle, in New York

Michael G. Cherkasky is not an obvious candidate to run the

world's largest insurance brokerage. A former district attorney,
the new boss at Marsh & McLennan Cos. (MMC) has spent
much of his career chasing crooks and has virtually no
experience in financial services.

But Cherkasky has one credential that outweighs all of his

obvious shortcomings: a close relationship with Eliot Spitzer -
- who used to work for him in the Manhattan district
attorney's office. On the day Cherkasky was elevated to CEO at
Marsh in late October, the threat of a potentially lethal
criminal charge against the reeling company by the New York
State attorney general suddenly evaporated.

Cherkasky belongs to a specialized breed: lawyer-CEOs.

They're a lot more common than you probably think. Other
members of the group include Kenneth I. Chenault (American
Express (AXP)), Richard D. Parsons (Time Warner (TWX)),
Charles O. Prince III (Citigroup) (C), Sumner M. Redstone
(Viacom (VIA)), and Franklin D. Raines (Fannie Mae (FNM)).
According to headhunting firm SpencerStuart, 10.8% of the
CEOs of companies in the Standard & Poor's 500-stock index
have law degrees.

Nearly all of these executives have had to overcome a common

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prejudice: that lawyers make bad corporate leaders. Often
unschooled in core skills such as accounting or finance,
lawyers start their careers in a strange world where risk is
frowned upon, colorful marketing is unethical, people rarely
work in big teams, and nobody makes a decision without
reviewing stacks of paperwork first. Business attorneys are
often considered the "vice-presidents of No," says Jeffrey A.
Sonnenfeld, associate dean of executive programs at Yale
School of Management. So it is hardly surprising that, as
Sonnenfeld says, "people do ask questions when a career
lawyer becomes a CEO."

There has never been any systematic study analyzing how

lawyers do in the corner office. But anecdotal evidence
indicates that the stereotypes aren't entirely justified. For
every corporate attorney who has bombed as a CEO -- the
most often cited example is former Time Warner chieftain
Gerald M. Levin -- there has been a seemingly equal number
of successes, such as Viacom's Redstone and Southwest
Airlines' ex-CEO and current board Chairman Herbert D.
Kelleher.

This shouldn't come as a surprise. Law schools, after all, are a

rich source of intelligent and driven people. Moreover, the
attorney-CEOs interviewed by BusinessWeek also believe that
they gained a useful set of analytic skills in their journey from
torts class to the courtroom. These include the ability to
mediate disputes, see both sides of complex issues, and cut
self-satisfied experts down to size. "A lawyer who comes in
and asks basic questions about first principles can be more
strategically creative in times of great change" than people
grounded in a particular industry's culture, says ex-antitrust

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litigator Michael J. Critelli, now CEO of office equipment
manufacturer Pitney Bowes Inc. (PBI).

OVERACHIEVERS

There was a time in the first half of the 20th century, before
the proliferation of MBA programs, when law school was a
common path for corporate leaders. Since then, attorney-
CEOs have been concentrated in heavily regulated industries -
- or to put it another way, in businesses in which legal issues
have a greater effect on profits than, say, marketing or
operations. Think utilities (Exelon's (EXC) John W. Rowe,
Dominion Resources' (D) Thomas E. Capps, and many
others); airlines (Southwest's Kelleher); and financial services
(Fannie Mae's Raines).

When lawyer-CEOs emerge outside classic red-tape industries,

they tend to be brilliant overachievers who would rise to the
top of the heap no matter what their educational background.
Bored with their legal practices, envious of the enormous
paychecks earned by their corporate bosses, they seek out new
adventures in the executive suite. "Lawyers are basically [just]
advisers," says Time Warner CEO Parsons. "At the end of the
day, we all want to drive the boat."

One challenge that confronts most lawyers when they cross

over to the business side is their lack of financial expertise.
Some learn how to work with numbers on the job. Others get
specialized training. Curtis H. Barnette, who joined
Bethlehem Steel Corp.'s legal department in 1967 and served
as chief executive from 1992 to 1999, spent two summers in
the 1970s taking accounting classes at Harvard Business

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School. In the case of American Electric Power Co. (AEP) CEO
Michael G. Morris, a chief accounting officer at a company
where he worked several years ago "really took the time to
help me understand it all," he recalls. "It was like a tutorial."

Of course, finance and accounting can be learned. What's

sometimes harder is the unlearning process: the challenge of
transcending the work habits absorbed during a career in the
law. Most top lawyers are essentially solo artists. The most
famous litigators and mergers-and-acquisitions lawyers in
America rarely lead teams of more than a dozen or so people.
They are paid primarily for their advice -- not for their ability
to motivate others. They rarely face the type of quarterly and
annual production targets that define the life of a corporate
executive. "I had an adaptation process," recalls Pitney
Bowes's Critelli. "I appeared to some of [the company's
managers] to be very disorganized when I took over."

Risk aversion can be another problem. People who go to law

school rather than B-school tend to be more cautious. After all,
they're choosing a career that holds out the prospect of a
guaranteed good income -- rather than a small chance of a
spectacular one. What's more, the main goal of business
lawyers is not to maximize profits but to minimize danger.
"Good CEOs have to be able to make tough, bold decisions in
the face of uncertainty -- and that's hard for lawyers," says
James C. Gaither, a former corporate attorney who is a
managing director at the Silicon Valley venture capital firm
Sutter Hill Ventures. "Lawyers want to keep working until
they find the perfect answer."

But a legal background does have some compensating virtues.

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The most important one, these days, is that it trains people to
think about hot-button issues such as corporate governance
and the social responsibilities of big companies. As a CEO,
"your constituents today are stockholders, employees,
customers, and the public generally," says ex-Bethlehem CEO
Barnette. "Dealing with the press, dealing with Congressional
committees...all of these external affairs issues are things the
law prepares you for."

And of course, when a corporation finds itself in boiling water,

then there's nothing like a lawyer to turn down the regulatory
heat. In these days of corporate scandal, the arrival of Citi's
Prince and Marsh's Cherkasky could herald a new species of
lawyer-CEO: the credibility builder. Both men have been
charged with creating new cultures inside their companies --
which involves erecting Chinese Walls, revamping ethical
codes, and generally upgrading internal policing. This all plays
to the core competence of business attorneys. "Lawyers are
very structure-oriented, and that's what governance is all
about -- changing behavior by changing corporate structure,"
says Charles M. Elson, director of the John L. Weinberg
Center for Corporate Governance at the University of
Delaware.

The number of lawyer-CEOs is only likely to grow, so long as

New York AG Spitzer and his ilk continue cracking down on
Corporate America. But scandals will ultimately take the legal
profession only so far. While lawyers can make fine CEOs,
they also come with plenty of baggage. Bottom line: Don't look
for the JD degree to replace the MBA as the credential of
choice anytime soon.