Saturday, August 25, 2007

Running an Empire? No Sweat

By JOE NOCERA
Talking Business
The New York Times
August 25, 2007

Richard D. Parsons sat down at a quiet table by a window at Porter House New York, the fine year-old steakhouse on the fourth floor of the Time Warner Building, and looked at his watch. It was 7 p.m. “I’m going to have to leave at 8:30,” he said. “I’ve got another meeting.” He shot me a small, pained shrug. “It’s the middle of August, and I’m still busting my chops.”

We had come to this restaurant, to be blunt about it, to drink Mr. Parsons’s wine. In addition to his day job as chief executive of Time Warner, Mr. Parsons owns a small vineyard in Italy called Il Palazzone, which makes a high- quality Brunello di Montalcino. He acquired his taste for wine, he told me, back when he worked for Nelson Rockefeller.

Porter House’s sommelier, Beth von Benz — clearly no dummy — had the wit to get some of the Il Palazzone Brunello on her wine list. Mr. Parsons has since become a semi-regular and usually orders the Brunello di Montalcino Riserva for his guests, at $185 a bottle. “Our motto is, ‘We drink all we can, and we sell the rest,’ ” he chuckled.

A line like that — funny and low-key and mildly self-mocking — is classic Dick Parsons. True, the winery doesn’t make any money, but the wine is very good. A spokesman for Domaine Select, the importer, said that Mr. Parsons has been “heavily involved with the winery,” an assessment the man himself did not dispute. It’s just that, well, Dick Parsons would prefer that you never see him busting his chops. All his professional life, he’s wanted to be seen as someone who never seems to break a sweat.

Of course, there are plenty of people on Wall Street who believe that Mr. Parsons doesn’t break a sweat — and that’s been the biggest problem in the five years he has been running Time Warner. Why hasn’t he followed the example of his fellow media mogul Rupert Murdoch, scooping up hot Internet companies like MySpace, and buying coveted brands like Dow Jones? Why hasn’t he spun off Time Warner Cable? Why can’t he figure out what to do about AOL? And why, oh, why can’t he get the stock price to rise?

“At the beginning of 2005,” said Richard Greenfield, a media analyst with the independent firm Peri Research, “the stock was at 19. Right now, it’s around 18. When do they start taking shareholder value seriously? They have had long enough to make this thing work.”

There is another view about Mr. Parsons’s tenure as Time Warner’s chief executive, though. According to this view, which is held almost universally within Time Warner, when he first took over the company, he performed nothing short of a miracle, rescuing it from the single worst deal in modern business history, the AOL-Time Warner merger.

In 2002, when he became chief executive, Time Warner stock had dropped so precipitously that the company was in danger of violating its debt covenants. AOL and Time Warner executives were at war. The company was being investigated by the Securities and Exchange Commission and the Justice Department. “It was a mess,” said Don Logan, who was one of Mr. Parsons’s top lieutenants until he retired at the end of 2005. “It needed a calming influence to get it stabilized so that people could get back to running their businesses.” Mr. Parsons is a listener, a persuader, a diplomat — and those qualities made all the difference. To the chagrin of his critics, though, that’s still what he is.



It’s a little odd to be in the spot Mr. Parsons is in right now. Not yet 60 years old, he’s getting ready to retire, and everyone knows it. He doesn’t deny it, either. “When you find the right person to take over,” he said, referring to Jeffrey L. Bewkes, his No. 2, “and that person is ready to rock ‘n’ roll, you’ve got to get out of the way.” He added, “I want my legacy to be simple: I left the place in good shape and in good hands.”

I can see his Wall Street critics rolling their eyes. Where is the expansionist drive that fuels competitors like Rupert Murdoch? Where is the fire in the belly? “News Corp. is Rupert’s life’s work,” Mr. Parsons replied calmly. “He inherited a fairly small newspaper operation in Adelaide 50 years ago and has been relentlessly building it into a global media goliath. I think of myself as a professional manager. I am not trying to build a dynasty or create a monument. I know this comment will upset some people, but this is my job. It’s not my life. I don’t define myself by this.”

Sitting across the table from me was his press aide, Edward I. Adler, who didn’t look very happy as Mr. Parsons spoke. He had clearly briefed Mr. Parsons on the talking points he wanted the boss to get across — a list of all the things he had done during his time at the helm: the divisions he had sold ahead of the crowd, like Warner Music; the way he had deftly handled the long-running government investigations (“Now that took some diplomacy,” Mr. Parsons acknowledged); the way he had eased out Stephen M. Case, while ending the culture wars raging within Time Warner. It was a long list, and Mr. Parsons duly recited it, though not, I thought, with any particular passion.

Still, he had to acknowledge that the stock price has been “a huge source of frustration,” and that he hoped it would not be the only prism through which he would be judged. Given the world we live in, however, it seems likely that that rap that he didn’t do enough to “enhance shareholder value” will stick to him. This will be especially true if Mr. Bewkes — more of a money guy by background and inclination than Mr. Parsons — moves to shake up the company and its stock price. In which case, it will probably be right to say that Mr. Parsons was the right man for the first part of his tenure, but maybe not for the latter part. That’s not going to bother Dick Parsons, though. Nothing really bothers him. Or, to put it more precisely, nothing ever rattles him.

Never was this more obvious than a few years ago when the feared investor Carl C. Icahn ran a very public proxy fight, trying to put pressure on Mr. Parsons to break up the company. One thing Mr. Icahn does exceedingly well is get under management’s skin, but that never happened with Mr. Parsons. “I came home one day,” he said with a laugh, “and my wife said, ‘Who’s the guy calling you a moron? That’s my job.’ ”

No matter how many times Mr. Icahn described him as incompetent, Mr. Parsons never took it personally. Instead, he did two things. He ran what amounted to a political campaign, pressing his case with the 600 or 700 institutional investors whose votes most mattered. Secondly, though, instead of giving Mr. Icahn the back of his hand, he embraced him.

“Carl is not stupid and he is not crazy,” Mr. Parsons told me, after he had ordered a second bottle. (Don’t worry: The Times paid.) “And I agreed with him that the company was undervalued. I just didn’t agree with his prescriptions.” So he began to wine and dine Mr. Icahn, hearing him out, and diplomatically devising a solution that allowed his adversary to save face: Mr. Parsons agreed to a huge stock buyback. All the talk of breaking up the company went away.

“I don’t believe it ever serves anyone well to try to crush the other guy or leave him in a position of being humiliated,” Mr. Parsons said. As the well-known mutual fund manager and media investor Mario J. Gabelli put it, “He handled Carl Icahn by saying, ‘Let’s have lunch.’ ”

When I called Mr. Icahn, he denied ever calling Mr. Parsons names. “He lived up to everything,” Mr. Icahn said. “He did the buyback. The stock went up and our fund made a large profit. People thought we gave in, but he agreed to do a lot of things that helped shareholders. I saw it as a victory.” He continues to have occasional dinners with Mr. Parsons and Mr. Bewkes. “I like the guy,” he said.

Mr. Greenfield, the analyst, however, believes that if some new activist hedge fund manager made the same breakup proposal today, it would get a far better reception, because the Street’s patience has largely run out. In the last quarter, for instance, when Time Warner reported that AOL’s advertising growth had suddenly slowed, the stock took a big tumble, reverting back to around $18. (It closed yesterday at $19.01.) The truth is, though, that Mr. Parsons is in his victory lap, and the Street’s frustration notwithstanding, there is a real sense among Time Warner executives and even board members that Mr. Parsons’s work in those first critical years as chief executive has earned him some slack.

It was around 8:45 when Mr. Parsons got up to leave our dinner. Though already late, he seemed a little reluctant to leave. “We haven’t talked enough about wine,” he said. “Do you know what I like about that?” he asked, pointing to the empty Brunello bottle on the table. “Some time ago, those were grapes. We picked them, we fermented them, we bottled them. There is something to show for your effort. We have a product.”

Rumors abound about what Mr. Parsons will do when he leaves Time Warner, the loudest being that he will run for mayor of New York, something he staunchly denies. But I can guarantee he’ll be spending more time at his winery — and doing all the other things he enjoys doing. He’ll live well.

When I was talking to Mr. Icahn the next day, I asked if he had ever drunk any of Mr. Parsons’s wine. Carl Icahn is more than a decade older than Dick Parsons, but he is never going to retire: he remains as maniacally focused on doing deals and making money as ever. Unlike Mr. Parsons, his work really is what he lives for.

“I don’t know,” Mr. Icahn replied. “I guess so. He chooses the wine.” He paused a minute. “Wine really isn’t my thing,” he said.

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