Can CEO solve big problems at O-I?

Joseph Lemieux: Retired as CEO on Dec. 31.

DUTTON / BLADE

Steve McCracken: New CEO of Owens-Illinois.

An Owens-Illinois Inc. board member who helped choose the Toledo firm's first outside chief executive officer tried last week to allay fears that the new CEO might shake up O-I management or try to introduce a new corporate "culture."

Two other key O-I directors said Steven McCracken, 50, a textiles executive with E.I. DuPont de Nemours & Co., is the ideal man to improve the $6.2 billion global glass giant. Those board members are partners in Kohlberg Kravis Roberts & Co., owner of a fourth of O-I's stock.

But a big question, in the minds of investors and analysts, remains: Can Mr. McCracken solve O-I's big problems, including asbestos liabilities that have taken $2 billion from the firm's earnings in the last decade, and its burgeoning debt, which stood at $5.4 billion at the end of last year?

In the near term, O-I's debt could increase to nearly $7 billion when the company finishes its acquisition of BSN Glasspack, a large European glass-container maker.

Other questions inside O-I's One SeaGate headquarters in downtown Toledo and in the community at large can be answered only in time.

Will the strategy of passing over longtime O-I executives and going outside for leadership pay off? Can a man with no glass experience run effectively one of the world's biggest glassmakers?

And some former O-I executives have questioned why Joseph Lemieux, who retired as CEO Dec. 31, didn't groom a successor as leader of the 100-year-old firm before he stepped down.

Should O-I's managers look for a shakeup?

Joseph Lemieux: Retired as CEO on Dec. 31.

"Absolutely not," said John McMackin, a Washington attorney and a member of the board's search committee that started its task about six months ago. "O-I is probably the best-managed company in the packaging industry. They've got wonderful mid-level and senior management."

Mr. McMackin, son of a former vice chairman of O-I, said the search committee saw Mr. McCracken as a person "who can build on strengths and make O-I a better place."

As for corporate culture, he insisted the board likes O-I's Midwest work ethic and values, the same values brought by the new CEO, an Indiana native.

"We want to keep that, but we hope to get renewed energy and enthusiasm," Mr. McMackin said.

Two of the four search committee members, Michael Michelson and James Greene, Jr., are among the four KKR partners on O-I's 10-person board. KKR bought O-I in early 1987, but O-I again sold stock to the public in 1991. In a statement to The Blade, the two board members said, "We can assure you that we support Steve McCracken and, along with the rest of the board, believe that he has the ideal experience to ensure Owens-Illinois is positioned for solid growth over the long term."

Mr. McMackin stoutly denied that going outside for a leader was done out of desperation or that the Fortune 500 company was in need of a savior. The firm's debt and asbestos problems are both very manageable, he said.

Wall Street analysts last week generally were upbeat about the choice, and the fact the company hired an outsider, largely because of the desire to get "a fresh perspective" on O-I's business. Analysts agreed, however, he faces a raft of problems.

Jack Paquette, a retired O-I vice president, said, "Most senior people anticipated an outside leader would be chosen. In my day, that would have sent tremors throughout the company, but nowadays, not so much."

The glass and plastic container maker has had a long succession of homegrown leaders, ever since the 1929 merger of Toledo's Owens Bottle Co. and the Illinois Glass Co., of Alton, Ill. The merged firm's longtime leader, William Levis, was in a sense an "outsider" himself, as he came from the Illinois side of the business.

Mr. Levis established O-I as an industrial giant. It was selected in 1959 to be one of the prestigious 30 companies that make up the Dow Jones industrial average. It was removed in 1987 upon the KKR buyout.

For many years, O-I was Toledo's largest company and employed thousands. Some of its CEOs were also civic leaders, notably the late Edwin Dodd, who got much of the credit for revitalizing downtown Toledo.

One knock on Mr. Lemiuex, the O-I chief for 13 years before he retired last year, was that he did not groom a replacement. Corporate consultants maintain that is a key role of a longtime CEO.

Instead, the company named interim co-CEOs in Thomas Young and Terry Wilkison, senior level executives.

One former O-I executive, who spoke only on condition of anonymity, said Mr. Lemiuex, 72, hung on too long. Company managers, the former executive said, thought the leader was trying to position his son for the job. Mr. Lemieux's son, Gerald, once ran O-I's largest division and is now vice president of corporate strategy.

The company is ready for change and has serious financial problems, but is not in dire straits, the former executive said.

Mr. McMackin, the O-I board member, said he hopes the interim co-CEOs will stay. Mr. Wilkison, an executive vice president, had wanted to retire a couple of years ago but Mr. Lemieux talked him into delaying retirement. Mr. Young is O-I's general counsel.

Mr. McCracken, a 29-year DuPont employee, is to become president and CEO Thursday, the first outsider to run the company in 75 years. In May, he will succeed Mr. Lemieux as chairman, focusing the firm's power in one man's hands.

The board considered splitting the roles of chairman and CEO, as a number of firms have done, Mr. McMackin said, but decided against it.

By giving him all that power, the O-I board was making a strong statement that "this is our man," said Jane Wheeler, assistant professor of management at Bowling Green State University. She called the change at the top exciting.

O-I may have gone outside for a CEO for the same reason Dana Corp. of Toledo recently did, when it chose a General Motors Corp. executive, said Thomas Gutteridge, business dean at the University of Toledo.

"They wanted to bring perspective from a large, very stable, successful company," Dr. Gutteridge theorized. "Both O-I and Dana clearly want the organization to survive."

Hiring an outsider as CEO does not mean its board is looking for "a messiah," but rather wants an experienced leader with new ideas and a message "that it's not just business as usual," he said.

In taking one of the Toledo area's top jobs, Mr. McCracken likely will be rewarded handsomely. In Mr. Lemieux's first full year as CEO, 1991, he was paid a total of $1.2 million. His package climbed to $3 million by 2002. Last year's figures are not yet available, and the new CEO's compensation likely won't be disclosed until the firm files this year's figures next spring with the U.S. Securities and Exchange Commission.

Contact Homer Brickey at homerbrickey@theblade.com or (419) 724-6129.