Ever wonder how the boss got his job?
In the old days, chief executives picked their successors, usually from inside the company. Now the board of directors is increasingly making the selection, and often going outside the company. But some choices are proving to be disappointing, or at least questionable, to judge by the stock market's reaction. Many people are wondering if boards are up to the task.
Exhibit A, at the moment, is Michael H. Jordan, the chairman of the Westinghouse Electric Corporation. A former McKinsey consultant and Pepsico executive who was chosen by the board in June 1993, Mr. Jordan has disappointed shareholders hoping for a bold makeover of the ailing Pittsburgh conglomerate he now heads. Even as the Standard & Poor's 500-stock index has climbed more than 25 percent since Mr. Jordan was named, Westinghouse's stock price -- $13.875 yesterday -- has fallen 15 percent since then.
Other newly minted chief executives, too, have dismayed shareholders, who have bid down the stock prices -- the broadest indication of opinion -- of companies like Salomon Inc. By contrast, the market has reacted well to the choice of chief executives at Eli Lilly, I.B.M. and Eastman Kodak.
In theory, boards have always been responsible for hiring, monitoring and firing chief executives. In reality, they rarely fired them, hardly monitored them and usually left the job of naming a chief executive to his predecessor.
But that is changing fast, said Thomas J. Neff, a top recruiter of chief executives. "When the C.E.O. is still there, five years ago the C.E.O. was the client in 80 percent to 90 percent of cases," he said. "Now the board's search committee is the primary client in 80 percent to 90 percent of cases."
Mr. Neff, who is president of Spencer Stuart, credits the change to "the growing independence of boards from C.E.O.'s and the acceptance by boards that they have this responsibility which is not to be delegated."
The shift should ultimately lead to better choices, analysts said. Directors, who bring greater independence to the task, are less likely to be influenced by corporate politics and seniority considerations. And, unlike some chief executives, they are not tempted to avoid someone who will outshine them.
But seeing the benefits could take time. For a start, many directors -- busy people who try to minimize the time they devote to board matters -- may still be tempted to take the easiest way out, and the choices can be surprising. For example, the Halliburton Corporation, the energy services and construction company based in Dallas, last month halted months of searching for a chief executive by Mr. Neff just as it was homing in on a choice. Instead, at the urging of the current chief executive, Thomas H. Cruikshank, it gave the corner office to Richard Cheney, the former Defense Secretary, who has spent his career in government and is untested in the business world.
Mr. Cheney takes over next month and may succeed. Mr. Neff called him "an unusual talent with international connections and a reputation for management skills." But that does not change the fact that the board appears to have been seduced by celebrity. Shareholders do not seem to know how to react; Halliburton's stock has been relatively flat.
Halliburton's board is not atypical. Given the chance to hire someone with a high profile, boards often jump "rather than ask, 'What did he actually do and what do we need for this job?' " said E. Pendleton James, a former White House personnel director who now specializes in recruiting chief executives.
At Salomon, Warren E. Buffett made a couple of snap judgments when he stepped up from director to chairman of the board in 1992. With Salomon reeling from a Government securities scandal, he persuaded the board to pick Robert E. Denham, a lawyer and friend who lacked Wall Street experience, as chief executive, and Deryck C. Maughan, an insider he had just met, to head its brokerage house. Salomon is still struggling -- the stock is down -- and many insiders and shareholders want new management.
Mr. Buffett has said that he chose Mr. Maughan after a 10-minute interview with him and each of the other candidates, probably a record. The board of a large industrial company recently hired a candidate it had interviewed for a mere 40 minutes, according to one executive recruiter.
"If a corporation is going to buy a company, the board hires investment bankers and they check it out from A to Z," Mr. James said. "But that does not happen on executive searches."
While directors need not start doing background checks on contenders, recruiters said, they do need to define the job carefully and determine the skills a candidate must have to take the company where the board wants it to go.
But that presents another problem. Many directors are not familiar enough with the companies they oversee to do the job.
"The old way was that the board said, 'We hire the best guy and he decides the strategy,' " said John Pound, a lecturer in corporate governance at the Harvard Law School. Now, "the board has to take charge of setting the broad goals of the corporation," especially if a company is in trouble or at a crossroads, he said.
Directors of the Bankers Trust New York Corporation, for example, are pondering what kind of person should succeed Charles S. Sanford Jr., who said in May that he would retire next year. Before hiring, they must decide whether Bankers Trust will continue to focus on deals and trading or expand into traditional commercial banking, which depends on building relationships with companies.
The General Motors Corporation's directors initially failed at the task. In 1990, under shareholder pressure, the board went through the motions of evaluating several potential successors to Roger B. Smith before naming Mr. Smith's choice, Robert C. Stempel. By failing to recognize that G.M. needed radical change, the board had misdefined what it needed in a chief executive. Two years later, as G.M. kept sliding, the directors admitted their mistake. They dismissed Mr. Stempel for "staying the course" and promoted John F. Smith Jr. to the post. G.M.'s stock is faring better.
Critics contend that similar circumstances prevailed at Westinghouse: directors simply did not accept that the company needed shock therapy, and therefore did not choose someone with the willingness or personality to carry out radical change.
Westinghouse directors were clearly on the hot seat late in 1992. They had watched the company deteriorate for years before shareholder pressure led them to seek the resignation of Paul E. Lego as chief executive. Led by Rene C. McPherson, a longtime director and the retired chairman of the Dana Corporation, the board's search committee hired Gerard S. Roche, chairman of Heidrick & Struggles, to find a replacement in January 1993.
Together, Mr. Roche and members of the committee determined that an ideal candidate would have international experience, know how to run a technology company, and be young enough to spend at least seven years on the job. He would be an excellent strategist, understand finance and be customer-oriented.
Directors also decided to hire an outsider, although six inside candidates were interviewed. The committee chose four contenders from a list provided by Mr. Roche's team. Each was interviewed more than once by at least two committee members. At least two contenders dropped out.
Around the end of April 1993, Mr. Jordan was contacted. With international and financial experience, plus an engineering degree, he not only met the criteria but also could boast of work at McKinsey & Company, the prestigious consulting firm. That year, chief executives chosen by I.B.M., American Express and Dean Witter, Discover all shared a McKinsey background.
"Most of us wanted Michael, because he's a super-strategist, a planner, deliberate and thorough," one committee member, who asked not to be identified, said. "He didn't offer plans of what he'd do, and we didn't expect it." This director acknowledged that the McKinsey experience was for him a crucial factor in Mr. Jordan's selection.
On June 30, 1993, Westinghouse announced its new chief executive. "I was very satisfied with the process," said Paula Stern, a board member. "I think the choice was absolutely superb."
But two years later, there has been little change in Westinghouse's businesses -- no sales of assets, no big restructurings -- and many disagree with Ms. Stern. Eyeing the slowness with which Mr. Jordan has moved, they are asking what went wrong. Mr. Jordan's pending deal to buy CBS has not cheered them much.
"Michael Jordan believes his job is to sustain Westinghouse as much as possible as the grand old company that it was," said Robert A. G. Monks, a large shareholder known for pressuring companies to improve their performance. "The board hired him because it saw him as a preserver. They did not ask how he was going to maximize value for shareholders."
Directors did pass over more dynamic contenders. At least one candidate that was likely to have attempted a sweeping makeover was eliminated early, according to people involved.
Some critics also think that directors were bowled over by the McKinsey mystique and too infatuated with Mr. Jordan's overseas experience. Instead, they should have selected someone with more industrial experience, the critics say.
Others said Mr. Jordan lacked enthusiasm for his huge task. One former Westinghouse executive said that Mr. McPherson had to persuade Mr. Jordan to take the job. "He's a wealthy man," he said. And Mr. Roche, who defended the choice, conceded that "Jordan is a Renaissance guy, a multi-interest guy." He added, "His personal self-esteem is not tied to Westinghouse's success."
Even a fan of Mr. Jordan, Jeffrey A. Sonnenfeld, director of the Center for Leadership and Career Studies at Emory University, thinks Mr. Jordan should take one easy step to speed Westinghouse's recovery. "He needs to complement his style," he said. "He needs to hire someone with catalyzing charisma and he hasn't."
Given more time, Mr. Jordan could pull off a turnaround at Westinghouse. But a more aggressive chief executive would have done it sooner, according to critics like Mr. Monks.
Of course, "picking a C.E.O. is a risky business, no matter who does it," said Joseph A. Grundfest, a professor at Stanford Law School. And Mr. Roche, for one, sees a healthy sign: boards are now hiring recruiters even when they have strong contenders inside the company, just to make sure that there is no one outside who is even better.
Photo: Corporate boards are coming under fire for their chief executive selections. Michael H. Jordan, at his office in Pittsburgh, has disappointed shareholders since the board of Westinghouse Electric named him chief executive. (Steve Mellon for The New York Times) Graph shows weekly closing prices for Westinghouse Electric from '93 to '95.