This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Behind AMR, a Chairman Who Flies in All Directions April 28, 2003 By MICHELINE MAYNARD AMR Corporation, parent of American Airlines, reached deep into the corporate playbook by naming Edward A. Brennan chairman after the resignation of Donald J. Carty as chairman and chief executive. The appointment is being viewed within the industry as providing a seasoned executive to shore up the relative inexperience of Gerard J. Arpey, the new chief executive. Although Mr. Arpey has spent 20 years at American, and is a second-generation airline executive whose father held positions at T.W.A. and Continental, he has only been president of American for the last year. General Motors made a similar move more than a decade ago when it appointed John Smale, a seasoned executive, to oversee its new president, John F. Smith Jr. The appointment will mean other changes to the busy schedule of Mr. Brennan, 69, the former chief executive of Sears, Roebuck. He currently sits on five boards in addition to AMR, where he has been a director for the last 16 years. Although he is no longer a director at Sears, Mr. Brennan is a member of the boards of Allstate, the insurance company spun off to Sears shareholders; McDonald's; Exelon; 3M; and Morgan Stanley. Mr. Brennan signaled this weekend that he would resign from some of the boards he sits on to concentrate on American. "He recognizes that he can't do everything," said Gus Whitcomb, a spokesman for the airline, adding that Mr. Brennan had not determined which board seats or how many seats he would give up. Mr. Whitcomb said the speed with which Mr. Carty departed and the appointments meant the airline was still sorting a number of corporate governance issues. "It came about quickly," he said. Mr. Brennan and Mr. Arpey were named to their jobs Thursday, in the midst of union outrage over retention bonuses and $41 million in funding to a pension plan for seven senior executives, including Mr. Carty and Mr. Arpey. American's unions had agreed to wage and benefit concessions the airline maintained were critical for it to avoid filing for bankruptcy protection. American has since canceled the bonuses but the pension funding remains in place. Mr. Brennan sits on the board's compensation committee, which approved the plan. While Mr. Brennan's new role has not yet been defined, some retail industry analysts wondered whether his track record as Sears chief executive would help or hurt Mr. Arpey. While at Sears, Mr. Brennan drew shareholder ire for the struggling fortunes of its retailing operations, at a time when its nonretailing subsidiaries - Allstate, Dean Witter and the real estate company Coldwell Banker - were enjoying success. Mr. Brennan bowed to the criticism by spinning off Dean Witter and Allstate, selling Coldwell Banker, and bringing in Arthur C. Martinez, a former Saks Fifth Avenue executive, who succeeded Mr. Brennan in 1995 and who is credited with completing the turnaround of Sears. Burt Flickinger III, managing director of the Strategic Resource Group, a retailing industry consulting firm, doubted Mr. Brennan would be a great help to American. "All the things that saved Sears did not happen on Ed Brennan's watch," he said. "You've got a guy who's been a good soldier on a lot of good boards, but the consummate Ronald Reagan-type that everybody likes. He's not the Gen. George S. Patton Jr.-type, able to dig a great corporation out of the ditch and get it back on the runway and flying again." But Michael Useem, professor of finance at the Wharton School of Business at the University of Pennsylvania, said Mr. Brennan's experience at Sears, and his presence on boards like 3M, which has been through its own turnaround efforts, and McDonald's, which is trying to regenerate itself, ultimately could help the airline. Mr. Brennan could provide Mr. Arpey with management tips to which he might otherwise not have access, given his age, 44, and lack of experience. "It's better than any management book you could read,'` Professor Useem said. American's naming of Mr. Brennan mirrors what happened at General Motors in 1992. A group of outside board members, upset with G.M.'s billion-dollar losses and shrinking market share, voted to oust G.M.'s chairman and chief executive, Robert C. Stempel. The board named John F. Smith Jr. as president and chief executive, and John Smale, the retired chief executive of Procter & Gamble, as its chairman. That move, considered a ground-breaking event in corporate governance, was the first time since the 1950's that the G.M. chief executive did not hold the chairman's job. Mr. Smith, a decade older than Mr. Arpey is now, had only been G.M.'s president for six months when he was promoted. While Mr. Smale played a low but active role in company affairs, he was in contact with Mr. Smith on an almost daily basis by telephone or fax, and his influence was most greatly felt in the marketing operations of G.M. The G.M. directors were advised in their efforts by Ira M. Millstein, a senior partner at Weil, Gotshal & Manges, who has since become an authority on governance issues, arguing strenuously in favor of independent boards. The law firm also advises American, leading to speculation Mr. Millstein might have played a role there, too. He declined comment Friday, citing the firm's relationship with the airline. Mr. Brennan's board seats present another issue the airline must tackle, corporate governance experts said. Of his directorships, his seat on the board of Morgan Stanley presents the greatest potential for conflict, they said. Morgan Stanley serves as a financial adviser to AMR, and its chief executive, Philip J. Purcell, sits on the AMR board. Morgan Stanley could not be reached for comment. Moreover, Mr. Purcell was hired by Mr. Brennan to run Dean Witter, the brokerage firm that Sears purchased in 1981, and which Morgan Stanley subsequently acquired. Dean Witter used holders of the Sears credit card as its basis for subscribers when it introduced the Discover card. Professor Useem said the issue was less critical before Mr. Brennan was named American's chairman. But, he said, "In this era of squeaky clean governance where everybody has to strip down to their underwear, to have Ed Brennan on Morgan Stanley's board and Phil Purcell on AMR's board would appear to the naked eye that the relationship is not one of arm's length and sufficient independence." Likewise, Mr. Brennan's elevation should automatically cause him to review his board seats, said Carol Bowie, director of corporate governance research at the Investor Responsibility Research Center in Washington. "In best practices in governance, somewhere between five and seven should be the maximum number of board seats held by a retired person who doesn't have a regular day job. If someone has a day job, certainly a maximum of three," Ms. Bowie said. She added that Mr. Brennan is well regarded as a director. "Depending on how extensive his duties might be, it may well be expected that he would pull back from his other board duties," she added. Mr. Whitcomb at American said the airline did not know how actively Mr. Brennan would participate in company affairs. He also said American had not yet given new committee assignments to directors. "Those issues have still not been decided," Mr. Whitcomb said. Mr. Whitcomb also said the airline's board had not decided on a severance package for Mr. Carty, 58, a veteran of more than 20 years at American. He earned $811,000 in 2002, and based on calculations that credit him for 31 years of service, is theoretically eligible for a pension of $1 million a year. American is not required to disclose the package until it releases its proxy statement for 2003 next year. But analysts said the airline might make it public as soon as it is determined so that the issue is behind it quickly. http://www.nytimes.com/2003/04/28/business/28BOAR.html?ex=1052539895&ei=1&en=0d5505ad3244c5c3 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company