Management consultants fill CEO posts at i-shops

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At a time when their stock prices are sagging and their earnings are flat, i-shops are filling their CEO slots with former management consultants.

At least that's the trend that has taken hold as some Internet professional-services firms have made recent CEO hires. And it follows a strategy traditional ad agencies have also employed over the years, with questionable results. But as the line that separates interactive agencies from so-called e-consultants continues to blur, hiring consultants into these roles isn't that surprising, some say.

Modem Media, Norwalk, Conn., last week became the latest to go the consultant route when it named Marc Particelli CEO and a member of its board. Mr. Particelli was most recently a partner and managing director with venture-capital firm Oak Hill Capital Partners, and before that was at management consultant Booz Allen. He replaces co-founder G.M. O'Connell, who will remain chairman. Robert Allen will continue as president-chief operating officer at Modem, which is partly owned by True North Communications.

On Jan. 11, iXL Enterprises, Atlanta, named Christopher Formant its president-CEO, effective Feb. 1. Bertram Ellis Jr., iXL founder and current CEO, will remain chairman.

And last week Mark Kingdon began as CEO of Organic (partly owned by Omnicom Group), supplanting Organic co-founder Jonathan Nelson, who will remain chairman. Mr. Kingdon, who earlier had been with the consulting division of PricewaterhouseCoopers, most recently was with ailing Internet incubator idealab, which also this month announced layoffs.

Modem Media, iXL and Organic all are struggling with stock prices down more than 90% from their 52-week highs. IXL late last year announced it would cut 35% of its workforce and close seven of its offices. Organic also took a hit when in mid December it said it would miss fourth-quarter revenue estimates and would have to lay off 270 staffers or 25% of its workforce.

But all the companies' stocks have rebounded slightly since making the management consultant hires, which could signal Wall Street's approval.

Marissa Gluck, senior analyst at Jupiter Research, thinks the trend of hiring management consultants as CEOs will continue. Especially prone are public companies under pressure from shareholders because of disappointing earnings. Often, as in the case of iXL, Modem and Organic, it's the company's founder who moves aside to make way for a consultant.

"The idea of hiring a CEO with a consulting background isn't new," Ms. Gluck said. Ad agencies in the '80s and '90s often feared consultancies would take their place as lead guide for marketers. Hirings haven't always worked out, she observes, pointing to the time Ammirati Puris Lintas hired Rick Hadala in 1998 as North American chairman-CEO. The former McKinsey & Co. consultant lasted six months on the job. He left amid complaints that he pushed the management-consultant emphasis too far (AA, April 12, 1999).

"The Internet has become a very bottom-line business. I don't think you'll see many creative minds running these companies much longer," Ms. Gluck added.

But some observers posit that even as i-shops look to consultants to improve their companies, the idea of what constitutes the right kind of service company experience is itself blurring.

According to Patti Keeney-Maischoss, managing partner at executive-search firm Lucas Group, "Ten years ago ad agencies and consultancies couldn't be further apart. I think the worlds are coming together."

Copyright January 2001, Crain Communications Inc.

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