First-time CEOs at eBay, T. Rowe Price, Blue Nile, and Molson were tested on the most treacherous business battlefield in decades

Blue Nile’s Irvine, eBay’s Donahoe, Molson Coors’ Swinburn, and T. Rowe Price’s Kennedy all lived to tell the tale (L to R) Brian Smale; Eric Millette; Jamie Kripke; Stephen Voss

By
Douglas MacMillan

Timing, as comics say, is everything. So what do you do when it’s your first time on stage, and you’re getting killed up there, with the audience booing and heckling and calling for the hook? Ask John Donahoe, who became the CEO of eBay (EBAY) in March 2008. Not only did Donahoe take the reins of the online retailer from one of the star CEOs of the dot-com era—the current California gubernatorial hopeful Meg Whitman—he did so at a time when the U.S. economy was imploding and eBay’s business model was under assault. Suddenly, the new guy was getting pounded from all sides. One employee wrote an online post arguing that “Donahoe has made eBay a miserable debacle and it’s getting worse every day.” The owner of a company that sells on the auction site called his strategy a “concentrated effort to destroy the eBay marketplace.” Jim Cramer weighed in on his Mad Money television show with this vote of confidence: “EBay has lost touch with reality…the company is hapless,” he said in September 2008. “They ought to sell themselves to someone.” You might call it CEO hell, but Donahoe didn’t kid himself. “It’s going to get worse before it gets better,” he kept saying.

While the Great Recession was tough on just about everyone, rookie CEOs were faced with what will likely be the biggest crisis of their careers. Employees, investors, and board members looked to them for guidance, but their task was complicated by swooning stock prices and, often, mass layoffs. “It’s easy to look like a great leader when everything is going well,” says executive coach Marshall Goldsmith. “The real great leader shows up in hard times.”

Not all the newly minted chief executives made it through the flames. Frederick A. “Fritz” Henderson stepped down in December after eight months in the top job at General Motors (GM) as the automaker continued to struggle. Owen Van Natta lost his CEO spot at the social networking site MySpace on Feb. 10, after nine months. A record-high 1,482 chief executives resigned, retired, or stepped down from public and private U.S. companies in 2008, according to Challenger, Gray & Christmas, which helps laid-off executives find work. An additional 1,227 left their jobs in 2009.

The latest recession was particularly treacherous because it was so broad, hitting Wall Street, Detroit, the housing industry, and other pillars of the economy. Yet the challenges in particular sectors may have been more severe in the past—say, in the tech industry after the dot-com bust or in manufacturing during the oil crisis of the 1970s. Robert Crandall got his first chief executive job at American Airlines (AMR) just in time for the tumult of airline deregulation and oil price swings in the 1980s. “Desperation is the mother of invention,” says Crandall, who is now retired. To compete with new low-cost rivals, he came up with the first national frequent-flier program and a two-tiered labor system. “Sure, it seemed challenging,” he says. “But on the other hand, [becoming CEO] was the thing that I had been trying to achieve for many years.”

Rookie chiefs from downturns past say starting the job in crisis forever affects how you lead. Ron Sargent was named to the top job at office-supplies retailer Staples (SPLS) the week before the September 11 attacks and in the midst of recession. “The thing that changed in me was the willingness to make tough decisions quickly,” he says. After the terrorist attacks, Sargent had to choose between cutting payroll or trimming product lines to save money. He speedily worked out a back-to-basics strategy that eliminated consumer-oriented products like Britney Spears backpacks. It hurt margins in the short term, but it saved jobs and helped keep customer service strong.