Virginia’s new generation of CEOs
It’s a tough environment, but top job still gives leaders a chance to shape their companies

by Jack Milligan
for Virginia Business
August 2006

When Charles W. “Wick” Moorman took over as chairman and CEO at Norfolk Southern Corp., he was surprised by the time demands even though he had spent the previous year as the company’s president and chief operating officer.

“ I could schedule every minute of my working day without any problem at all,” says the 54-year-old Moorman, a native Mississippian who joined Norfolk Southern in 1970 as a student co-op employee. In fact, a close friend advised him early on to take control of his calendar or risk getting swamped. “He told me that the job would eat me up if I let it in terms of the time demand,” says Moorman. “He said, ‘If anyone in the company can define their schedule, you should be that person.’ ”

Unfortunately, for the CEO of a Fortune 500 company, that’s easier said than done. Moormon’s average workday is packed with meetings among senior-level executives and the corporate staff. With the brutal pace and travel demands, he has learned that the top position can be isolating. “On a day-to-day basis you lose the ability to talk to people about anything,” he laments.

Another challenge is the tendency of some people to put the CEO on a pedestal. “You can see how very slowly you could begin to think that you’re smarter than you really are,” he laughs.

Moorman is one of many new CEOs. Since January 2005 a new crop of leaders has emerged at Virginia’s large, public companies. At the state’s Fortune 500 corporations alone, the baton passed at 11 of the 18, ushering in a generation of leaders who will operate in an environment more unforgiving than the one faced by their predecessors.

In fact, CEOs face one of the toughest governance and business climates in nearly two decades, thanks to several high-profile corporate scandals. As with their peers throughout the United States, Virginia’s new business leaders must operate in a post-Enron age of corporate governance, with boards of directors and powerful institutional investors who are less tolerant of underperforming chief executives than they used to be.

In most cases Virginia’s massive changing of the guard vaulted senior company executives to the top post. At Roanoke-based Advance Auto Parts, Michael N. Coppola, 60, moved up from COO to CEO in May 2005. In November, Moorman took over the country’s fourth-largest railroad. Thomas F. Farrell II, 51, became CEO at Richmond-based Dominion Resources Inc. in January, after serving as its president and COO. And in June, CarMax Inc. named Thomas J. Folliard, a 41-year-old executive vice president, as its new CEO.

These four men shared their thoughts about becoming leaders in a series of interviews with Virginia Business. It is significant that they all came of age as corporate leaders during an unprecedented era of economic stability and affluence in the United States. Although this new generation of CEOs is more technologically savvy than the one it replaces, it has not been tested in the refiner’s fire of a deep recession, crippling inflation or national crisis like the 9/11 terrorist attacks.

Because their ascent to power also comes at a time of heightened scrutiny, the group will be under considerable pressure to elevate the financial performance of their respective companies — even while they master the unique psychological and intellectual demands of their new positions. And if they don’t perform satisfactorily, they could find themselves out on the street in fairly short order.

Since 1995, the consulting firm Booz Allen Hamilton in McLean has followed CEO succession trends in industrialized countries throughout the world. According to its most recent survey, 16 percent of all North American companies replaced their CEOs in 2005. This was the highest turnover rate since the big stock market correction in 2000, when nearly 18 percent of the companies either sacked or “retired” their chief executives.

Booz Allen credits the recent spike in CEO departures to stricter governance provisions in the Sarbanes-Oxley Act and the New York Stock Exchange and Nasdaq listing requirements — which have resulted in more independent boards of directors — along with increased pressure from the pension, mutual and hedge funds that own a majority of the equity in large publicly traded U.S. companies.

“ Our hypothesis is that this is the ‘new normal,’ ” wrote the study’s authors in May. “The pressures on companies, and thus on CEOs, will never return to the (already demanding) levels of the 1990s.”

And to be sure, the position of CEO always has been very demanding. Dr. Alexander B. Horniman, who teaches leadership and organizational behavior at the University of Virginia’s Darden School of Business, says CEOs operate on a stage that has a large — and increasingly critical — audience. Some shareholders, for instance, are demanding reform to rein in what they view as excessive multimillion-dollar compensation and bonuses, stock options and deluxe health-care plans.

With all this playing out, it’s no wonder, says Horniman, that some new CEOs can be overwhelmed by the sheer magnitude of managing a giant business enterprise. “You have to be so vigilant and purposeful,” says Horniman. “It’s exhausting.” New executives also can find themselves frozen by the knowledge that their decisions can have an enormous impact on the lives of many. “Everything you do is going to matter to somebody.”

Moreover, Virginia’s new group of leaders face some economic challenges their predecessors probably didn’t have. Although the U.S. economy continues to perform reasonably well, it’s being pressured by interest rates, surging energy costs and a soaring trade deficit. Horniman is especially worried by the country’s sharp rise in corporate and personal debt. “I think over the next few years, our economy will come under considerable pressure,” he says. “The challenges of leading an organization today are greater than they’ve ever been.” So great, that the average tenure of CEOs in North America is now 7.9 years.

At Norfolk Southern, Moorman replaces former chairman and CEO David R. Goode, who ran the company for 13 years. Moorman stepped into the job knowing that, in his words, “the public opinion of CEOs is down there with politicians and just above dog catchers.” But for a man who has spent his entire working life at Norfolk Southern, except for taking off two years to earn his MBA degree at the Harvard Business School, becoming chief executive was an opportunity he couldn’t pass up. Moorman now has a chance to put his imprint on the company. “You can make a difference,” he says.

Moorman brings considerable experience to the job, having spent time in strategic planning, labor relations and track maintenance. During a stint as the company’s head of information technology, he upgraded software that reduced transit times and boosted efficiency. And from 1999 to 2004, Moorman was president of Thoroughbred Technology & Telecommunications Inc., a Norfolk Southern subsidiary that leased its rail beds to phone carriers for the installation of fiber optic cable.

While being CEO gives one a “license to meddle,” Moorman says he wants to be a consensus manager. “The one thing you don’t want to do is take the ball out of people’s hands,” he says. Courteous and self-effacing, Moorman plans to rely on the “collective wisdom” of Norfolk Southern’s senior management team in running the company’s businesses, “rather than think that I as CEO have some special knowledge that other people don’t have.”

Norfolk Southern’s greatest immediate challenge, in Moorman’s opinion, is to fully exploit the competitive advantage that railroads now enjoy over their trucking rivals. A variety of factors, including high fuel costs and the inability of trucking companies to find enough long-haul drivers to meet demand, has given rail an edge. Determined not to let the opportunity slip away, Moorman will focus much of his attention on improving the company’s service to its rail customers. “Railroads are very complex organizations,” he says. “You have to be focusing constantly on execution to make it work right.”

Over at Dominion Resources, Tom Farrell may be one of the few former commercial litigators to end up running a Fortune 500 company. After getting his undergraduate and law degrees from the University of Virginia, Farrell eventually joined the McGuireWoods law firm in Richmond where he successfully defended Charlottesville-based Sperry Marine, a subsidiary of Northrop Grumman Corp., in a lawsuit filed by Exxon Corp. Sperry had built the steering system on the supertanker Exxon Valdez, and Exxon had charged that the system’s malfunction caused the ship to hit a reef in Alaska’s Prince William Sound, resulting in a massive oil spill.

Figuring that the Sperry case might be his peak experience as a litigator — “That’s kind of a hard one to top,” he says — Farrell took a job in 1995 as corporate counsel for Dominion Resources, another McGuireWoods client. He succeeds Thomas Capps as CEO and takes over at a challenging time for Dominion Resources, one of the country’s largest electric utilities and a major supplier of natural gas. Prices for energy are higher and more volatile than they’ve been for quite some time. The price of a barrel of oil has shot up from the low $20s to as much as $75, while the price of Central Appalachian coal has risen by some $30 per ton, with prices last month at about $50.

Dominion makes extensive use of coal to produce electricity for 15 million customers in 22 states including Virginia. “That’s pretty dramatic,” says Farrell of the sudden jump in fuel costs. “Managing that is something we spend a lot of time doing.” A state-imposed fuel rate freeze in effect through mid-2007 has prevented Dominion from passing those costs on to its customers. However, the fuel rate will be reset next year to reflect the higher costs.

If Farrell remains CEO at Dominion for an extended period, one of his biggest decisions will be whether to build a new nuclear generating unit. The combined forces of global warming and rising fuel costs have improved the prospects of nuclear power significantly. Dominion currently operates seven nuclear generating units at four power plants around the country, including two at its North Anna Power Station in Louisa County.

Although the Nuclear Regulatory Commission recently amended its rules for licensing new nuclear plants, the process is still too uncertain and the construction costs too high for Farrell’s liking. “To build a new plant would cost you over $1 billion and take five years,” he says. “That’s a lot of capital going out the door with nothing coming in, and that’s tough for a company of our size.”

Still, Dominion has filed for a site permit at its North Anna facility to build a new nuclear generating unit there. (Dominion would still have to apply to the NRC for a construction permit if it decided to proceed further.) “We want to have an option at North Anna for our customers if the right financial and regulatory situation presents itself,” Farrell explains. “We don’t have either today.”

Meanwhile, at CarMax the biggest challenge for Tom Folliard is finding good people willing to work for a company that sells used cars. Of course, the impressive success of CarMax — which has made Fortune magazine’s list of “100 Best Companies to Work For” for the last two years — has made that easier. Folliard replaces co-founder Austin Ligon as the CEO after previously serving as the company’s executive vice president for store operations. The new CEO says the company needs a steady supply of talented people to drive its aggressive expansion plan.

As with Moorman and Farrell, Folliard is a company veteran who in becoming CEO must make the transition from an inside operating role to an external leadership role. While it will be difficult to step back from managing CarMax’s day-to-day affairs, Folliard says he will still be intimately involved in the guts of the business. Yet, he recognizes that as CEO he must communicate to an outside audience as well, including the company’s institutional shareholders.

Overall, Folliard believes it’s the job of the CEO to be a leader. “And one of the requirements of a leadership position is to take credit for nothing and blame for everything,” he says.

When CEOs retire, most executive recruiters say they should leave the company altogether instead of hanging around as chairman of the board since it only prolongs the transition to a new leader. But in the case of Mike Coppola — Advance Auto’s CEO for just over a year — he’s actually grateful that former chief executive Larry Castellani stayed on after his retirement.

Although Coppola is a veteran manager who once served as executive vice president for marketing at Tops Friendly Markets, a division of Ahold USA, he had never been a CEO of a public company before. “Larry continued on as chairman for another 12 months,” says Coppola. “He continued as a resource and mentor to me.”

Advance Auto runs a network of 2,800 automotive parts stores throughout the United States, Puerto Rico and the Virgin Islands. Coppola agrees that the climate for public company CEOs is chillier than it used to be. “I certainly think there’s more oversight, be it on [executive] compensation or complying with Sarbanes-Oxley. That has made life more difficult.”

But Coppola’s greatest concern at the moment isn’t public scrutiny, however nettlesome that may be. Instead, He worries how rising energy costs and structural changes in the economy will affect Advance Auto’s business several years down the road. “The real challenge is looking out at the future in terms of what’s coming at us,” he says. Advance Auto knows its business well enough to anticipate what automotive parts will be in demand this year and next. The bigger challenge is in understanding how larger economic trends might significantly alter that demand several years from now.

Coppola says it’s his job to know. “As CEOs, we need to put plans in place and make the changes that need to be made.” If that’s the case, then in addition to all the other skills that every corporate chief executive must have, add a talent for Harry Potter-like divination. For who but a wizard can predict the future?