Can A Nice Guy Run This Thing?

By Adam Cohen With Reporting by Michael Duffy/Washington and Frank Gibney, Dan Kadlec and Eric Roston/New York

Gerald Levin's carefully laid plans for filling his shoes almost fell apart last May. Richard Parsons, one of Levin's two deputies and the man he wanted to succeed him as CEO of AOL Time Warner, was being avidly recruited to be CEO of food-and-tobacco giant Philip Morris. In a car ride back from a corporate retreat at the Hilton Rye Town, in the New York City suburbs, Levin urged his protege to stay.

He promised to lobby the board of directors to make Parsons CEO of AOL Time Warner. The sweetener: Levin confided that he didn't intend to serve out the two years left on his contract. In fact, Levin had quietly inserted a provision allowing him to step down on just six months' notice. Not only might Parsons become the first African American to lead the world's most influential media company--he might take over very soon.

Levin, 62, kept his word last week in an announcement that caught the business world--including top executives at AOL Time Warner--by surprise. He announced that in May he will step down from his CEO post and from the board, and Parsons, 53, will replace him. Parsons has for 18 months split the job of chief operating officer with Robert Pittman, 47, who will now hold that post outright.

The succession puts both men in positions for which they are well suited by experience and temperament: the good-humored, diplomatic Parsons at the helm; the disciplined, hard-driving Pittman in the engine room. It also represents Levin's parting imprint on the culture of the merged company. And it has investors wondering how Parsons will lead AOL Time Warner, which has lost much credibility for clinging too long to unrealistic promises about how much it can earn in a sagging economy.

Parsons' rise would have been hard to predict back in May 2000, when the executive positions for the newly merged AOL Time Warner were announced. He and Pittman were given the same title, but it was Pittman who got the plum assignments. Subscriptions were seen as the future of the company, and the divisions that relied on them--the AOL online service, cable TV, the Time Inc. magazines--reported to Pittman. Parsons got divisions, like books, music and movies, that customers bought on an old-fashioned per-use basis. He has since worked on President Bush's Commission to Strengthen Social Security--a high-profile post but far from AOL Time Warner's operations. When Levin appeared at investor conferences or on TV, Pittman was often at his side.

So how did Parsons end up on top? Partly by being nice--as corny as that may sound in the cutthroat world of corporate politics. Parsons, who stands 6 ft. 4 in., with a salt-and-pepper beard and a soothing baritone, is a boardroom charmer. Barry Schuler, president of the company's AOL division, recalls extending a hand the first time he met Parsons. "Dick went right past my hand and gave me a big bear hug," says Schuler. Parsons is relentlessly self-deprecating. "One of my kids," he says, "gave me a T shirt that said, I MAY NOT BE BRIGHT, BUT I CAN LIFT HEAVY THINGS."

Parsons is a consummate straddler of worlds and builder of consensus. Born in a working-class Brooklyn, N.Y., neighborhood, he rose to become a lawyer, a bank CEO and a moderate Rockefeller Republican. He describes himself as a "lunch-pail guy"--albeit one who owns a vineyard in Tuscany and who celebrated his promotion with a Cohiba Esplendido cigar and a $400 bottle of 1963 Taylor port.

His ambassadorial skills and government contacts may be just what AOL Time Warner needs. To succeed, the company has to forge corporate alliances and persuade regulators around the world to take its side on everything from antitrust questions to e-commerce taxes.

Pittman says he is happy with his new role as sole COO, which suits his intricate knowledge of the company. "I love operating; I can't stand getting too far away from the business," he says. "The only downside," he told Levin, "is that when it's announced, my ego may be smarting a bit, only because there's been so much speculation that I'm going to be the heir apparent."

Pittman and Parsons will now have to work as a team even more than they did when they shared a title. AOL Time Warner's media holdings are simply too vast and diverse for any one person to run. "This is the new format for corporate leadership, and we may be on the edge of that," says board member Fay Vincent.

Parsons recently told Ken Auletta of the New Yorker that he had asked himself whether his company is "building things in this world that are beyond the state of our management." Parsons has heard the complaints from his managers that they have too little time and freedom to grow their businesses because they're made to sit through endless meetings seeking to "coordinate" with half a dozen other divisions and achieve vague "synergies." Some of his colleagues believe Parsons will be more open to spinning off assets than was Levin.

The merger has gone off with surprising smoothness, but old Time Warner hands have occasionally bristled at their AOL colleagues. "Some people in the company felt like the brash new kids from Dulles were coming in, overriding our borders and changing our culture," says Parsons. One continuing concern is whether AOL Time Warner will respect the editorial integrity of CNN and the Time Inc. magazines and fund them adequately. Levin, who often invokes TIME magazine founder Henry Luce, says he regards Parsons as someone who has "the Lucean thing about journalistic independence."

Levin has been a tireless proponent of cable-TV systems as the gateway for delivering the Internet and entertainment. He has led AOL Time Warner into a battle with Comcast and Cox--both backed by Microsoft--to buy some or all of AT&T Broadband, the nation's largest cable company. But some executives and board members argue that there are ways--over telephone lines or by satellite--to reach those households without burdening AOL Time Warner with billions more in debt. Parsons is leading the AT&T talks and will have to decide what price--in dollars and regulatory scrutiny--is worth paying.

Parsons also has work to do on Wall Street. "Ideally, you want to underpromise and overdeliver," he says. "To the extent that we've lost credibility, repairing it is important." And not so easy. On Friday, Merrill Lynch analyst Jessica Reif Cohen lowered her earnings estimates for this year and next, pointing to clouds ahead. AOL is adding new subscribers at the rate of 12,800 a day--14% less than at the same time last year. AOL Time Warner is locked into a deal, made by AOL in the last days of the Internet bubble, committing it to pay at least $6.75 billion for Bertelsmann's stake in AOL Europe, an entity now valued at about $2 billion. Also troubling Cohen: "The difficulty in replicating the strategic and visionary strengths of Jerry Levin." The stock dropped more than 5% on her dour assessment, bringing it down 42% from postmerger highs.

Levin insists that the challenges ahead did nothing to inspire his departure. He wants, he says, to pursue creative endeavors and "put more poetry" into his life. If anything pushed his retirement forward, he says, it was the Sept. 11 attacks, which dredged up the pain of the 1997 murder of his son Jonathan, a Bronx public school teacher. Parsons compares Levin's reaction to "a Vietnam flashback."

But the timing looks at least partly strategic. One of the shrewdest operators of his day, Levin saw an opportunity to choose his successor--and make clear that it's Time Warner, not AOL, that runs the combined company. Levin says selecting his successor was a lot like producing a Warner Bros. film. "We do all this market testing," Levin says, but "the big mistake is we don't know how to end a movie." In choosing a well-liked, up-by-the-bootstraps guy like Parsons, AOL Time Warner has fashioned a classic Hollywood ending to the Levin era. But Parsons has to deliver a strong performance on earnings growth before the audience will stand up and cheer.

--With reporting by Michael Duffy/Washington and Frank Gibney, Dan Kadlec and Eric Roston/New York