Armstrong, C. Michael 1938–

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C. Michael Armstrong
1938–

Former chairman and chief executive officer, AT&T Corporation

Nationality: American.

Born: October 18, 1938, in Detroit, Michigan.

Education: Miami University of Ohio, BS, 1961; Dartmouth Institute, Advanced Management Program, 1976.

Family: Married Anne Gossett; children: three.

Career: IBM Corporation, 1961–1978, various positions; 1978–1980, president of Data Processing Division; 1980–1983, corporate vice president and assistant group executive; 1983–1986, senior vice president and group executive for Information Systems and Communications Group; 1986–1987, director general of IBM Europe and president and a member of the board of directors of the IBM Europe/Middle East/Africa Corporation (EMEA); 1987–1988, president director general of IBM Europe and CEO of EMEA; 1988–1992, president and chairman of EMEA; General Motors Corporation, 1992–1997, chairman and CEO of Hughes Electronics; AT&T Corporation, 1997–2002, chairman and CEO; Comcast Corporation, 2002–2003, chairman; 2003–2004, nonexecutive chairman.

Awards: Honorary Degrees, Pepperdine University, 1997; Loyola Marymount University, 1998; Worcester Polytechnic Institute, 2000.

■ The 31-year IBM employee and former AT&T chairman and CEO C. Michael Armstrong retired as nonexecutive chairman of the board of Comcast Corporation in 2004. In a bold, historic move to reestablish itself as an end-to-end carrier during the dot-com boom, Armstrong's AT&T acquired two of the four largest U.S. cable-television companies for $102 billion in 1998. With the dot-com collapse, fraud-assisted telecom depression, unyielding regulatory battles, high debt load, and the sheer complexity and size of the acquisitions, Armstrong was forced to break AT&T up in 2001. He had joined AT&T in 1997 after five and a half years as chairman and CEO of the Hughes Electronics subsidiary of General Motors Corporation. At Hughes, Armstrong expedited development

of DirecTV to establish one of the first digital-broadcast systems. Armstrong had joined Hughes after 31 years with IBM Corporation, where he eventually led international operations and was a member of IBM's senior executive committee. He was described by analysts and co-workers as a strong, affable, and intensely competitive sales and marketing executive who managed to salvage many investor assets during the fraudplagued dot-com era.

PERSONAL HISTORY

The eldest of three sons born in pre–World War II Detroit, Armstrong was president of his high school senior class, earned college-football scholarships, and went on his first date with his future wife, Anne Gossett, at the age of 14. A college fraternity brother described Armstrong to BusinessWeek by saying, "You could almost quote the Boy Scout motto: loyal, friendly, trustworthy" (June 20, 1988).

Armstrong's athletic and future U.S. Marine Corps careers ended due to a gridiron shoulder injury. Surgery upon the shoulder resulted in his right arm being shorter than his left. In the place of football Armstrong made time to be the president of his fraternity, Sigma Nu, and to work for the allfraternity council, the college publications board, and the honorary business society. In the April 22, 1996, issue of BusinessWeek he recalled how his mother's motto—"no limits"—inspired the family while his father struggled to start a business after being laid-off; Armstrong worked odd jobs to pay for tuition, successfully attaining his degree in business and economics in 1961.

Shortly after his graduation Armstrong married Gossett and joined IBM Corporation in Indianapolis as a systems engineer. Once inside the rapidly growing computer company he soon moved over to sales and marketing, attending sales training programs with the future IBM CEO John Akers. Colleagues described Armstrong as intensely competitive; with respect to the tennis played during the training programs, one colleague told BusinessWeek, "He'd always be the last guy off the court" (June 20, 1988).

Following Akers up the IBM corporate ladder, Armstrong attended a Dartmouth Institute for advanced-management education, which he finished in 1976. In 1978 he was named president of a high-level IBM division, Data Processing, and in 1980 became corporate vice president. In 1983 he was named a senior vice president and group executive in the communications division, where he was responsible for the development and manufacture of minicomputers, personal computers and software, and communications-network technology—the last of which included an early joint attempt at global communications networking, dubbed Satellite Business Systems, with the future competitor MCI Corporation.

CLIMBING THE IBM SENIOR-EXECUTIVE LADDER

In 1986 Armstrong received his toughest assignment from the CEO Akers: to reenergize IBM's European operations, in which annual sales had stagnated at $19 billion; although the European market for computing products had been growing at 10 percent annually, revenues for IBM Europe had remained flat. Customers and analysts alike said that IBM's lack of success in Europe was due to the company's single-minded devotion of attention to the U.S. market—IBM failed to either focus on individual-country markets or prepare for the single-market structure that emerged in Europe in 1992. In most ways IBM's European efforts were no different from U.S. efforts to boost sales and customer satisfaction, cut bureaucracy, and contain costs—all in the shadow of the growing threat to IBM's computing architecture from the personal-computing alliance of Microsoft and Intel.

Making immediate use of his sales background, Armstrong scheduled his first meetings as IBM's European director-general with the presidents and CEOs of prominent client firms; at one point he spent 45 consecutive days on the road meeting with major customers. His down-to-earth midwestern mannerisms proved charming, and his prior experiences with major U.S. clients such as General Motors and Boeing provided him with enough knowledge of internal IBM pathways to allay the bureaucratic concerns of major European customers. Armstrong lived in Paris and took lessons in French.

After European sales rose more than 25 percent during a two-year period, in September 1988 Armstrong was brought back to the United States and named as one of five members of IBM's highest-level executive committee. Additionally he was given responsibility for IBM operations in Asia Pacific and throughout the Americas. In June 1989 he was made chairman and president of IBM World Trade Corporation, the company's international division, reporting directly to Akers. After 28 intense, energetic years in U.S. and global operations, sales, and marketing, Armstrong was considered a possible successor to Akers as chairman and CEO.

FROM MAINFRAMES TO ELECTRONICS

Armstrong surprised the business world in February 1992 when he announced that he would leave IBM after 31 years in order to become the CEO and chairman of Hughes Aircraft Company, the defense unit of General Motors Corporation's Hughes Electronics group. It was later disclosed in BusinessWeek that Akers had privately told Armstrong that, for reasons unspoken and unasked, he would not recommend that his protégé be appointed as IBM's CEO. Observers noted that Armstrong was only three years younger than Akers—a relatively small age difference between successive CEOs. Meanwhile the Microsoft-Intel alliance continued to negatively impact IBM, which in 1991 reported its first-ever annual loss. In April 1993 an IBM outsider, Louis V. Gerstner, the former chairman and CEO of RJR Nabisco, replaced Akers.

Armstrong was the first Hughes CEO to come from outside not only the billionaire Howard Hughes's former research facility but the entire defense industry. The announcement of Armstrong's appointment, which followed an earlier reorganization wherein focus was shifted to nondefense markets after the collapse of the Soviet Union, was a clear message that Hughes would be targeting commercial markets, including communication and satellite systems. GM officials believed that in order to reach global commercial markets a sales and marketing executive with international experience was needed, such that customer needs would be met and costs controlled.

At that time Hughes had a reputation for its highly advanced design and engineering work—at prices that made Pentagon officials wince. During the Reagan-era defense buildup Hughes's nonthrifty strategy worked, but sales and profits were being squeezed in the post-Cold-War world. Further, Hughes had been slow to divert its attention from defense to commercial markets at a time when similar companies were already converting their defense facilities—and sometimes faltering.

By the time Armstrong arrived, in a period of economic recession Hughes' annual sales had been flat, and profits had declined for three consecutive years, alarming GM executives. With respect to the company's shift in focus from defense to commercial markets, 65 percent of 1992 revenues came from defense, compared to the peak of 85 percent. In 1992 employees numbered 65,000, compared to the peak of 82,000 in 1985; the steady decline in the size of the workforce had a negative effect on staff morale.

Before accepting the Hughes post, Armstrong spent eight days reviewing the backgrounds of the Hughes executive team in order to determine whether changes should be made immediately. The Detroit native—and former IBM executive in charge of the GM account—met with top GM executives to confirm that he would have operating autonomy.

During his first days at Hughes, Armstrong met with Pentagon officials and ordered a minimum 30 percent reduction in costs across the entire organization. Later, with defense orders continuing to decline and in order to fund new projects such as DirecTV and OnStar, Armstrong closed several factories and ordered 16,000 layoffs. To prevent morale from diminishing further, those who were laid off received above-average severance packages.

Armstrong expected every Hughes employee to be accountable for satisfying customers, controlling costs, and increasing production efficiency; bonuses became tied to profits and performance. To ensure that employees understood the message being sent, he met with small groups of employees without their managers present. Research scientists were required to take finance classes and work closely with product groups.

Armstrong's performance in orchestrating Hughes's turnaround pleased GM executives, as sales and profits steadily increased. The tracking stock for GM Hughes Electronics had been mired in the $20 range when Armstrong arrived in 1992; it was valued at almost $70 by April 1996. During that period operating profits more than doubled. Within a year Armstrong was made chairman of both Hughes Electronics and its corporate sibling AC Delco Electronics, both GM units. In June 1995 Armstrong was elected to the seven-member GM Presidents' Council.

Armstrong's greatest accomplishment at Hughes was the launch of DirecTV, one of the first successful digital broadcast systems, which drew on Hughes's strengths in communications and satellite technology. A year before Armstrong's arrival Hughes had attempted to launch DirecTV in partnership with NBC and Rupert Murdoch's News Corporation, but talks broke down over marketing and other concerns. Armstrong was able to persuade the GM board to invest $750 million in the DirecTV project's technology and marketing despite the economic recession.

DirecTV signed up one million customers in its first 13 months of existence, with interest spurred by special sports lineups and 175 channels of programming. By 1996 Armstrong decided to use DirecTV's strong U.S. base to expand internationally, forming DirecTV Global to support management operations in Latin America and Japan. The growing success of DirecTV drew a $137 million investment from a communications company seeking to expand its line of products: AT&T Corporation.

FROM SATELLITE TELEVISION TO LONG DISTANCE

Following the successful launch of DirecTV and the market turnaround at Hughes Electronics, Armstrong was tapped in October 1997 to become chairman and CEO of the iconic yet uncertain U.S. business giant AT&T. He was selected after an unusual search during which three CEO-designees were selected over a two-year period.

Armstrong became the first outsider to hold the CEO spot at AT&T. His predecessor Robert G. Allen had lost the board's confidence after a series of public gaffes that negatively affected stock-market price performance, including several unprofitable acquisitions, an attempt to merge with SBC Communications that was foiled by the Federal Communications Commission, and his personal selection of one successor who left after only eight months. The day after Armstrong's appointment was announced, AT&T stock rose 5.1 percent in heavy trading to $47.50 a share.

At that time AT&T, as the leading U.S. long-distance carrier, was profitable with little debt but facing serious market challenges, such as changing regulations, rapid technological evolution, and the rise of the Internet as a communications medium. A few computer buffs were starting to use the Internet to make free long-distance calls, and the trend was expected to grow quickly.

First achieved on the foundation of Alexander Graham Bell's patent, AT&T's dominance of local and long-distance telephone service and telecom-equipment markets eventually resulted in a long series of antimonopoly rulings. In a 1984 court decision AT&T long distance and the local rate-regulated Bell System companies were separated, with AT&T and its long-distance competitors alike paying access charges to the Bell companies in order to complete calls. Notably, the "Baby Bells" were awarded the wireless cellular licenses, which AT&T executives then believed to be of little value.

When the breakup occurred, AT&T began losing direct contact with its customer base, and long-distance market shares were being sapped away by highly competitive rivals such as MCI (later a WorldCom unit) and Sprint. In 1996 the Telecom Reform Act authorized the Baby Bells as well to enter the long-distance market once there were credible amounts of competition in their respective local markets.

When Armstrong assumed the top spot at AT&T, he said that his goals were clear: to quickly bring head-count and operating costs in line with those of competitors such as MCI; to profitably mass market local phone and Internet services; to finish implementation of a national cellular network; and to increase global network capacity. In order to achieve those goals and compete in a changing environment, Armstrong had to alter the staid, risk-adverse, monopolistic mind-set within AT&T. Analysts would later assert that that monopolostic mind-set more than anything else prevented progress at the company.

Heartened by Armstrong's take-charge attitude and heated by the Internet's skyrocketing rise, investors quickly bid up AT&T's stock price, which doubled within six months of Armstrong's appointment. The addition of more than $50 billion in common-stock value, along with the high-yield bonds used to finance cable systems, helped fuel an 18-month acquisitions binge on Armstrong's behalf totaling more than $125 billion.

Within 10 days of his arrival at AT&T, Armstrong began addressing the issue of local access by reviewing past attempts at acquiring Teleport Communications Group (TCG). Started by Merrill Lynch in order to cut local businesses' telecom-access costs by bypassing New York Telephone and directly connecting to long-distance carriers, TCG had been acquired in part by three of the four then-dominant U.S. cable companies—TCI, Comcast, and Continental—for a nationwide launch.

Given the economic importance of telecommunications for commercial uses, the $20 billion business sector had always possessed more profit potential than the residential sector. In January 1998 Armstrong announced the acquisition of TCG for $11.3 billion, an eye-popping price for a young, still-unprofitable company with just $500 million in annual sales. Still, the next trading day after the announcement of the purchase AT&T stock rose 8 percent, effectively reducing the acquisition cost by approximately 40 percent. Around this time Armstrong took several other actions in order to improve AT&T's economic standing: he ordered an immediate hiring freeze; ended a $4 billion program wherein local Bell service was resold, which consistently lost money due to regulated costs; tied compensation to results; and cut myriad costs—disposing of the AT&T executive limo service, for example.

BECOMING A CABLE GIANT

In June 1998, with the dot-com boom continuing to drive up telecom stock prices—and, as a result, the supply of acquisition capital—Armstrong stunned the communications industry by announcing a $48 billion deal to buy Tele-Communications (TCI), the largest U.S. cable company. Armstrong explained to Wall Street and the public that TCI's coaxial links to homes would provide local cable-telephony links to the AT&T network, thus allowing AT&T to bypass local companies and avoid having to pay billions in local-network access fees to the Bells. In 1993 Bell Atlantic (later Verizon) had proposed buying TCI for $26 billion, but the deal collapsed when the FCC cut cable rates, lowering TCI's earnings expectations.

Several analysts immediately questioned the AT&T-TCI deal, noting that cable telephony was then a still-unproven technology that required high-quality networks. Further, they asserted that upgrading cable networks in order to handle voice traffic and persuading enough consumers to leave the Bell companies would be expensive and time-consuming. They also noted that the formerly monopolistic AT&T had no experience in operating entrepreneur-founded cable systems and navigating through their complex, tax-sheltered structures. Several AT&T insiders reportedly raised these same questions.

Armstrong countered by noting that the multiple opportunities in cable-driven video, voice, and high-speed Internet data—popularly referred to as "convergence"—would prove to be long-term profit generators and would help reestablish AT&T as a full-service communications provider. AT&T's stock price dipped 13 percent upon news of the TCI announcement, but along with the rest of the Internet-fueled stock market later recovered and continued upward.

Armstrong's local cable-telephony strategy relied on establishing network relationships with other cable companies. Staying true to his track record as a sales superstar, Armstrong immediately began talks with Time Warner Cable, Comcast, Cablevision, and other cable systems on forming local cabletelephony partnerships. Those talks on networking, marketing, and financing—which were long, difficult, and often acrimonious—would later take a toll on confidence in Armstrong.

At first investors had cheered Armstrong on as he ambitiously cut costs. A long-promised reduction in 18,000 positions was achieved through generous early retirement and severance packages. Much-needed additions were made to data and international networks. A new cellular-service plan providing free network-roaming and free long-distance boosted profits, attracted high-end users, and upset the Bell companies because some users were starting to eliminate home phone lines.

In March 1999, after learning of an unsolicited $49 billion bid by Comcast Corporation for the fellow cable giant Media–One Group, Armstrong put forth his own offer and set off a bidding contest. AT&T was ultimately victorious with a $54 billion offer, after negotiating with Comcast to sell it certain cable systems and to work with AT&T on cable telephony. After Wall Street analysts raised concerns about what the MediaOne acquisition's effect on AT&T earnings would be, Armstrong announced that more cost cuts would be made if necessary.

Having acquired so many cable assets so quickly—and having amassed an historic debt load of more than $55 billion—Armstrong experienced increasing pressure to deliver results, and fast. In the clubby, insular world of the cable industry, concerns were raised as to whether placing so much of AT&T's future in the hands of one person—Armstrong—without a succession plan was prudent. Complicating potential succession plans, large numbers of AT&T staff were leaving for dot-com start-ups or for the lucrative early-retirement packages.

As AT&T negotiations with other cable providers over cable-telephony deals became bogged down, Armstrong publicly suggested in late 1999 that non-AT&T-affiliated cable operators would find themselves competing with AT&T via other networks, such as the fixed wireless network. A dispute later arose as to whether AT&T had been privately negotiating with America Online about network access. To the tightly bound cable community Armstrong's words bordered on treason and displayed untrustworthiness. Investors raised concerns about the degree to which Armstrong was trusted by his fellow cable CEOs and whether that level of trust would affect his ability to acquire a sufficient number of cable-telephony customers.

By May 2000, with long-distance revenues continuing to drop due to price wars with MCI WorldCom, Armstrong announced that AT&T's profits that year were projected to be 5 percent less than originally expected. As the fact that the lost revenue would have provided capital for new services was common knowledge, the stock-market reaction was swift and terrible. Over the next two days AT&T's stock price dropped 19 percent to $39.75, shaving off $28 billion in shareholder value, never to recover. Shortly afterwards a leading AT&T board member and former Bell Labs staffer, the legendary cable executive John Malone, publicly suggested making the long-distance unit a stand-alone company.

On August 11, 2000, a front-page Wall Street Journal article reported that more than half of AT&T's top 550 business customers had reduced spending over concerns about service levels. Analysts criticized Armstrong and other AT&T executives for focusing too much on cable and not enough on the company's core customer base. Armstrong transferred support staff to the business long-distance unit to win back customers.

In October 2000, with AT&T stock at $24—20 percent less than when he had arrived—Armstrong announced that he would break AT&T up into four separate firms: cable/broadband, cellular/wireless, business, and consumer/residential. He said that the move would allow investors to more clearly see the financial and operating results of the individual units and would also provide incentive for the employees of each unit to perform better.

Armstrong stood by his assertions that AT&T needed to venture into new products and services, especially given the rapidly declining market for stand-alone long-distance service and the fact that the Bells were essentially blocking access to their local networks. Yet many analysts described Armstrong's breakup plan as a reversal of his original cable-centric strategy. Also, as some had predicted, cable telephony had proven more technically complicated than originally envisioned, such that initial marketing expenses were 50 percent higher than projected. To make their organizational clout visible during the breakup plan review, AT&T unions, along with their pension funds and political supporters, began publicly questioning Armstrong's strategy.

Many analysts agreed that Armstrong had put on a strong performance as AT&T's CEO during the turbulent dot-com era—calling on major customers, keeping employees focused on customer needs, meeting with bankers, and working with regulators. Nevertheless, the huge debt load that resulted from his cable acquisitions overshadowed noticeable improvements in the finances of cellular, data, and international services.

In July 2001 Comcast announced an unsolicited bid of $41 billion for AT&T's broadband unit. Armstrong averred that the offer was too low and began soliciting offers from Disney, Microsoft, and others. In December 2001, following the September 11 attacks and with recession looming, Comcast announced its acquisition of AT&T Broadband for $50.5 billion. As part of the deal Armstrong was given the mostly honorific title of chairman of the board; actual control lay in the hands of the founding Roberts family, who were well known for their thrifty, hands-on management. One year later Armstrong was named nonexecutive chairman; he then retired in May 2004.

RETIRED—BUT STILL COMPETING

On the eve of his retirement, having spent 40 years in corporate life, Armstrong made several public comments that were reported on in the Wall Street Journal. He challenged assertions that his AT&T strategy had failed due to defective assumptions and poor personnel selection. Also, he charged that due to the record-setting accounting fraud perpetrated by WorldCom and its MCI Corporation long-distance unit, U.S. long-distance prices were driven to unsustainable levels, sending the telecom industry into a downward spiral. Still, analysts maintained that Armstrong had overreached in buying too many cable systems and assuming that cable telephony would work as planned.

In 2004 Armstrong watchers noted with irony the two-toone market advantage that cable modems had over the Bells' digital subscriber lines (DSL) and the fact that cable operators were beginning to embrace cable telephony. Detailed, conclusive analyses of Armstrong's moves would be years away; regardless of the answers reached, given all of the issues faced by AT&T in the late 1990s and early 2000s, the lasting question might be whether any corporate leader would have been capable of returning AT&T to its formerly dominant market position.

See also entries on AT&T Corp. and Comcast Corporation in International Directory of Company Histories.