Best fit? Industry questions Covisint choice

Summary:The appointment of Kevin English as CEO was a shock to many people in the auto industry, as he has little hands-on experience in heavy manufacturing.

Kevin who?

Wall Street executive Kevin English has been chosen to be the first CEO of Covisint, an online parts mall for the auto industry that could become the largest e-commerce operation in the world. But most analysts and others in the field have never heard of the executive, whose professional resume at Credit Suisse First Boston and TheStreet.com hasn't been without controversy.

English's appointment was a shock to many people in the auto industry. Although they were not necessarily expecting someone who has worked directly for an automaker or supplier, they were at least expecting someone who has had a lot of hands-on experience in heavy manufacturing or expertise in wringing cost out of the purchasing and supply side of a business.

"I would think they would have picked someone who had at least supply-chain experience, heavy on the procurement side of the business--if not the auto industry specifically," said Rick Carman, managing director and head of supply-chain practice at Northbrook, Ill.-based consulting firm Dechert-Hampe.

Like other analysts, Carman questioned the significance of English's experience at online financial site TheStreet.com as well as his work building an online financial portal for wealthy patrons of investment bank CSFB.

"Personally, I'm not sure how important the Internet experience is to this because the issues that a lot of companies and exchanges are facing is that their business model has to be based not on the Internet but on something more critical," Carman said. "The Internet is the enabler, not the business plan...The supply-chain experience is key because you're trying to squeeze money out of the supply chain--that's the essence of what they're doing."

Covisint executives hailed English's appointment in a ceremony Wednesday morning at the Automotive Hall of Fame in Dearborn, Mich. Yet for all the pomp, English was not necessarily the board members' first pick for CEO.

According to published reports, board members offered the position to three other executives before English, including former Oracle executive Ray Lane, who helped found Covisint but left Oracle last summer and is now working as a venture capitalist in the Silicon Valley.

Richard A. D'Aveni, professor of strategic management at The Amos Tuck School of Business Administration at Dartmouth College in Hanover, N.H., said he would have offered the position to an executive at another online exchange, such as an agricultural exchange run by Cargill.

"I understand why they didn't take someone from the auto industry. To make this thing work well, they need someone who's impartial between the parties, so they don't want someone tied to GM, Ford or anyone else," D'Aveni said. "What surprises me is that they didn't pick someone from a place that already has good programs in electronic trading."

What English lacks, D'Aveni said, is experience in an industry that traffics in a physical product.

"What executives have to do in this parts business is a little different than what Wall Street does," D'Aveni said. "Wall Street trades in paper; nothing has to get delivered--it's all execution and signing papers in the back office. It's not about getting car parts delivered for just-in-time manufacturing. That's an entirely different situation."

Not without controversy
English has encountered his share of controversy even on the more familiar terrain of Wall Street.

Until his Covisint appointment, he was managing director and chief executive officer for e-commerce operations at investment bank Credit Suisse First Boston. English began his tenure at CSFB in 1999 with the goal of creating an online "wealth management business" for the Wall Street institution's most affluent customers. English received $250 million and a 120-person team to build the project, known in some parts of the company by the code name Apollo.

In August, CSFB acquired Donaldson Lufkin & Jenrette in a stock and cash deal worth $11.5 billion. Although English and his team had spent about $100 million on the online banking project by October, CSFB reportedly stalled its Apollo mission because of the DLJ deal.

Then, on March 27, shareholders sued CSFB in the Delaware Chancery Court because they said the new online banking division, CSFBdirect, shortchanged them in a proposed $4 per-share buyout of the tracking stock. CSFB, whose parent company is Zurich-based Credit Suisse Group, offered to pay $73.6 million for the 20 percent of the brokerage held by the public.

It's unclear whether English played a significant role in the CSFB project's demise or in actions that led to the shareholder suit. His tenure at TheStreet.com was documented far more closely.

Man on TheStreet
Before working at CSFB, the 1975 graduate of Stonehill College in Easton, Mass., was chairman and CEO for the online financial site. The company has become a victim of the Internet stock market bubble of the late 1990s--not to mention of the industry's spectacular stock collapse.

English joined during a period of frenzied growth for TheStreet.com and almost all Internet companies. In May 1998, New York-based venture firm Flatiron Partners received a one-third interest in the company after leading a funding round worth $10 million, giving 30-person operation a value of $30 million.

In October, Flatiron recruited English and other managers charged with taking the company public. In December, the company completed a second round of financing for a valuation of $100 million.

The stock market was booming, lavishly rewarding many dot-coms whose speculative futures were unencumbered by such Old Economy concerns as supply chains or manufacturing operations. TheStreet.com rival CBS MarketWatch went public about a month before and saw its stock price immediately soar.

In early May 1999, shortly before the company was slated to go public, TheStreet.com raised its initial public offering price from $11 to $19 a share.

The stock went public May 11, 1999. There were so many people eager to buy the stock that it took several hours for the opening price to settle--and it did so at $59 a share. It rocketed to a first-day high of $71.25. Investment bank SG Cowen Securities initiated coverage on the company, which it praised as "one of our favorite small-cap names in the Internet universe."

English couldn't sell his stock options or stock for at least 180 days or more, but he and other managers were paper millionaires.

Then came a long, steady descent.

Going down
Widely criticized for going public too early in its corporate life, the company's stock never exceeded its lofty first-day perch. It now trades at $2.04, down 34.7 percent since the beginning of the month. It's down 78.8 percent from it's 52-week high of $9.62 and 97 percent from its all-time high. Financial chat boards disparage the company, whose stock ticker is TSCM, as "T-SCAM."

In early November, English abruptly resigned. The board replaced him with Thomas Clarke, president and chief operating officer. Fred Wilson, a board member and managing partner at Flatiron, was enthroned as chairman.

English, who signed a nondisparagement agreement when he quit, failed at his goal of making the company profitable, disappointing many investors and employees alike. In the quarter before his resignation, TheStreet.com reported a net loss of $7.8 million, compared with a $3.2 million loss in the like quarter of the year before. The widening loss was attributed to heavy spending on marketing to attract subscribers.

In the 13 months that English was at the helm of TheStreet.com, its shares lost 69 percent of their value and investors erased $1 billion in market capitalization. Almost all of the company's senior managers left in its first year on the public market. It switched business strategies several times, wavering between whether to be free or charge for subscriptions.

Along the way, the relatively little-known English made some well-known acquaintances as Internet companies enjoyed their fleeting star status.

On Aug. 23, 1999, English spoke to a reporter from The New York Observer about a deal to let singer and actress Barbra Streisand participate in the initial public offering of TheStreet.com. According to the report, Streisand called English and offered four tickets to one of her concerts in Las Vegas.

English gave her "a very modest amount" of stock at the offering price, through the so-called Friends and Family program, according to the Observer. Although Streisand might have made a lot of money had she immediately sold her stock the day of the IPO, English never heard from her again.

"I feel a little bit used in that respect," English was quoted in the Observer as saying, "but it was pretty amusing, anyway."

His new role will be worlds away from the high-flying circles of Hollywood and the Internet economy in its heyday.

"Everything I do will be focused toward customers. I will spend most of my time on customer acquisition, support and retention," English said during the news conference Wednesday. "We have to go out as a new company and ensure suppliers that they are No. 1 in our world. Product development is second, I will focus on developing our technology beyond existing products."

"Not an obvious pick"
Covisint has struggled to find a CEO to lead its massively complicated operation. Board members and others involved in the task said recruitment proved far more difficult than they had originally imagined.

To that extent, said Forrester Research analyst Dan Garretson, the fact that Covisint has plugged its CEO hole is perhaps more important than the person acting as the plug.

"I do think this is significant for Covisint because they badly needed a sense of direction," Garretson said. "It was definitely about time they got someone in that position."

But Garretson had doubts about the choice of English. "This is not an obvious pick," he said. "Because he has little experience in the auto industry and with suppliers, they will continue to think that Covisint is for and by the OEMs," or original equipment manufacturers.

Others agreed that board members will remain the people who actually run Covisint. Covisint's board of directors comprises highly respected senior executives at GM, Ford, DaimlerChrysler, Renault and Nissan, as well as large suppliers--companies that in some cases have been bitter, cross-town rivals for nearly a century.

S&P Equity Group automotive analyst Efraim Levy said that to some extent English will have relatively little control of Covisint.

"He's going to have quite a number of masters that he's got to respond to at GM, Ford and the other manufacturers and suppliers--each of whom have their own agendas," Levy said from his office in New York. "It's going to be a challenge to say the least."

Topics: Oracle, Start-Ups

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