Enel Plans To Get Control Of Russia's OGK-5 By Yr End-Report

Italy's Enel SpA (EN) is planning to launch a partial takeover bid on Russia's wholesale power generator OGK-5 before the end of the year and reach close to a 70% stake in the Russian company, reports Corriere della Sera in its Tuesday Internet edition. The remaining 30% will be held by Russian electricity monopoly RAO Unified System of Russia (EESR.RS), or UES. Enel in June bought a 25% stake in OGK-5 at a public tender for $1.52 billion. It subsequently bought another 5% for $281 million and it said it wants to raise its stake to a controlling one. On Aug. 31, OGK-5 will hold a board meeting, which is scheduled to change its structure to allow in three board members to be appointed by Enel, the paper adds.

CEO Confirms Mgmt Bd Member's Exit - Newspaper

Confirms Mgmt Bd Member's Exit - Newspaper VIENNA (Dow Jones)--Austrian Airlines AG's (AUA.VI)Chief Executive Alfred Oetsch has confirmed the departure of management board member Josef Burger in a company email, reports Austrian daily Die Presse Tuesday. "I ask for your understanding that we don't comment on management board member Burger's leaving," Oetsch wrote to his employees in the internal email, which Die Presse has received a copy of. Burger has been on coalition course with CEO Oetsch regarding the carrier's extensive turnaround plan that has seen its long-haul destination portfolio considerably reduced, Die Presse reports. The newspaper says Burger is furthermore being accused of having leaked details of a co-operation agreement between AUA and Austrian catering company Do&Co to the press, a deal that proved less favorable for AUA, according to Die Presse. The mistrust allegedly was so outspoken that Oetsch hired a security company to conduct an investigation against Burger, Die Presse writes, quoting unconfirmed rumours. But also the CEO himself is faced with heavy criticism from within AUA, the newspaper continues. The carrier's staff association intends to call for Alfred Oetsch's resignation at a meeting with Austria's Chancellor Alfred Gusenbauer, which is to take place in the coming days. The association accuses Oetsch of "management by chaos", Die Presse writes. Austria holds a 42.75% stake in AUA through the state-holding company OIAG.

How Hefty Pay Raises Undid An Insular Board

THE WALL STREET JOURNAL) By Scott Thurm Many laws and regulations have been adopted in the past 25 years to curb executive compensation. But there is no substitute for judgment and integrity by corporate directors. A case in point is Tennessee Commerce Bancorp, a one-branch commercial lender that in June awarded big raises and stock options, to Chief Executive Arthur Helf and three other officers. Mr. Helf's annual salary more than doubled, to $400,000, from $190,000; the others received similar boosts. Those are modest numbers when some CEOs make tens of millions. But the story behind the raises is nonetheless telling. Based in Franklin, Tenn., south of Nashville, the bank is thriving. Assets as of June 30 totaled $750 million, up 50% from a year earlier. Second-quarter net income rose 72%. But its board remained relatively insular, even after the bank listed its shares on Nasdaq in 2006. The 13 directors -- who included small-business owners, Franklin's mayor and a doctor -- had served together since 2000. The board included Mr. Helf and two other officers, a relatively high ratio of insiders in the Sarbanes-Oxley world. Directors serve three-year terms, a so-called staggered board that discourages corporate raiders and shareholder challenges. All 13 sat on the compensation committee -- violating Nasdaq rules, although no one noticed for a while. The calm was shattered on July 18, when the bank said three directors had resigned. A Securities and Exchange Commission filing revealed the three were unhappy about the raises. One of the departing directors, Fowler H. Low, wrote in his resignation letter that the policy was "crafted to provide excessive and retroactive compensation to 'executive managers.'" Bank President Michael Sapp, one of the three executive directors, later told investors that the raises were "an attempt to restore some parity with our peers." Chief Financial Officer George Fort, speaking for the officers, declines to respond to Mr. Low's criticism. "We really would like to let the public filings speak for themselves," he says. "The issue has been decided. It's old news at this point." The raises were awarded after the company commissioned a compensation survey from Clark Consulting. Many boards employ consultants to help set executive salaries, but critics say the studies are often designed to support raises. Mr. Low said the study was "flawed," in part because it compared Tennessee Commerce with bigger banks. Todd Leone, a managing director for Clark Consulting, declines to comment, saying the study is confidential. The board approved the raises on June 1, though Mr. Low says the board, sitting as the compensation committee, never met to discuss the raises. The executives who are also directors -- Mr. Helf, Mr. Sapp and Chief Administrative Officer H. Lamar Cox -- each voted on the raises for the other two. That seems to violate the spirit, if not the letter, of the bank's proxy, which states that officers don't "participate in discussions or vote on matters relating to their compensation." Ironically, on June 1, the same day the raises were approved, Nasdaq told the bank that its compensation committee was improper because it included the officers. Last week, the bank said it had named a new committee, made up of three outside directors. The dissident directors protested the voting process. But Mr. Helf said in a June 6 memo that the bank's lawyers had approved. Tennessee Bancorp's lawyer, Steven Eisen, of Baker, Donelson, Bearman, Caldwell & Berkowitz, confirms he "gave the board an opinion that the process was legal." He declines further comment, citing attorney-client privilege. At the bank's annual meeting on June 8, shareholders re-elected six directors and approved a new incentive plan to award stock options and restricted stock. Shareholders weren't told about the raises that had been approved the week before, retroactive to Jan. 1. In July, the three directors resigned -- a rare boardroom protest over compensation. In his resignation letter, Regg Swanson called the process "unethical," and said it had "violated my trust in the management of the bank." Mr. Swanson didn't return a call seeking comment. For his part, Mr. Low says the decision to quit was "difficult and emotional." Mr. Low had known Mr. Helf for decades, and had once hired him. In an interview, he says the officers, who hadn't had raises in several years, probably deserved increases. Yet Mr. Low, who is 75 and retired, says he felt compelled to resign. "The executive officers/directors have concluded that the board can be manipulated in whatever manner deemed desirable," he wrote in his resignation letter. "I have to question whether we are a board of directors -- or a board of directed." Another director sees it differently. Dorris "Eli" Bennett hints that he was troubled by the process, though he won't say how he voted. But Mr. Bennett, who owns a tool-and-die company, thinks he can be more effective by staying on the board. If directors think the board acted improperly, "the worst thing you can do is quit," he says.

UPDATE: Brocade Ex-CEO Found Guilty

THE WALL STREET JOURNAL) By Steve Stecklow and Peter Waldman Gregory Reyes, the former chief executive of Brocade Communications Systems Inc., was convicted of securities fraud in the first criminal trial over the backdating of stock options. The verdict in U.S. District Court in San Francisco was a major victory for the government and is expected to stoke the pursuit of other executives for backdating. One of the prosecutors in Mr. Reyes's trial, Assistant U.S. Attorney Timothy P. Crudo, is involved in deciding whether to bring criminal charges over backdated options at Apple Inc. "To get a conviction with these facts, which weren't all that strong, will encourage the government to continue prosecuting backdating cases," said Phillip Stern, a Chicago lawyer and former enforcement official with the Securities and Exchange Commission. Some 140 companies have come under federal investigation for backdating, and about 70 executives have lost their jobs as companies conducted internal probes. Mr. Reyes was convicted on 10 counts including fraud, falsified accounting, conspiracy and filing false financial statements. After the verdict was read, his wife sobbed, as did some jurors. Mr. Reyes hugged his wife and members of his defense team before checking in with federal probation officers. Mr. Reyes's lawyer, Richard Marmaro, issued a statement saying his client was innocent. "We are confident he will ultimately be exonerated. At all times, he acted in the best interests of the employees and shareholders of Brocade," Mr. Marmaro said. The trial, in which jurors heard five weeks of testimony, was closely watched by executives, lawyers and other corporations caught up in the options scandal. Kevin Ryan, the former U.S. attorney in San Francisco who filed the Reyes indictment, said Mr. Reyes's conviction is sure to "invigorate" the prosecution of backdating cases, about half of which are in the San Francisco office. "Now we have some guidelines; the standard has been set," he said. Mr. Ryan said there was "keen interest" by his former bosses at the Department of Justice in Washington in the Brocade indictment and other backdating cases. He said he briefed former Deputy U.S. Attorney General Paul McNulty on his decision to pursue the case, and gave Mr. Reyes's attorney, Mr. Marmaro, several chances to explain his theory of his client's behavior. Mr. Reyes, who faces up to 20 years in prison, was accused of defrauding Brocade shareholders between 2000 and 2004 by conspiring to alter the grant dates of stock options awarded to employees and of falsifying documents, including the company's financial statements, to cover up the scheme. The company, based in San Jose, is a data-storage networking firm. A stock option gives its holder the right to buy shares at a future date at a fixed price, usually the market price on the date of the grant. If the stock later rises, the recipient can cash in the option for a profit. By backdating a grant to a prior date when the price was lower, the award's value increases and the option is instantly "in the money." During the trial, the defense didn't contest that stock options were backdated at Brocade -- Mr. Marmaro termed them "periodic look-backs." He conceded the options were improperly accounted for because they weren't recognized as compensation expenses in Brocade's financial statements as accounting rules required. At issue was whether Mr. Reyes understood that what the company was doing was wrong. The prosecution maintained that Mr. Reyes engaged in a conspiracy with Stephanie Jensen, Brocade's former head of human resources, to backdate options to recruit and retain employees, and then repeatedly falsified meeting minutes to hide the practice from accountants and ultimately investors. The prosecution called as witnesses several former human-resources employees who described how they selected earlier option-grant dates and prepared phony minutes of options-granting meetings that Mr. Reyes later signed. Several employees testified they felt uncomfortable with the practice. Ms. Jensen also faces criminal fraud charges and will be tried separately, although no trial date has been set. The government also claimed that Mr. Reyes later lied about the backdating practice to a law firm Brocade used to review its options-granting procedures. Prosecutors argued that Mr. Reyes understood that "in-the-money" options should be expensed and introduced into evidence a 2004 email in which he wrote, "It's illegal to backdate options grants." Despite this knowledge, they said, he signed financial statements, including annual reports, falsely stating that the options were granted at "fair market value," meaning they weren't in-the-money. "Amazingly in this case, the defense seems to have gone to extraordinary lengths to cast doubt on the veracity of the defendant's own certification," Assistant U.S. Attorney Adam A. Reeves said in his closing argument. "That defense is the corporate equivalent of 'The dog ate my homework.'" Mr. Marmaro said in his closing argument that Mr. Reyes was "a sales guy" with no background in accounting, and that Brocade was no different from many other companies that engaged in options backdating. "That accounting opinion that was at the heart of this case was, indeed, widely and in good faith misrepresented or misinterpreted and misapplied by hundreds of companies," he said. Mr. Marmaro also argued that "in-the-money" options are noncash expenses and therefore aren't of concern to investors. And he noted that Mr. Reyes never granted any backdated options to himself. "This is not a case of a CEO lining his own pockets," Mr. Marmaro said. He argued that Mr. Reyes only wanted to retain good employees and had no intention of defrauding shareholders. Mr. Reyes is the latest in a series of white-collar defendants to be convicted of fraud after arguing they were too busy and had too many responsibilities to realize what they were doing wrong. "The jury isn't going to sit there and buy that somebody was just too busy to know what his job is and points the finger at others," says Mr. Stern. Adds C. Hunter Wiggins, a former SEC lawyer who now practices with a private firm in Chicago: "That story line only works in legally gray areas concerning hypertechnical accounting rules." U.S. District Court Judge Charles Breyer scheduled Mr. Reyes' sentencing for Nov. 21. The judge, who said he would consider routine motions for a retrial this month, has wide latitude in punishing Mr. Reyes, former prosecutors said. He can decide, for example, that all 10 crimes for which Mr. Reyes was convicted stemmed from the same scheme thus reducing possible prison time. The judge can also opt for leniency for Mr. Reyes based on his own interpretation of the evidence at trial, said Bill Leone, a Denver lawyer and former U.S. attorney there. Though Judge Breyer, ruling last Friday, refused to grant Mr. Reyes's request to dismiss the case, the judge did express doubts, after the prosecution rested its case, about whether Mr. Reyes knew he was violating any laws. To date, 16 executives at eight companies have been charged with criminal offenses related to backdating. Seven have pleaded guilty. One has fled to Namibia and is fighting extradition to the U.S. The government has recently closed some of the 140 investigations it opened without taking action. Mr. Reyes still faces civil charges filed by the SEC. On May 31, Brocade agreed to pay the SEC $7 million to settle charges over backdating. Mr. Reyes holds a stake in the San Jose Sharks hockey team and hails from a family of high-tech entrepreneurs. His uncle, George Reyes, is chief financial officer of Google Inc. Gregory Reyes never exercised any of the questionable stock options at Brocade. He sold at least $380 million of shares he received before the company went public in 1999. The company dismissed him in mid-2005 after its stock-options problems became known.

Alaska Air Jettisoning Traditional Ticket Counters

THE WALL STREET JOURNAL) By Susan Carey Anchorage, Alaska -- When the Ted Stevens Anchorage International Airport was planning a new concourse, prime tenant Alaska Airlines insisted on a counterintuitive design: "The one thing we don't want is a ticket counter," said Ed White, the airline's vice president of corporate real estate. So the 447,000-square-foot Concourse C, which opened in 2004, has only one small, traditional ticket counter, even though the carrier's 1.2 million Anchorage passengers checked in through that area last year. This unconventional approach -- which uses self-service check-in machines and manned "bag drop" stations in a spacious hall that looks nothing like a typical airport -- has doubled Alaska's capacity here, halved its staffing needs and cut costs, while speeding travelers through the building in far less time. Now the Alaska Air Group Inc. unit is bringing an improved version of the same design to its hub at Seattle-Tacoma International Airport, which handled about 7.2 million departures last year by passengers on Alaska and its Horizon Air regional subsidiary. Later this summer or in the fall, a local frequent flier will be chosen to preside over the "ceremonial destruction" of part of the old Seattle ticket counter. That will launch the $28 million renovation -- $18 million to be borne by the airline and $10 million by the airport -- to be completed early next year. Most U.S. airports have shallow, rectangular check-in halls with endless ticket counters against the back wall. In between the counters and terminal doors typically are lines of passengers snaking back and forth, waiting to check bags or speak to agents for assistance. Even with most airlines' introduction of self-service check-in kiosks, fliers needing to check luggage or pets, buy tickets or ask for other assistance still need to stand in line. In Anchorage, the lobby is deep instead of shallow. But thanks to multiple windows, it is light and airy and provides a sweeping view of the Chugach Mountains to the east. The spacious hall is dotted with kiosks and roving customer-service agents to help passengers who aren't familiar with the machines. Those without bags can go immediately to the security-screening lines around the corner. Those with luggage proceed to bag-drop stations where the passengers, not the agents, place the bags on conveyor belts while the clerk checks boarding passes and identification, tag the bags and give the fliers the baggage stubs. Because the transactions are so swift at these stations -- and because the passengers (or, in some cases, porters) do the heavy lifting -- one agent can handle two lines of passengers, and the lines are rarely very long. Elite frequent fliers have dedicated bag-drop stations. Alaska's design in Anchorage has turned heads in the industry, and in 2006 the airline was awarded a U.S. patent for the check-in process, something it calls the two-step flow-through. Mr. White says his company isn't trying to keep competitors from going down the same path, but pursued the patent more to reward the many employees who helped to bring the idea to fruition. Other airlines quickly sent scouts up to Anchorage to check out the new concourse, including a team from Delta Air Lines Inc., Mr. White says. A few months ago, Delta completed a $26 million renovation of its check-in hall at Hartsfield-Jackson Atlanta International Airport, and the finished product looks remarkably similar to that of Alaska Airlines. Greg Kennedy, Delta's vice president for customer service there, says the new layout has enabled the airline to process passengers checking in during the peak spring break travel period in 20 to 30 minutes at most, compared with two or three hours three years ago -- and all in the same amount of square footage but 50% more usable space. Mr. Kennedy says he isn't aware of a visit to Anchorage but doesn't dispute it. Jim and Bobbi Davidson, in Anchorage on a recent Sunday morning for their flight back home to Portland, Ore., were enthusiastic about the check-in process. "I thought it was kind of cool and really fast," says Ms. Davidson, a move coordinator for United Van Lines. Her husband liked the "roomier" lobby. "I'd be interested to see this at Seattle and Portland, where there are more passengers," says the Oregon Air National Guard sergeant. Portland is on Alaska Air's wish list for the new layout, along with San Francisco, Oakland and other busy West Coast airports. Juneau, Alaska, will be getting the treatment next year and modified forms already are in place in Alaska's stations in Los Angeles and Puerto Vallarta, Mexico. But it's often difficult to make the existing space work or persuade airport authorities -- who have the last call -- to deviate from the tried and true. To hear Mr. White tell it, those who don't follow Alaska Air's lead are losing out. "We grossly underestimated the benefits" of the new process, he says. In Anchorage, the airline expected a 20% to 30% increase in agent productivity but in fact cut agents' times with passengers in half. While the number of Anchorage passengers has increased by 9% since the new concourse opened, the airline not only hasn't increased agent staffing but has reassigned some agents to other duties. No jobs have been lost. And a third bag-drop station in the lobby, not needed for now, has been temporarily leased to Northwest Airlines Corp. On a peak day in the summer, when tourists abound, a passenger might spend 15 minutes in the Anchorage lobby, says Mary Quantrell, Alaska's Anchorage station manager. But at an off-peak time, the wait drops to under two minutes. No industrywide average check-in time is compiled. The proof of the concept came in May 2003 when Alaska had a miniprototype set up for testing elsewhere in the airport. Two buses with 90 people in a tour group showed up at short notice and the airline immediately figured it was going to have to hold the flight. But the lead customer-service agent decided to use the prototype. Twenty minutes later, the entire group was checked in, and the agents, who had had trepidations about the concept, became instant supporters. Bringing the design to Seattle presents additional challenges because the airline won't be building a new facility but revamping the one it has -- and doing the work while it continues to serve travelers. But if productivity skyrockets in Seattle like it did in Anchorage, Alaska can make do with its existing premises for years instead of having to build a new terminal. Mark Reis, managing director of the Seattle Airport, says the plan represents "a much more efficient use of the real estate we already have." He says he supports the airline's innovation, but insisted on having his technical staff tweak the design to ensure that the passenger flow would be as efficient as Alaska hoped. "At times, there were tensions," Mr. Reis recalls. "We had dynamic but productive conversations over the right way to do this." The changes refined the placement of the kiosks, the bag-drop positions and the distance between the bag belts to provide maximum processing capability. Mr. White says one design change for Seattle will be locating the small, conventional check-in desks out of direct view of people entering the building, so they won't automatically gravitate toward them. "The visibility of something that looks traditional is a magnet," he says. "When they see it, they want to get in line." In Anchorage, the single "customer-service center," as the traditional check-in desk is called, is located on the far wall when passengers enter the building, leading some to march right over and queue up. Alaska, the nation's ninth-largest carrier by traffic, started a "skunk works" lab a decade ago to figure out how to use technology to make air travel less of a hassle for passengers. Out of that effort came the airline's ground-breaking ability to sell tickets on the Internet and allow fliers to check in online, developments other carriers quickly followed. One idea the lab tried was an utter failure: self-baggage check-in. "People wouldn't do it," says Mr. White. "There was an inherent distrust in not having to wait in line for something." They couldn't figure out how to get the bag tags on the suitcases and worried that the luggage wasn't going to make it to the correct destination, he says. So with an agent at the bag-drop position, "that seals the deal with the customers," he says.

THE SKEPTIC: Nokia's Treats

Signalling its resolve to improve gross operating margin, the Finnish handset maker that's currently calling the shots in the mobile phone industry has agreed to outsource more work to its suppliers. Around 200 Nokia staff are transferring to chip-maker STMicroelectronics which has secured a contract to supply a 3G high-speed packet access chipset to Nokia. And in increasing its reliance on second parties for the some of the vital technology that makes its phones work, Nokia has shrewdly decided to spread the risk. Texas Instruments and STMicro are no longer Nokia's preferred partners; the company has added Infineon and Broadcom to its roster for the supply of chipsets for Nokia's GSM-based and EDGE-based handsets, respectively. TI's influence is the more obviously diluted while STMicro picks up its first contract for a complete 3G chipset, making it a more serious rival in the segment to TI and Qualcomm. However, the Franco-Italian company's long-standing privileged relationship with Nokia has come to an end because the latest deal isn't exclusive. STMicro is no longer supplying Nokia with EDGE technology but will be able to sell the 3G chipsets to others. STMicro and TI may find their share of Nokia's business diluted further as the Finnish company relies increasingly on standard chipsets, rather than custom-made ones, which upstart Asian manufacturers will be itching to supply. While the long-struggling Infineon needs all the new business it can get, Broadcom may be the biggest winner and Qualcomm the chief loser from the Nokia moves. The extra business for Broadcom comes just after it has won an important victory in a patent dispute with its U.S. rival, reinforcing its credentials as a serious player in the sector. Qualcomm not only faces stiffer competition but looks increasingly out of the running as a serious player in the European market where it's about to lose out to Nokia for the mobile-TV standard that the E.U. wants for the region. As for Nokia, which has just reported a blow-out second quarter, the company looks more than ever like the sector's top dog. (Matthew Curtin has been a financial news reporter since 1990, and has written on international finance and business for Dow Jones Newswires - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by e-mail: matthew.curtin@dowjones.com)

Areva Faces Cost Overruns In Finland Plant Delay

French nuclear engineering company Areva (CEI.FR) may have to help cover the extra costs of between EUR500 million and EUR700 million from the delay in the construction of a nuclear power station in Finland, according to La Tribune on Monday. The construction of Finland's flagship Olkiluoto 3 nuclear power plant will be delayed due to safety requirements taking longer than anticipated to implement, owner Teollisuuden Voima Oy said Friday in a statement. The plant's supplier, a consortium which includes Areva and Germany's Siemens AG (SI), has informed TVO of the delay, postponing the start of commercial operation until 2011, according to the Finnish company.

Making Paperless Trails At Lloyd's

London -- When Richard Ward joined London's storied Lloyd's insurance market as chief executive a little over a year ago, he had a tough time understanding his new colleagues' jargon-heavy patter. One thing wasn't muddled: He knew he needed to modernize slapdash ways at the world's oldest insurance market. Each day at Lloyd's, thousands of insurance brokers shop for coverage on behalf of individuals and companies. They bustle among scores of underwriters who sit in groups, or "boxes," and write policies. Historically, brokers and underwriters typically scribbled the rough details of policies for big-ticket items like art, tankers, buildings, or planes on slips of paper. They often didn't bother to define key terms with the underwriters who write the policies in what Mr. Ward calls a "deal now, details later" culture. Lloyd's is mutually owned by its "members" -- companies and individuals who are the insurers who underwrite the policies written in the market. Over the years, these insurers have written coverage on everything from satellites and skyscrapers to Betty Grable's legs and Keith Richards's hands. They also acquired a reputation for being overly aggressive at times -- writing coverage on risks (and at prices) other insurers wouldn't. This led to big losses during industry downturns that threatened to topple the market several times in recent decades. Enter Mr. Ward, a 50-year-old physical chemist by training with no previous insurance experience. In his prior job as CEO of the International Petroleum Exchange, now ICE Futures but still called IP, Mr. Ward had changed the company from an old-fashioned market of haggling traders into an electronic trading platform. At Lloyd's, he is trying to replace paper with electronic processing and accounting. In a letter to insurers last month, he threatened to publish lists of people falling behind his targets and to potentially limit the amount of coverage sold by those who keep relying on paper slips. Lloyd's insurers expect to write policies with up to $32 billion in premiums this year. But Lloyd's has to change, Mr. Ward argues, because it faces more tech-savvy insurance hubs growing in places like Bermuda, Dublin and Dubai. At Lloyd's offices, just a few blocks from the site of Edward Lloyd's 17th-century coffee house, where the market started as a place for ship captains and merchants to trade coverage on wooden vessels and cargo, Mr. Ward talked, over coffee, with The Wall Street Journal about being an outsider trying to update an icon. Excerpts follow. The Wall Street Journal: What did you know about insurance when you took this job? Mr. Ward: I knew very little about insurance apart from a dictionary of insurance terms that my colleagues gave me when I left the IP. It was very helpful because I'd never come across a business with so many terms, phrases, and acronyms of which I had no understanding. The amount of jargon was really quite extraordinary. I remember one of the first conversations I had here. There were literally 20 or 30 acronyms or phrases that I just didn't understand. WSJ: Does your experience running a derivatives exchange, or as a scientist, help? Mr. Ward: This business is mainly about people, managing change, and risk. When I think about my previous job, it was also about understanding risk, change and people as well. That is a common thread. With science, it's a bit more tenuous. But my time as a scientist prepared me very well for my career in business. It taught me to think and analyze problems in a disciplined way. WSJ: How do you wage a war against paper in a place that's used paper for more than 300 years? Mr. Ward: The expression I've used is that if you want to eat an elephant, the best way to do it is with a teaspoon. What I'm saying is that if you take a big dig into it, you will choke. I look upon the Lloyd's processes as the elephant. We have to take small bites out of that elephant to make sure we can digest the changes we're making. We're taking small bites with things like electronic claims filing and electronic accounting and settlement. We are sorting out the quality of contracts and introducing the checking of contract terms. Each is a small bite, but when you put them together, I do think they will have a significant impact. WSJ: Is simply making sure that insurers and customers agree on details before a policy takes effect one of the biggest changes under way? Mr. Ward: I found it odd that we had this "deal now, details later" culture. The percentage of certain contracts is rising. The latest figures have us at over 90%. Now we're moving toward what I'd call a quality-assurance phase. That is a process of contract-checking to ensure we have the right terms in the contract and that those terms are checked before an insurer takes on the risk. WSJ: Will handling more claims and policies electronically avoid having brokers lugging so much paper around? Mr. Ward: The first day I came to Lloyd's, I was in one of these wonderful wall-climber lifts we have. A lady came into the lift with a suitcase on wheels. I said, "Have you been anywhere nice?" and she said "I'm afraid these are just claims files." Now 30% of claims are being processed electronically. That's good progress, but from where I'm sitting, it's never fast enough. By the end of the year, I'd like all new claims to be processed electronically. You should see some of these claims files from the past -- the sheer volume of papers with Post-it Notes stuck on them. WSJ: How much paper is the market generating each day? Mr. Ward: A colleague of mine in the IT industry estimated we're generating about four tons of paper a day. That's all going down to Chatham [a London suburb] in these white vans. I think they're white. I've never seen one. They don't have Lloyd's emblazoned all over them. We try to keep them below the radar screen. The target we've set ourselves is that by March 31, we crush the vans and all of it is processed electronically. We might have a symbolic crushing of a van, and it might become a piece of art somewhere inside or outside the building. That might be quite appropriate to do once we've reached our goals. WSJ: What levers can you pull to fight resistance? Mr. Ward: There is willingness and acceptance of the need for change here. Obviously, delivering that change is difficult. When you talk to the CEOs, they say "absolutely we need to do this." But it's the execution that is harder and the disconnect sometimes between CEOs and the people actually doing the work. It's not easy to change behavior and culture. . . . We could always fine people, but I'm not that comfortable with that. The name-and-shame or name-and-praise league table idea is on the table, too. You might say here are the 10 best, now where are the rest of you? I like that concept. WSJ: Premiums are falling, or softening, which can lead to big losses down the road. Mr. Ward: We can't afford to repeat the mistakes of the past. I think we're making progress. It's interesting to compare 2005 and 2001, for instance. In 2001, we had over $4 billion in claims from the World Trade Center [terror attacks] and we reported a loss of $6 billion. In 2005 hurricanes Katrina-Rita-Wilma led to claims of over $6 billion, but we had an overall loss of just $200 million. That tells people who come to our market that we are more disciplined underwriters. We are not a place where you put everything on black and 32 and spin the wheel. WSJ: Is there a concern about updating Lloyd's without chipping away at iconic features like the underwriting room? Mr. Ward: We must be very careful to not throw out the baby with the bathwater. There are many things about Lloyd's that are frankly just superb, starting with the Lloyd's brand itself. We've got an underwriting room full of individual entrepreneurs. Their willingness to consider new risks and the speed with which they can understand and price new risks is unparalleled. That's a Lloyd's-ism we need to keep, for instance. I believe we will still have an underwriting room in 10 years because of the complexity of the risks being placed and the lack of standardization in contracts. If there is more standardization, maybe through the use of technology, maybe the time frame will shorten. But I haven't seen two placement documents that are the same. WSJ: Where will Lloyd's be in 10 years? Mr. Ward: Distribution will be increasingly important. We see more business being placed locally, so we need more local presences around the world. In Singapore, we've established a Lloyd's underwriting structure. In China we have a different model, but we are there. We are looking at the Middle East, South America, as well as India.

How A Company Made Everyone A Team Player

American corporations love teamwork. But few companies are as smitten as ICU Medical Inc. At the San Clemente, Calif., maker of medical devices, any worker can form a team to tackle any project. Team members set meetings, assign tasks and create deadlines themselves. Chief Executive George Lopez says he's never vetoed a team decision, even when he disagreed with it. These teams have altered production processes and set up a 401(k) plan, among other changes. Teams have been in vogue in business since the 1980s. Now, companies are experimenting with different kinds of teamwork as competition and complexity increase and business problems cross departmental or geographic boundaries. Consulting firm Accenture Ltd. has scores of globally dispersed teams serving clients. Teams at International Business Machines Corp. share information on internal Web sites using "wiki" technology that allows collaboration online. Google Inc. assembles teams of three or four employees to assess new ideas. Most big companies assign teams for projects. ICU, which has around 1,480 employees, is unusual in that it allows workers to initiate the teams. It's "rare that a company says, 'Go form your own team and go address this issue,'" says Ben Rosen, a management professor at the University of North Carolina, Chapel Hill. Dr. Lopez, an internist, founded ICU in 1984. By the early 1990s, the company had about $10 million in annual revenue and was preparing for a public offering. Demand for the company's Clave product, used in connecting a patient's IV systems, was skyrocketing; Dr. Lopez needed to figure out how to ramp up production. ICU had fewer than 100 employees but was expanding rapidly. Handling the booming growth and demand "was an overwhelming task for one entrepreneur CEO," says Dr. Lopez, 59 years old. He was still making most decisions himself, often sleeping at the office. Then, he had an epiphany watching his son play hockey. The opposing team had a star, but his son's team ganged up on him and won. "The team was better than one player," says Dr. Lopez. He decided to delegate power by letting employees form teams, hoping it would help him spread out the decision-making and encourage input from people closest to the problems. Some executives hated the idea; his chief financial officer quit. Putting the new system in place, Dr. Lopez told employees to form teams to come up with ways to boost production. It didn't work. With no leaders, and no rules, "nothing was getting done, except people were spending a lot of time talking," he says. After about a year and a half, he decided teams should elect leaders, which brought a vast improvement. In 1995 he hired Jim Reitz, now the human-resources director, who helped him create a structure with a minimum of bureaucracy. They developed core values -- "take risks" -- and so-called rules of engagement -- "challenge the issue, not the person." At the same time, ICU started paying teams rewards based on a percentage of the cumulative salaries of their members. It worked. Employees embraced teams. Today 12 to 15 teams finish projects each quarter, often meeting once a week or so. The typical team has five to seven members, and the company allots $75,000 quarterly to reward those that succeed. Teams have propelled changes over the objections of top executives. Dr. Lopez, worried about the cost, didn't want to institute a 401(k) plan, but acquiesced after a team recommended one. He now concedes the plan has helped in retaining employees. Dr. Lopez can veto team decisions but says he hasn't yet. For teams to work, employees need to feel they have authority, he says. A veto would "really have to be worth it," Dr. Lopez says. The team would have to be putting the company "on a pathway to destruction." So far, that hasn't happened. ICU's revenue grew 28% last year to $201.6 million, though the company projects that revenue will decline this year. Its stock has climbed more than sixfold in the past decade. Many teams have delighted executives. A few years ago, Don Ramstead, who planned manufacturing schedules at the time, watched a forklift inefficiently shuttle parts back and forth between a molding site and a warehouse. He talked with colleagues, and proposed a team to reconsider the manufacturing process for the Clave, still one of the company's top sellers. The team, which ultimately included the director of manufacturing and the head of logistics, in six months cut the process to nine steps from 27, saving at least $500,000 annually. Mr. Ramstead's cut of the reward was about $1,500. Dr. Lopez -- whose hobbies include competitive free-diving, which involves descending underwater as far as he can while holding his breath -- thinks the extreme team approach could probably work only in a company culture similar to ICU's. "The way I created this company, the employees sort of follow my personality, and my personality is to be very competitive," he says. "In a competitive environment, this is what works best. It allows these people to take control -- they can do as much as they want to do and can advance as much as they want." Jeff Polzer, a Harvard Business School professor, says teams generally amplify a company's culture. Healthy cultures tend to produce collaborative teams, while divisive, political cultures become more so. The strategy can be effective, as long as companies impose ground rules to prevent chaos, says Mr. Rosen of the University of North Carolina. But Mr. Rosen and others say teams can also be inefficient and distracting. It "has to be done in a culture where people understand they just can't blow off everything else they're doing," he says. At ICU, team members don't get a break from their regular jobs. Serving on teams is technically voluntary but some employees with special expertise are "requested" to join. "It's above and beyond your job," says business-applications manager Colleen Wilder, who has served on many teams in the 10 years at ICU. "You still have to get your job done." The rewards can create tension. Ms. Wilder once balked at sharing a reward with co-workers she thought had joined a team solely for the money. She proposed dividing the money based on what tasks team members performed. "I said, 'You did nothing, and I propose you get nothing,'" she says. The team agreed. The payment system has been changed to peg the size of the reward to the importance of the project. "People started thinking, 'We created a whole new product for the company and these guys painted the lunch room, and they're getting the same amount of money that we are?'" Mr. Reitz says. He encourages employees to question whether teams really met their goals, or whether a project is significant enough to merit high reward levels. Over the years, ICU has instituted more rules to help teams function smoothly. A group of employees created a 25-page handbook that concretely spells out team operations -- for instance, listing eight items for "What should we do at the first meeting?" -- and addresses frequently asked questions. Teams must post notes of each meeting to the company intranet, where any employee can offer feedback. Teams aren't perfect, but Dr. Lopez says they're better than the alternative: A while back, the information-technology department ordered new laptops that many traveling staffers find too heavy. "That's what happens when you don't form a team," he says. "Top-down decisions are frequently wrong."

Qwest Taps Mueller To Succeed Notebaert As CEO

Edward A. Mueller, a former chief executive of Ameritech Corp. and Williams-Sonoma Inc., has been named chief executive and chairman of Qwest Communications International Inc., the company said. Mr. Mueller, 60 years old, takes the lead at Qwest after a tumultuous few years as the once highflying telecommunications company struggled to get back on a solid financial footing in the wake of shareholder lawsuits and investigations as a result of accounting problems in the early part of the decade. Mr. Mueller will be faced with fierce competition from cable companies that are increasingly encroaching on the company's home turf of Denver and other key markets such as Seattle and Portland, Ore., with competitively priced phone, Internet and video services. Mr. Mueller, whose appointment was effective Friday, succeeds CEO and Chairman Dick Notebaert, 59, who announced his plans for retirement in June. Mr. Mueller didn't speculate on changes he had in mind at the company but said, "Any time new fresh eyes come on the scene you can evaluate everything." In particular, Mr. Mueller said he wanted to maximize Qwest's slogan, "Spirit of Service," to ensure customers' expectations are met. "I don't think technology gives anyone an edge," Mr. Mueller said. "Everyone else catches up pretty fast. It's what you do with that technology." Mr. Mueller (pronounced Miller) served as president and CEO of Ameritech, a land-line carrier that is now part of AT&T Inc., from 2000 to 2002. He joined SBC Communications Inc., which later renamed itself AT&T, in 1968 and held several executive-level positions in the company, including president and CEO of Southwestern Bell Telephone, president and CEO of Pacific Bell and president of international operations. He was CEO of retailer Williams-Sonoma from 2003 to July 2006. Mr. Mueller holds a bachelor's degree in civil engineering from the University of Missouri and an executive M.B.A. degree from Washington University. Frank Popoff, lead director on Qwest's board, praised Mr. Mueller's telecom background and said his Williams-Sonoma experience made him a well-rounded candidate. Mr. Notebaert had recommended Mr. Mueller to the board. "Ed walks into a very competitive marketplace with changing technologies and that's where his retail experience really will serve our company and shareholders well," Mr. Notebaert said. During his tenure, Mr. Notebaert cut thousands of jobs, pared back benefits and reduced the company's debt by more than 40%. He had taken over after Joseph Nacchio resigned in mid-2002 as the company's stock plummeted after investors learned of what many of them believed to be improper accounting methods at the company. Mr. Nacchio was recently sentenced to six years in prison for insider trading. Recruiters Spencer Stuart handled the CEO search for Qwest. ---

Thales Germany Chief To Leave Company

NEW YORK (Dow Jones)--Edward A. Mueller, a former chief executive of Ameritech Corp. and Williams-Sonoma Inc. (WSM), has been named as new CEO and chairman of Qwest Communications International Inc. (Q), the company said.

Mr. Mueller, 60, will take the lead at Qwest after a tumultuous few years as the once high-flying telecom struggled to get back on solid financial footing in the wake of shareholder lawsuits and investigations as a result of accounting debacles of the early part of the decade.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

Mr. Mueller will be faced with fierce competition from cable companies that are increasingly encroaching on the company's home turf of Denver as well as Seattle and Portland, Ore., with competitively priced phone, Internet and video services. Mr. Mueller will follow former CEO Dick Notebaert, 59 years old, who announced his plans for retirement in June.

Mr. Mueller didn't speculate on changes he had in mind at the company but said, "Any time new fresh eyes come on the scene you can evaluate everything."

In particular, Mr. Mueller said he wanted to maximize Qwest's slogan, "Spirit of Service," to ensure customers' expectations are met.

"I don't think technology gives anyone an edge," Mr. Mueller said. "Everyone else catches up pretty fast. It's what you do with that technology, and 'Spirit of Service' is about the brand."

Mr. Mueller (pronounced Miller) served as president and chief executive officer of Ameritech, a landline carrier that is now part of AT&T Inc. (T), from 2000 to 2002. He is a former president of international operations at SBC Communications Inc., which renamed itself AT&T., as well as a former president and chief executive officer of Pacific Bell. He joined SBC in 1968 and held other executive level positions in the company, including president and chief executive officer of Southwestern Bell Telephone. He became CEO of Williams-Sonoma in 2003.

Mr. Mueller holds a bachelor's degree in Civil Engineering from the University of Missouri and an executive M.B.A. degree from Washington University. In addition to his telecom and Williams-Sonoma experience, he serves as a member of the board of directors at VeriSign Inc. (VRSN), The Clorox Company (CLX) and GSC Acquisition Company (GGA). Mr. Mueller and his family will move from the Bay Area in California to the Denver region.

Frank Popoff, lead director on Qwest's board, praised Mr. Mueller's telecom background and said his Williams-Sonoma experience made him a well-rounded candidate.

"Ed was the best balanced in terms of embracing ongoing growth and operational excellence," Mr. Popoff said. "All those years at AT&T telephony are in his blood."

Mr. Notebaert during his tenure cut thousands of jobs, pared back benefits and reduced the company's debt by more than 40%. He had taken over after Joseph Nacchio resigned in mid-2002 as the company's stock plummeted after investors learned of what many of them believed to be improper accounting methods at the company. Mr. Nacchio was recently sentenced to six years in prison for insider trading.

Mr. Mueller's appointment was official Friday morning. Mr. Notebaert will stay on until Wednesday and said he would offer unpaid assistance as needed thereafter. Mr. Notebaert had recommended Mr. Mueller to the board.

"What Ed walks into a very competitive marketplace with changing technologies and that's where his retail experience really will serve our company and shareholders well," Mr. Notebaert said. "He's a people guy."

Mr. Mueller will need to come up with a plan to jump ahead of cable as customers continue to drop landline phone service in favor of less expensive alternatives and wireless connections. Other phone companies are combating the same problem by spending millions to offer their own souped up, Internet-based TV service to compete with cable, but Qwest has not done so and instead offers TV through a partnership with satellite provider DirecTV Group Inc. (DTV) And unlike the other major phone companies, Qwest does not own a high-growth wireless unit though it resells service from Sprint Nextel.

In the second quarter of this year, Qwest's net income more than doubled, helped by further reductions in spending. Qwest added new customers for its bundled packages of Internet, phone and television services while the number of traditional phone-service customers fell 7%.

Under Mr. Notebaert's leadership, Qwest tried unsuccessfully to acquire MCI Communications Inc. but lost out to Verizon Communications Inc. (VZ) after a lengthy battle. In recent months Mr. Notebaert failed to garner interest in other possible mergers for Qwest and lost key executives as his chief financial officer, Oren Shaffer, as well as others retired.

Recruiters Spencer Stuart handled the CEO search for Qwest.

Editorial: Bernanke's Bear Market

That's Bear with a capital B, as in Bear Stearns, the Wall Street titan whose credit problems on Friday triggered another broad stock market selloff. Credit markets are continuing to re-price risk across the board, and investors are wondering when the next financial corpse will float to the surface. So naturally the wounded are clamoring for the Federal Reserve to ride to the rescue with easier money when it meets tomorrow, even though the Fed helped create this mess. Credit panics are never pretty, but their virtue is that they restore some fear and humility to the marketplace. That lesson is certainly being relearned at Bear Stearns, a venerable outfit that was supposed to be a whiz in the fixed-income market. But two of its subprime mortgage hedge funds have cost investors dearly, and Standard & Poor's piled on Friday by downgrading Bear's financial outlook to negative from stable. Bear executives were alarmed enough to host a conference call with Wall Street analysts disclosing what they have done to shore up the firm's balance sheet. But the call only alarmed investors more broadly when the Bear execs moaned that today's fixed-income market is the worst in decades. Yesterday the company sacked the head of its capital markets business, and that might not be the end of the carnage. Last week amounted to an investor run on Bear, and regulators need to watch closely and perhaps clean house so Bear's problems are contained. The Bush Administration hasn't had to show this kind of financial plumbing capacity to date, and we hope Hank Paulson's Treasury is on the job. The big question is whether this credit correction is destined to become a full-blown credit crunch, damaging the larger economy. There's not much doubt the mortgage market is getting worse, with the pain moving up the income chain from subprime loans. American Home Mortgage stopped lending last week, and the Sowood Capital Management hedge fund got caught by wider credit spreads. The ISI Group's Andy Laperriere, who has been ahead of the housing curve, is predicting a further mortgage crunch "worse than most pessimistic assumptions." In these kinds of financial corrections, it pays to expect more surprises. Yet overall credit spreads are hardly out of line with historical norms. Spreads in the high-yield debt market have moved in the 5% range from 2.5% to 3%. What was truly out of whack was how narrow they became for so long. The rapidity of this return to normalcy is creating troubles, but they so far don't seem to signal the kind of liquidity crunch we saw with the Asian crisis of the late 1990s, or the dot-com crash of 2001. The global economy is booming, with every country save for a couple of despotisms growing. The so-called emerging economies of Brazil, China and India are growing fast enough that the U.S. consumer isn't the world's only growth engine. And for all of the credit worries, last Friday's U.S. employment report for July showed a slowing but still healthy job market. The jobless rate rose to 4.6% but weekly jobless claims have fallen of late. The biggest decline in jobs came from government. Meanwhile, both services and manufacturing continue to expand, with the latter benefitting from exports feeding the global boom. Which brings us to the Fed, and its Open Market Committee meeting tomorrow. As always amid a credit turn, the pleas for easier money are rising. We're even hearing nostalgic cries for the return of Alan Greenspan, who is remembered fondly for supplying liquidity during the credit crises of his era. But what these cries forget is that the Greenspan Fed is one reason for the current mortgage mess. It's tempting to blame Wall Street and other bankers for all those bad residential loans, and they are paying the price now. But they were also lending into a housing asset bubble fed by easy monetary policy. Risky mortgages always look better when home prices look like they'll never decline. Current Fed Chairman Ben Bernanke was along for the Greenspan ride, so he's hardly blameless. No doubt he'd love to play the hero role now, signaling easier money this week. However, he'd have to do so at a time when the dollar is weak, oil is at $78 a barrel, and commodity prices in general are roaring. Mr. Bernanke and the Fed might have more room to maneuver this week had they been tighter earlier. But now they can't afford to ignore global dollar weakness. The run on Bear Stearns would look like a Sunday stroll compared to a global run on the dollar.

With Bear Under Fire, Spector Takes The

With Bear Under Fire, Spector Takes The Fall (From THE WALL STREET JOURNAL) By Kate Kelly and Susanne Craig On Wednesday James Cayne, the 73-year-old chief executive of Bear Stearns Cos., summoned his top lieutenant to his smoky, dimly lit office in midtown Manhattan. The big securities firm Mr. Cayne had led as CEO for 14 years was under attack. Two of its mortgage-related hedge funds had blown up, costing investors more than $1 billion, and its stock was under siege, down 27% this year alone. The way Mr. Cayne saw it, Warren Spector, Bear Stearns's co-president and the person most often cited as his likely successor, deserved some of the blame. He told Mr. Spector he had lost confidence in him. "I think it's in the best interests of the firm for you to resign," Mr. Cayne told Mr. Spector, people familiar with the conversation say. Mr. Spector was taken aback, and responded that he'd been working hard to address the firm's problems, according to one of these people. That conversation ended the close partnership between the two Wall Street veterans, a connection forged years earlier by a common love of bridge, but one that had become strained. Mr. Spector, a 49-year-old former mortgage-securities trader, has become Wall Street's highest-profile casualty in the burgeoning subprime lending fiasco. What had started as a narrow problem in a small corner of the U.S. housing market -- lending to risky borrowers -- has become a big problem for Wall Street. The trouble at Bear Stearns has spooked investors. Bear Stearns has long been known as one of the most astute risk managers on Wall Street. Its problems come despite repeated assurances from Wall Street bankers that they have a handle on the booming market for mortgage securities. Bear Stearns, which has a huge mortgage business but a less diverse mix of other business than its investment-banking peers, has been the hardest hit. Its stock has fallen 28% since the beginning of June, and 6% on Friday alone. A Friday afternoon conference call intended to quell investors' fears about Bear Stearns's profitability attracted 2,200 listeners. Mr. Spector's ouster may not allay those concerns. It leaves the company without a clear succession plan and without the services of a mortgage and trading expert. While Mr. Cayne is deeply involved in running Bear Stearns, he had left much of its day-to-day operation to a pair of lieutenants -- investment banker and co-president Alan Schwartz and, until last week, Mr. Spector. Mr. Cayne had been comfortable enough with their stewardship that he didn't come into the office most Fridays in the summer, preferring to stay at his home in New Jersey. Bear Stearns's 13-member board met yesterday afternoon to formalize Mr. Spector's departure. For now, the firm will have a single president: Mr. Schwartz, a seasoned rainmaker who has advised on big mergers but doesn't have the trading experience of Messrs. Spector or Cayne. Jeffrey Mayer, co-head of global fixed income at Bear Stearns, will replace Mr. Spector on the executive committee. "There is a depth of talent in our senior management team," Mr. Cayne said yesterday in a prepared statement. Bear Stearns has told investors that it's "solidly profitable" and that it made money during the market gyrations of both June and July. The firm said that in recent months it has moved to secure more stable financing by replacing some of its commercial-paper holdings with longer-term loans. "They have weathered a lot of storms before, but this is a . . . tough hole to dig out of," said Glenn Schorr, an analyst at UBS AG. "They have funding to carry them for a while. Usually sales happen on a downturn when there is a liquidity problem, and we aren't seeing that now." Nevertheless, Wall Street has been buzzing with speculation that the firm will need to seek a strategic investor. In 1987, investor Warren Buffett bought a large stake in Salomon Brothers Inc. as it struggled to fend off unwanted offers, and he later served as interim chairman to restore confidence during a crisis. Last year, Bear Stearns held talks with China Construction Bank Corp. about taking a minority stake, which would have given Bear Stearns a larger capital base and a foothold in China. But the talks fizzled after the then president of CCB, Chang Zhenming, left the bank. Bear Stearns's Los Angeles-based vice chairman, Donald Tang, has continued to pursue the idea with other entities such as China Citic Group, according to people familiar with the matter. A person close to Bear says the firm is only interested in a joint-venture partner. But following the Chinese government's $3 billion investment in private-equity firm Blackstone Group, other Wall Street firms have been seeking similar ties, which gives Chinese entities more attractive alternatives than Bear Stearns. Bear Stearns's troubles started in the housing market, where it had developed a lucrative business originating mortgages and packaging them into securities that were sold to investors and traded. In 2006, home prices were beginning to taper but "subprime" borrowers with sketchy credit continued to get mortgages. By the second half of that year, however, late payments and defaults were rising, shaking the subprime market, and the picture worsened after the new year. Home prices also were starting to slip, raising fears of a housing bust. At Monday meetings of Bear Stearns's executive committee, the housing market became a frequent point of discussion. The committee didn't foresee trouble at two internal hedge funds run by Ralph Cioffi, a former mortgage-bond salesman who had been with Bear Stearns since 1987 and was a close colleague of Mr. Spector's. In 2003, Mr. Cioffi had approached his superiors about using the firm's own capital to buy and sell securities in a portion of the fixed-income market that included collateralized debt obligations, or CDOs. Some CDOs are based on pools of mortgage loans. He was successful enough that, at the end of that year, Bear Stearns's hedge-fund committee allowed him to open his own fund as part of the firm's asset-management unit. His fund, called the High-Grade Structured Credit Strategies fund, raised about $925 million from investors and invested in CDOs. For several years, it notched positive monthly returns. Last year, he launched a second fund with roughly $640 million in investor capital. He loaded it with debt to magnify returns. This spring, as the housing market weakened further and subprime defaults mounted, results began to slip. Bear Stearns officials didn't worry much at first. Mr. Cioffi's investments were considered by rating agencies to be high-grade investment vehicles, and their valuations had remained largely intact. But in May, brokerage firms that had sold CDOs to Mr. Cioffi began slashing the prices, or "marks," they had previously put on those securities, leaving the two hedge funds with double-digit paper losses. In early June, some investors in the more leveraged fund asked for their money back. Because their requests added up to about $300 million -- more cash than Mr. Cioffi had on hand -- redemptions were frozen. Bear Stearns's stock began dropping in value, and the executive committee started meeting nearly every day to discuss what to do. To the committee, it looked as though the enhanced-leverage fund had little chance of surviving, but that the first fund might be salvaged. By mid-June, the enhanced-leverage fund had missed margin calls -- requests for additional cash and collateral -- from lenders including Merrill Lynch & Co. and J.P. Morgan Chase & Co. The lenders wanted to be made whole. Some Wall Street executives were pressuring Bear Stearns to stop the bleeding. Initially, the firm's executive committee balked. Bear Stearns executives felt they shouldn't feel obligated to lend money to a fund whose operations were separate from Bear Stearns's, and whose investors were knowledgeable about the risks. On the afternoon of June 14, J.P. Morgan's investment banking co-chief, Steven Black, and his top risk officer had a tense phone call with Mr. Spector, in which the lender urged Bear Stearns to give the fund some emergency credit, participants in the call say. Calling the J.P. Morgan executives "naive," Mr. Spector said Bear Stearns was the resident expert in the mortgage business, recalls one participant, and that the lenders should back off. Early that evening, J.P. Morgan sent an in-house lawyer to Bear Stearns's headquarters with an official default notice. But a Bear Stearns receptionist told the lawyer that the firm was closed for business, and that the documents couldn't be accepted, people familiar with the matter say. The blow to Bear Stearns's reputation, however, caused the firm to reverse course. Late the following week, after hearing a presentation from Bear Stearn's in-house mortgage team suggesting that the older fund might still contain value. On the evening of June 21, the firm's executive committee authorized a secured loan to the less-leveraged fund of up to $3.2 billion to the troubled fund. The fund ended up borrowing $1.6 billion, which it didn't repay entirely, leaving Bear Stearns's loan officers to seize the collateral remaining in Mr. Cioffi's fund. Bear Stearns could lose much of the $1.3 billion the fund still owes it, public filings indicate. Because the asset-management division reported to him, Mr. Spector was under fire as well. He replaced the chief of that division with Jeffrey Lane, a money-management veteran who had once run Neuberger Berman LLC. Working long days and nights and seeing little of his wife, Mr. Spector told friends he was chagrined about the crisis and that he understood that the stakes were high. (MORE TO FOLLOW) Dow Jones Newswires August 05, 2007 23:05 ET (03:05 GMT) WSJ(8/6) With Bear Under Fire, Spector Takes The -2- Nevertheless, Mr. Spector had agreed months earlier to play with partners in a national bridge tournament in Nashville, Tenn. So he flew there in mid-July to compete. With Bear Stearns's shares reeling and concerns about the firm's management mounting, he spent about a week at the tournament, rising early to work the phones in his hotel room and jumping into the game in midafternoon. Along with his partners, Mr. Spector won the tournament. Still Mr. Cayne, who also played in the Nashville competition, was steamed that his lieutenant had been away from the office, according to people familiar with his thinking. Years earlier, it was Mr. Spector's bridge-playing skills that had helped bring him to the attention of Mr. Cayne, a former scrap-iron salesman who had made his name as a stockbroker. Mr. Spector, who grew up outside Washington, had won the title "king of bridge" in a national youth contest. After graduating from Bethesda-Chevy Chase High School in 1976, he attended Princeton, then switched to St. John's College, a small school in Annapolis, Md. During his junior year, Mr. Spector wrote to Alan "Ace" Greenberg, then managing partner of Bear Stearns, to ask for a summer job. He got an offer, but turned it down because he couldn't afford to live in New York on $125 a week. Several years later, after graduating from business school, he contacted Mr. Greenberg again. This time he accepted a job offer. He started on the firm's government-bond desk, where he helped establish the metrics and systems Bear Stearns uses today to research and trade mortgage-backed securities. By 1987, two years after Bear Stearns went public, Mr. Spector was one of the best-paid people at the firm.Around that time, Mr. Cayne, who had not yet become CEO, was reviewing some compensation figures, and Mr. Spector's name rang a bell. He picked up the phone and dialed Mr. Spector. "Are you the Warren Spector that was the king of bridge?" he asked. Mr. Spector said he was, and Mr. Cayne invited him for a chat. In 1990, Mr. Spector became a Bear Stearns director, and a few years later, he was named one of two people to run fixed income. In 1995, Mr. Spector's partner in overseeing the group, John C. Sites Jr., left amid speculation that Mr. Spector had pushed him out. Mr. Sites did not return calls for comment. Mr. Spector, who wears black-rimmed glasses and maintains a trim physique, kept a relatively low profile on Wall Street. He and his wife, Margaret Whitton, a former actress who had a supporting role in the movie "Nine 1/2 Weeks" and played the vixenish wife of a CEO in the 1980s Wall Street parody "The Secret of My Success," have raised money for various charities, including for a hospital on Martha's Vineyard, where they own a beachfront home. In recent years, Mr. Spector and Mr. Cayne butted heads over several issues. They didn't see eye to eye on Mr. Spector's wish to trade derivatives -- securities whose values are tied to stocks and other products -- on behalf of Bear Stearns customers. They disagreed about whether Bear Stearns should have a gym in its Madison Avenue building. (Mr. Cayne eventually agreed to add one.) In 2004, Mr. Cayne publicly rebuked Mr. Spector for speaking on behalf of Democratic presidential candidate John Kerry, to whom Mr. Spector had donated money. (Mr. Cayne discourages Bear Stearns employees from making public statements about politics.) "If any of you were upset or offended by these press reports, please accept both his and my apologies," Mr. Cayne wrote in a memo to employees that chided his deputy. Around that time, there was also tension over Mr. Spector's pay, due to his practice of deferring his annual compensation for a period of years, people familiar with the matter say. The firm allowed such deferrals, but Mr. Spector's total deferrals were becoming expensive for the firm, Mr. Cayne and some other executives felt. Last year, Mr. Cayne made $33.85 million and Mr. Spector took home $32.1 million, according to regulatory filings.

Nardelli Picked To Run Chrysler In

Cerberus Capital Management LP is expected today to name former Home Depot Inc. Chief Executive Officer Robert Nardelli to lead its newly acquired Chrysler unit, signaling a shift in the way the car maker copes with the changes sweeping the auto industry. Mr. Nardelli, who left Home Depot earlier this year under fire for his pay package and the company's strategic struggles, will become chairmanand CEO of Chrysler, making him the second outsider recently named to lead one of Detroit's struggling Big Three auto makers. He follows former top Boeing Co. executive Alan Mulally, who was recruited last fall to take over ailing Ford Motor Co. Mr. Nardelli's appointment puts him above Chrysler President Thomas W. LaSorda, an industry veteran who had been CEO and will remain president. The arrival of two CEOs who aren't part of or beholden to the U.S. auto industry's culture and traditions is as potent a symbol of the change buffeting the traditional U.S. auto sector as the news last week that the Big Three's combined share of the U.S. market fell below 50% for the first time. Both will play key roles in what are expected to be tough negotiations over a new national labor agreement with the United Auto Workers union, in which the auto makers want big concessions to narrow a $30-an-hour labor-cost gap with the U.S. operations of Japanese auto power Toyota Motor Corp. Mr. Nardelli, who before Home Depot was a senior executive at General Electric Co., comes to Detroit fresh from bruising clashes with Home Depot shareholders and employees over his $210 million severance package, which many shareholders felt was undeserved in light of the company's performance. He had a difficult experience as the public face of Home Depot, most notably at the company's 2006 annual meeting, which he limited to a half hour by using a clock to limit shareholder comments to one minute. Mr. Nardelli also angered employees with the implementation of the Six Sigma management system, which he learned while he was at General Electric. But the move to Chrysler puts him in a top position at a private company without pressure from public shareholders. That could give Mr. Nardelli freedom to undertake more ambitious restructuring, and that in turn could drive rivals Ford and General Motors Corp. to rethink the pace and scope of their own overhauls. Mr. Nardelli's pay will be tied to Chrysler's performance and based on the equity value of the auto maker, people familiar with the matter said. Further details couldn't be learned. These people added that Cerberus is not worried about the controversy surrounding Mr. Nardelli's departure from Home Depot because his severance package was based on what was written in his contract, and it was not Mr. Nardelli's fault for accepting that. "I am very excited to be part of a team focused on re-establishing Chrysler as a standalone industry leader, with a renewed focus on meeting the needs of customers," Mr. Nardelli said in a statement. "Chrysler has many deeply talented and dedicated people, and I am confident that together we can continue the momentum of Chrysler's recovery and return this great American icon to a path for global growth and competitiveness." Chrysler already has a restructuring plan in place that calls for the elimination of 13,000 jobs and a $3 billion investment in engine systems designed to improve fuel economy. The company also plans to shut down its factory in Newark, Del., and will eliminate shifts at other plants. Until now, Cerberus had indicated it would keep Mr. LaSorda as CEO. Mr. LaSorda, in his role as Mr. Nardelli's No. 2, is expected to continue to be a key player in Chrysler's relations with the UAW. In addition, he will become vice chairman of Cerberus Operating & Advisory Co. LLC, an operations advisory affiliate of Cerberus. In that role, Mr. LaSorda will assist in development of the advisory company, which works with Cerberus's companies. "We are very excited to welcome Bob to the Chrysler family," Mr. LaSorda said in a statement. "Bob has a proven track record of success." Mr. LaSorda couldn't be reached. Wolfgang Bernhard, a former Chrysler executive who advised Cerberus during its pursuit of the company and was expected to become Chrysler chairman, will no longer be involved with the company due to family reasons, Cerberus said in a statement. Mr. Bernhard, who couldn't be reached, will also no longer be an adviser to Cerberus, where he had worked for the last few months as part of Cerberus's bid for Chrysler. Mr. Nardelli was also part of the Cerberus team studying Chrysler. In a move that was expected, Chrysler Chief Operating Officer Eric Ridenour is leaving the company, and the position will not be filled. Mr. Ridenour couldn't be reached. At GE, where he last headed the large power business, Mr. Nardelli had been one of the runners-up to replace John F. Welch Jr. as CEO; he was hired at Home Depot within days of news that the job was going to Jeffrey R. Immelt. Through cost cuts and aggressive sales, and helped by booming demand for power generation, Mr. Nardelli drove GE's electrical-power business to new highs in Mr. Welch's last years. During his five years leading GE's Power Systems division, it grew to $15 billion in revenue from $6 billion and its earnings expanded by 60% to 70%. He worked closely with GE's unions; previously he had run mines and locomotive factories. Home Depot, a consumer retail business facing tough competition, proved to be a difficult adjustment. As head of a unit within GE, Mr. Nardelli had only limited experience as a public figure, and that hurt him when he got to Home Depot. He also didn't have much experience with consumers or the fickle nature of the retail business. He lured to the company several of his former GE colleagues, who also lacked retail experience. Mr. Nardelli instituted a military intern program that put Marines at his desk outside his office door, company officials have said. It came to symbolize Mr. Nardelli's ill-fated tenure at the company. His pugnacious manner helped to drive off many of the more talented and long tenured executives, while many employees at its 2,000 stores felt demoralized. Mr. Nardelli inherited an almost 20-year-old company with flagging sales and stock performance. It had run out of room in the U.S. to expand its stores at its once-feverish pace. It also lacked automated purchasing systems that would have made it a more nimble and efficient operator. Mr. Nardelli started upgrading systems, cutting back workers to save money and instituting Six Sigma processes of evaluating store operations. Managers complained that it was too time consuming, that they didn't have time to supervise staff and help take care of customers. To ignite growth, Mr. Nardelli shifted his attention to the wholesale supply business, pouring more than $7 billion into acquiring more than two dozen companies that catered to large municipal contractors, among others. Despite his efforts Home Depot's share price fell 8% during Mr. Nardelli's tenure, while its competitor Lowe's Cos.'s stock more than doubled during the same period. As Home Depot struggled, Mr. Nardelli drew shareholders' ire. His compensation in his six years at the helm -- prior to his massive severance payment -- exceeded $124 million, excluding certain equity awards. As well, some investors questioned his decision to expand into the low-margin wholesale supply business. Mr. Nardelli's experience at GE is one of the main reasons why Cerberus wanted him. Many of Cerberus advisers and executives are made up of former GE employees. Cerberus is also a big believer in the Six Sigma system and other lean management strategies, according to people familiar with the matter. Six Sigma is a complex discipline that combines aspects of statistical quality control and operational efficiency analysis to attack waste. The name is a reference to the goal of driving defects or problems in a process down to 3.4 per million. Six Sigma programs have been implemented at various auto manufacturers and suppliers, including Ford Motor Co., with mixed results. Chrysler has already implemented aspects of lean manufacturing such as its flexible production system, in which a few of its factories are able to produce three different models in one plant. Mr. Nardelli's lack of experience with the complexities of auto industry product development, vehicle design and marketing could be a challenge and could send Cerberus on the hunt for executives who are familiar with these issues. So far, Cerberus and its media-shy founder, Stephen Feinberg, have given few details about their plans for the auto maker, in which they bought an 80.1% stake from DaimlerChrysler AG in exchange for investing $5 billion in Chrysler and $1 billion in its financing unit. But the experiences of other Cerberus acquisitions in the auto industry make it clear that the investment firm sets high performance goals and wants results fast. And Cerberus has been quick to make management changes at other acquisitions. Cerberus's toughness was illustrated after it took over Ganton Technologies Inc., a die-casting company, in 1996. A year later, it fired CEO Ram Thukkaram, who had been Ganton's sole owner. Cerberus said Mr. Thukkaram didn't hit his performance targets, which he readily acknowledged -- and didn't disagree with -- in a recent interview. A year after Cerberus acquired Guilford Mills Inc., a maker of textiles, in 2004, it replaced Chief Executive John Emrich, mainly because the company missed its profit targets. Also in 2004, Cerberus bought GDX Automotive, a Farmington, Hill., Mich., maker of automotive plastics. Since then the company has continued to struggle and Cerberus has changed management at least three times. (MORE TO FOLLOW) Dow Jones Newswires August 05, 2007 23:13 ET (03:13 GMT) WSJ(8/6) Nardelli Picked To Run Chrysler In -2- Cerberus has indicated what it chiefly wants from a Chrysler leader is a new approach, given that the old approach at Chrysler led to more than $1 billion in losses last year. Cerberus Chairman John Snow said in a recent interview that one of the private-equity firm's assets is that it brings a "fresh eye" to problems facing a company. "We bring an intensity to a business and a new way of looking at issues," Mr. Snow said. --- Kris Hudson and Stephen Power contributed to this article.

Austrian Airlines Manager To Leave The Company

Cerberus Capital Management LP is expected today to name former Home Depot Inc. Chief Executive Officer Robert Nardelli to lead its newly acquired Chrysler unit, sending a blunt message to the Detroit establishment: No more business as usual. Mr. Nardelli, who left Home Depot earlier this year under fire for his pay package and the company's strategic struggles, will become chairman and CEO of Chrysler, making him the second outsider recently named to lead one of Detroit's struggling Big Three auto makers. He follows former top Boeing Co. executive Alan Mulally, who was recruited last fall to take over Ford Motor Co. Mr. Nardelli's appointment puts him above Chrysler President Thomas W. LaSorda, an industry veteran who had been CEO and will remain president. The arrival of two CEOs who aren't part of or beholden to the U.S. auto industry's culture and traditions is as potent a symbol of the change buffeting the U.S. auto sector as the news last week that the Big Three's combined share of the U.S. market fell below 50% for the first time. Both will play key roles in what are expected to be tough negotiations over a new national labor agreement with the United Auto Workers union, in which the auto makers want big concessions to narrow a $30-an-hour labor-cost gap with the U.S. operations of Japanese auto power Toyota Motor Corp. Mr. Nardelli, who before Home Depot was a senior executive at General Electric Co., comes to Detroit fresh from bruising clashes with Home Depot shareholders and employees over his $210 million severance package, which many shareholders felt was undeserved in light of the company's performance. He had a difficult experience as the public face of Home Depot, most notably at the company's 2006 annual meeting, which he limited to a half hour by using a clock to limit shareholder comments to one minute. Mr. Nardelli also angered employees with the implementation of the Six Sigma management system, which he learned while he was at GE. But the move to Chrysler puts him in a top position at a private company without pressure from public shareholders. That could give Mr. Nardelli freedom to undertake more ambitious restructuring, and that in turn could drive rivals Ford and General Motors Corp. to rethink the pace and scope of their own overhauls. Mr. Nardelli's pay will be tied to Chrysler's performance and based on the equity value of the auto maker, people familiar with the matter said. Further details couldn't be learned. These people added that Cerberus is not worried about the controversy surrounding Mr. Nardelli's departure from Home Depot because his severance package was based on what was written in his contract, and it was not Mr. Nardelli's fault for accepting that. "I am very excited to be part of a team focused on re-establishing Chrysler as a standalone industry leader, with a renewed focus on meeting the needs of customers," Mr. Nardelli said in a statement. "Chrysler has many deeply talented and dedicated people, and I am confident that together we can continue the momentum of Chrysler's recovery and return this great American icon to a path for global growth and competitiveness." Chrysler already has a restructuring plan in place that calls for the elimination of 13,000 jobs and a $3 billion investment in engine systems designed to improve fuel economy. The company also plans to shut down its factory in Newark, Del., and will eliminate shifts at other plants. Until now, Cerberus had indicated it would keep Mr. LaSorda as CEO. Mr. LaSorda, in his role as Mr. Nardelli's No. 2, is expected to continue to be a key player in Chrysler's relations with the UAW. In addition, he will become vice chairman of a company made up of Cerberus advisers who work on companies the private-equity firm has bought. "We are very excited to welcome Bob to the Chrysler family," Mr. LaSorda said in a statement. "Bob has a proven track record of success." Mr. LaSorda couldn't be reached. Wolfgang Bernhard, a former Chrysler executive who advised Cerberus during its pursuit of the company and was expected to become Chrysler chairman, will no longer be involved with the company due to family reasons, Cerberus said in a statement. Mr. Bernhard, who couldn't be reached, will also no longer be an adviser to the firm, where he had worked for the past few months as part of its bid for Chrysler. Mr. Nardelli was also part of the Cerberus team studying Chrysler. In a move that was expected, Chrysler Chief Operating Officer Eric Ridenour is leaving the company, and the position will not be filled. Mr. Ridenour couldn't be reached. At GE, where he last headed the large power business, Mr. Nardelli had been one of the runners-up to replace John F. Welch Jr. as CEO; he was hired at Home Depot within days of news that the job was going to Jeffrey R. Immelt. Through cost cuts and aggressive sales, and helped by booming demand for power generation, Mr. Nardelli drove GE's electrical-power business to new highs in Mr. Welch's last years. During his five years leading GE's Power Systems division, it grew to $15 billion in revenue from $6 billion and its earnings expanded by 60% to 70%. He worked closely with GE's unions; previously he had run mines and locomotive factories. Home Depot, a retail business facing tough competition, proved to be a difficult adjustment. As head of a unit within GE, Mr. Nardelli had only limited experience as a public figure, and that hurt him when he got to Home Depot. He also didn't have much experience with consumers or the fickle nature of the retail business. He lured to the company several of his former GE colleagues, who also lacked retail experience. Mr. Nardelli instituted a military intern program that put Marines at his desk outside his office door, company officials have said. It came to symbolize Mr. Nardelli's ill-fated tenure at the company. His pugnacious manner helped to drive off many talented and long-tenured executives, while many employees at its 2,000 stores felt demoralized. Mr. Nardelli inherited an almost 20-year-old company with flagging sales and stock performance. It had run out of room in the U.S. to expand at the feverish pace it once kept. It also lacked automated purchasing systems that would have made it a more nimble and efficient operator. Mr. Nardelli started upgrading systems, cutting back workers to save money and instituting Six Sigma processes for evaluating store operations. Managers complained that it was too time consuming, that they didn't have time to supervise staff and help take care of customers. To ignite growth, Mr. Nardelli shifted his attention to the wholesale supply business, pouring more than $7 billion into acquiring more than two dozen companies that catered to large municipal contractors, among others. Net income and per-share earnings rose. But Home Depot's share price fell 8% during Mr. Nardelli's tenure, while competitor Lowe's Cos.'s stock more than doubled during the same period. Mr. Nardelli began to draw shareholders' ire. His compensation in his six years at the helm -- prior to his massive severance payment -- exceeded $124 million, excluding certain equity awards. As well, some investors questioned his decision to expand into the low-margin wholesale supply business. Mr. Nardelli's experience at GE is one of the main reasons why Cerberus wanted him. Many of Cerberus advisers and executives are made up of former GE employees. Cerberus is also a big believer in the Six Sigma system and other lean management strategies, according to people familiar with the matter. Six Sigma is a complex discipline that combines aspects of statistical quality control and operational efficiency analysis to attack waste. The name is a reference to the goal of driving defects or problems in a process down to 3.4 per million. Six Sigma programs have been implemented at various auto manufacturers and suppliers, including Ford Motor Co., with mixed results. Chrysler has already implemented aspects of lean manufacturing such as its flexible production system, in which a few of its factories are able to produce three different models in one plant. Mr. Nardelli's lack of experience with the complexities of auto industry product development, vehicle design and marketing could be a challenge and could send Cerberus on the hunt for executives who are familiar with these issues. So far, Cerberus and its media-shy founder, Stephen Feinberg, have given few details about their plans for the auto maker, in which they bought an 80.1% stake from DaimlerChrysler AG in exchange for investing $5 billion in Chrysler and $1 billion in its financing unit. But the experiences of other Cerberus acquisitions in the auto industry make it clear that the investment firm sets high performance goals and wants results fast. And Cerberus has been quick to make management changes at other acquisitions. Cerberus's toughness was illustrated after it took over Ganton Technologies Inc., a die-casting company, in 1996. A year later, it fired CEO Ram Thukkaram, who had been Ganton's sole owner. Cerberus said Mr. Thukkaram didn't hit his performance targets, which he readily acknowledged -- and didn't disagree with -- in a recent interview. A year after Cerberus acquired Guilford Mills Inc., a maker of textiles, in 2004, it replaced Chief Executive John Emrich, mainly because the company missed its profit targets. Also in 2004, Cerberus bought GDX Automotive, a Farmington, Hill., Mich., maker of automotive plastics. Since then the company has continued to struggle and Cerberus has changed management at least three times. Cerberus has indicated what it chiefly wants from a Chrysler leader is a new approach, given that the old approach at Chrysler led to more than $1 billion in losses last year. Cerberus Chairman John Snow said in a recent interview that one of the private-equity firm's assets is that it brings a "fresh eye" to problems facing a company. (MORE TO FOLLOW) Dow Jones Newswires August 05, 2007 23:34 ET (03:34 GMT) WSJ(8/6) UPDATE: Nardelli To Run Chrysler In -2- "We bring an intensity to a business and a new way of looking at issues," Mr. Snow said. --- Kris Hudson and Stephen Power contributed to this article.

UPDATE: Chrysler's New Era Begins Under Nardelli

Robert Nardelli presented a congenial image of himself in his first appearance as head of Chrysler LLC, but analysts predict the hard-charging former Home Depot Inc. chief executive soon will crank up pressure to cut costs and increase revenue on behalf of Chrysler's new majority owner, Cerberus Capital Management LP. "We have the ability to move with speed; we have the ability to move with flexibility," said Mr. Nardelli, Chrysler's new chairman and chief executive, during a news conference yesterday at Chrysler headquarters in Auburn Hills, Mich. The company may be able to move quickly to "monetize some assets" that may not be fully valued, Mr. Nardelli said in a possible reference to asset sales. He didn't elaborate. Mr. Nardelli comes to Detroit carrying baggage from a messy exit this year from Home Depot, where he left after failing to reignite its slowing sales and sagging stock price. He also came under attack for his $210 million exit package. A Chrysler turnaround could redeem his reputation. People familiar with the matter say Mr. Nardelli lobbied Cerberus aggressively for the CEO job. Mr. Nardelli will receive a nominal salary of $1 a year, according to people familiar with the matter. He will receive equity to ensure he is compensated only if the company improves, these people said, though they wouldn't disclose further terms. Mr. Nardelli spent much of his first day on the job reaching out to reassure constituents who could make or break his tenure. Among them: United Auto Workers President Ron Gettelfinger, a group of Chrysler dealers and Chrysler employees, starting with Chrysler Vice Chairman and President Tom LaSorda, whom Mr. Nardelli will succeed as CEO. During the news conference, Mr. Nardelli often put a hand on Mr. LaSorda's shoulder, deferring to him to answer questions from reporters. But people who know how Cerberus and Mr. Nardelli operate say they expect Mr. Nardelli will soon push for further cost cutting and additional efforts to streamline operations, while looking for new revenue opportunities for the ailing company. "Chrysler is a huge investment for Cerberus, and it didn't want to take any chances," a person familiar with the matter said. Chrysler spokesman Mike Aberlich said Mr. Nardelli's aggressive style is an asset for Chrysler. "Being a disciplinarian is a good thing because we have a plan, but we really have to execute it, and that's what Bob brings to the table," he said. Jeffrey Sonnenfeld, a senior associate dean at Yale University's School of Management, said Mr. Nardelli "works 24/7 and expects that of his people." In stressing execution, "he goes for obedience and loyalty," Mr. Sonnenfeld added. Mr. Nardelli said yesterday he has no plans to launch a new strategy at the ailing auto maker but will focus instead on executing a restructuring plan already in place. He also said it would be premature to discuss cutting costs further and added that the focus won't just be on "head count but also on head content," and part of his job will be to make sure that employees are utilized to their fullest potential. Chrysler's restructuring plan -- put together by Mr. LaSorda, who retains his title as Chrysler president -- calls for eliminating 13,000 jobs and making a $3 billion investment in engine systems with improved fuel economy. The company also plans to close its Newark, Del., factory and will eliminate shifts at other plants. Some analysts are skeptical that Mr. Nardelli really intends to do nothing more than execute his predecessor's plan effectively. Erich Merkle, an auto analyst with auto-industry research firm IRN, said he expected Mr. Nardelli was brought in to "slash and burn" at Chrysler, cutting costs and streamlining operations. The results from that effort, and crucial products such as Chrysler minivans and a redesigned Dodge Ram pickup truck that is slated to hit showrooms next year, should produce profit for Chrysler, he said. Mr. Merkle said he expects the new owners to prepare Chrysler for a quick sale to another buyer. Since the sale of an 80.1% stake in Chrysler was announced in May, Cerberus has said it will be a long-term investor, and Mr. Nardelli said he has no plans to leave Chrysler. The biggest and most immediate problem facing Chrysler, the smallest of the three unionized Detroit auto makers, is the UAW. Chrysler, Ford Motor Co. and General Motors Corp. recently began talks with the UAW toward a new national agreement in September. The auto makers want to restructure more than $90 billion in health-care debts owed to UAW retirees. Messrs. Nardelli and LaSorda spoke to Mr. Gettelfinger, the UAW president, for two hours about the management change. During that meeting, Mr. Nardelli said, the union leader brought up his Home Depot exit package, which angered shareholders in the home-improvement retailer who felt the compensation was undeserved, given the performance of the company. Mr. Gettelfinger spoke briefly to employees after the news conference, saying, "We want to add our welcome to Mr. Nardelli as chairman and CEO." Mr. Nardelli said he hoped he could establish a relationship with the UAW based on mutual trust and emphasized that Mr. LaSorda will continue to lead the negotiations with the UAW this summer. Mr. Nardelli also said he hoped the controversy surrounding his exit package wouldn't be an issue or a stumbling block, especially when it comes to the UAW talks. "The last thing I would want to be is a distraction," Mr. Nardelli said. Also on Mr. Nardelli's list of meetings yesterday was a group of Chrysler dealers. Chrysler executives have acknowledged the company has far too many dealers for its diminished share of the U.S. market, and it has begun taking steps to cull low-performing stores. But state franchise laws, which protect dealers, hinder any effort by Chrysler to quickly narrow its retail network. "He has to fix the retail supply chain," said Mike Jackson, chief executive of AutoNation Inc., the nation's biggest auto retailer by locations and sales. In addition to narrowing the number of Chrysler dealerships, Mr. Jackson said, the "next step is produce and configure vehicles the way the marketplace wants them." Invigorating Chrysler's lineup includes developing fresher-looking vehicles as well as updating aging technology and fixing quality problems that have undermined the company's brand image. Chrysler badly needs to devise a better strategy for designing vehicles that "people will buy at full price," said James E. Schrager, an auto-industry specialist and a professor of strategic management at the University of Chicago's Graduate School of Business. But "that's where Nardelli has the longest shot."

Facing Crisis, Bear Hopes Schwartz Is Fixer

Alan Schwartz of Wall Street firm Bear Stearns Cos. has long been counted on by chief executives as an investment banker to have in their corner in a crisis. Now, his own firm has turned to him to take over the reins as sole president to help guide Bear as it tries to convince investors that it is on solid financial footing A powerful executive at Bear, the 57-year-old Mr. Schwartz inspires admiration and some jealousy on Wall Street. Having been on Wall Street since the 1970s, he projects an air of been-there done-that confidence, say people who have worked with him. That plays well with boards of directors and executives, who are looking for guidance on the ever-sensitive question of corporate mergers. Now his skills will be tested in a different way. At Bear, he was co-president with Warren Spector, a former bond trader at Bear who was long considered the front-runner to take over the firm from current Chief Executive and Chairman James Cayne. A month or so ago, the audit committee of Bear's board, which is headed by chairman Vincent Tese, engaged attorney Robert Fiske Jr. to investigate the funds' collapse. Mr. Fiske was the lawyer who in 1994 acted as independent counsel in the government's Whitewater investigation, a probe of Bill and Hillary Clinton's land investments. As part of his look at the Bear funds, Mr. Fiske and his colleagues have been reviewing emails and other documents associated with the funds, says a person familiar with the matter. No timetable has been set for the final report, this person added. Last week Mr. Spector was pushed aside after presiding over a hedge-fund debacle that wiped out millions of dollars of investor money. The hedge-fund blowup led to a crisis of confidence and Bear's stock has fallen 30% since January. Mr. Schwartz is a smooth deal maker with a fat Rolodex. But he has little background in bond trading, the firm's core discipline. As Bear's sole president he likely will be expected to learn more about that corner of Wall Street. He will also have to prove his bona fides in a far different discipline: managing traders, a group more volatile by both personality and their potential effects on the business. On a conference call Friday and in private conversations, Bear executives have insisted their funding is solid along with the firm's profitability. At an internal management meeting yesterday, executives noted that Bear has plenty of liquidity and in the past year or so, has been replacing its short-term unsecured debt with longer-term secured debt -- even though the latter can be more expensive. Mr. Cayne himself has been reaching out to reassure other Wall Street executives whose firms trade with Bear. On Friday he called Merrill Lynch & Co. Chief Executive Stan O'Neal. Still, some Wall Street analysts, reacting to disclosures by Bear executives on Friday's call -- during which finance chief Samuel Molinaro described today's credit markets as the worst he'd seen in 22 years -- slashed their estimates for the firm's earnings for the third and fourth quarters. They also voiced concerns about the firm's ability to finance its operations. William Tanona of Goldman Sachs cut his estimate of Bear's third-quarter earnings by 33%, to $2.30 a share from $3.45. He also cut his estimate of 2008 profit by 16% to $13.75 a share. Mr. Tanona said he remains "neutral" on the stock despite its "attractive" valuation, partly because the firm may "experience overnight funding and longer-term debt refinancing issues," and the value of some of its assets may fall. Bear stock rallied yesterday, rising $5.46, or 5.04%, to $113.81 in 4 p.m. New York Stock Exchange composite trading, as investors snapped up beaten-down financial stocks. Bear's president "comes across as an old pro," says Peter Lyons, a partner at law firm Shearman & Sterling who worked with Mr. Schwartz in Boston Scientific Corp.'s $27 billion takeover of Guidant Corp. last year. A Bear spokesman said Mr. Schwartz was unavailable for comment. Still, Mr. Schwartz's disposition rankles some, who begrudge the way he can almost magically appear on some of the largest deals of the day, be it the sale of Chrysler to private equity fund Cerberus Capital Management, or Walt Disney's defense of an unsolicited takeover offer from Comcast Corp. back in 1994. This has given Bear Stearns an outsized presence in the merger game despite ranking just 23rd world-wide in the "league tables" kept by Thomson Financial. Mr. Spector's seat on the executive committee will be filled by Jeffrey Mayer, Bear's co-head of fixed income. An experienced mortgage trader, Mr. Mayer joined the firm in 1989 after a stint at Merrill. Seven years later, he was named head of Bear's mortgage business, and in 2002, became co-head of fixed income, Mr. Spector's old job.