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Case quits { January 13 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/01/13/business/media/13AOL.htmlhttp://www.nytimes.com/2003/01/13/business/media/13AOL.html
January 13, 2003
AOL Chairman Quits His Post Amid Criticism
By DAVID D. KIRKPATRICK
Stephen M. Case, the former chief executive of America Online who engineered its acquisition of Time Warner, resigned last night as chairman of the combined company, AOL Time Warner, bowing to shareholder anger over the dismal results of the merger. He will remain as a board member.
Mr. Case's sudden resignation is the culmination of an 18-year rise on the crest of the Internet boom, which took him from founding an obscure start-up betting on the future of an unknown medium to becoming the top executive of the world's largest media company. Now, he becomes the latest media empire builder to resign from the helm of a communications conglomerate in the boom's aftermath, following the departures of Jean-Marie Messier from the chairmanship of Vivendi Universal and Thomas Middelhoff from the top job at Bertelsmann.
Over the last year, Mr. Case has come under mounting criticism from shareholders, board members and executives over the company's deteriorating stock price and federal accounting investigations at his former company, AOL, which has turned into an albatross dragging down the combined company's stock. The company's shares have recovered from a low this summer, closing at $14.88 Friday, but they are still far from the $56 just after the merger.
Last night, Mr. Case said he resigned so that the simmering debate over his role at the company would not distract its management. The resignation will take effect in May.
In a statement released yesterday evening, Mr. Case said: "Given that some shareholders continue to focus their disappointment with the company's post-merger performance on me personally, I have concluded that we should take steps now to avoid the possibility of that effort hindering our ability to pull together as a team and focus fully on our businesses."
Speculation on a successor began immediately. Several people close to the board have said that as Mr. Case lost the support of some directors over the last 12 months it was Richard D. Parsons, the chief executive and a veteran of Time Warner who in effect ran the board meetings, making Mr. Parsons one natural choice to succeed Mr. Case as chairman.
Mr. Case acknowledged in an interview that he was unhappy to be leaving."If nobody had raised any concerns and there wasn't speculation and distraction over whether or not I would continue to serve as chairman, I would prefer being chairman," Mr. Case said. "I would love to remain as chairman."
Despite the mounting criticism, Mr. Case's decision, or at least its timing, came as a surprise to many, even to those who know him. Before the holidays, he had indicated to colleagues that he intended to fight on, hoping to improve the AOL division's performance and win back the allegiance of its investors and executives. But he faced a potentially stormy battle leading up to the company's annual board meeting in May, when shareholders can express their views in the votes to re-elect directors.
"I am a fighter," Mr. Case said last night. "If it was just about tenacity, I will assure you I would continue to fight on, but it can't just be about Steve Case and his character, if you will, it has to be about what is best for the company."
Mr. Case added that he had decided to resign now because he felt the company had turned a corner, having named a new management team and devised a new strategy for the troubled AOL division.
"I felt that some of the foundation was in place," he said. After leaving the chairmanship, he said, he will still play a role as the co-chairman of the board's strategy committee.
Mr. Case said he reached his decision alone Friday night after deliberating over the holidays. He called Mr. Parsons on Saturday morning with the news.
Last night, Mr. Parsons said he accepted Mr. Case's decision. "I was surprised but I understood it when he went through his reasoning," Mr. Parsons said. "He did the right thing." He said the board would decide on a new chairman over the coming months.
Three people close to the board said that although a few directors had previously criticized Mr. Case's determination to remain as chairman, no specific precipitating effort or event forced him out.
Mr. Case may also have chosen to resign on the heels of the appointment of a new chairman to head the AOL division and the forming of a new strategy for its future, rather than to face the uncertain prospect of a referendum on his role at the annual meeting in May.
Franklin D. Raines, the chief executive of Fannie Mae, a director of AOL Time Warner and an AOL director before the merger, said last night that he agreed that Mr. Case's tenure would have become an increasing distraction in the months leading up to the election of directors at the annual meeting.
"All anybody would be talking about is, how many votes will Case get?" he said.
In recent months, several of AOL Time Warner's largest shareholders — including Ted Turner, vice chairman of AOL Time Warner; John C. Malone, chairman of Liberty Media; and Gordon Crawford, portfolio manager at Capital Research and Management — have sought Mr. Case's ouster, people close to the board have said. Mr. Crawford controls roughly 10 percent of the company's stock, and Mr. Turner and Mr. Malone about 4 percent each.
In a statement last night, Mr. Turner said, "I admire Steve Case's decision to put our company and its employees first, and I am delighted he will remain on the board."
Fay Vincent, an AOL Time Warner director and the former commissioner of baseball, has also been an outspoken critic of Mr. Case, with support from Stephen F. Bollenbach, president and chief executive of Hilton Hotels, people close to the board said. But under the contract, Mr. Case needed the support of only a few directors to hold onto his position, so the opposition of even a majority of directors could not oust him.
Mr. Case's authority over the company's executives has also waned with the AOL division's fortunes. Executives from the Time Warner side of the company, many of whom resented the merger and its consequences, have taken over almost all the other top roles in the company.
After sitting out of the company's day-to-day during the first year of the merger, Mr. Case sought to reassert himself in recent months as his role came under fire. He particularly engaged himself in offering questions and advice to Jonathan Miller, the newly named chairman of the AOL division, charged with building a new strategy for the online service. But Mr. Case's prolific e-mail from the sidelines seemed excessive to Don Logan, chairman of the Media and Communications Group of AOL Time Warner. Mr. Logan was the former chairman of its Time Inc. division and had been an outspoken critic of Mr. Case and the merger, people who worked with him said.
Asked earlier this month about his relations with Mr. Case, Mr. Logan said they had a difference in style. "I am a big believer that when you give someone responsibility, you have to give them authority and let them see if they can succeed," he said, adding, "That is not to say that we don't listen to Steve — we value his opinion — but it is Jon who is calling the shots and he reports to me."
To some company executives, Mr. Logan's candid comments seemed the latest evidence that Mr. Case's authority was slipping, even within the business he founded. Some senior executives marveled that Mr. Case had the determination to continue showing up for work when he commanded so little support.
Although he leaves the chairmanship under a cloud of criticism and opposition, Mr. Case, at the age of 44, has already earned a place in business history. He founded America Online 18 years ago, when few Americans knew what the Internet was, and he helped to introduce e-mail and instant messaging into the world's vernacular.
Along the way, AOL overcame ferocious and well-financed opposition from Microsoft and others to become the largest online service. At the height of the Internet boom, stock market investors assigned AOL a greater value than any of the major media companies. In January 2000, at the very peak of the Internet bubble, Mr. Case seized the opportunity of AOL's inflated shares to buy Time Warner, a venerable media conglomerate with more than four times AOL's annual revenue.
But his astute victory for AOL's shareholders was also his undoing. By the time the merger was completed in January 2001, many Internet start-ups that had paid AOL for online advertising were already running out of cash. Mr. Case, however, had confidently told investors that AOL had diversified its business and would emerge unscathed.
He and Gerald M. Levin, the chairman of Time Warner who agreed to the deal and became chief executive of the combined company, stuck by promises of a 30 percent increase in the combined cash flow. They called AOL the company's "crown jewel," the engine that would propel Time Warner's staid media business to new markets and new growth.
In the fall of 2001, AOL Time Warner was forced to retreat from its projections, and the AOL division began a long decline. In December, Mr. Levin announced his resignation, in part because of pressure from Mr. Case and other directors, people close to the board have said.
Instead of propelling the company forward, AOL was dragging it down. Also over the summer, the Securities and Exchange Commission and the Department of Justice announced inquiries into accounting at the AOL division in the period before and after the merger closed, investigating the possibility that AOL used "round trip" transactions with other Internet companies to temporarily increase its advertising revenue.
To some former shareholders and executives from the Time Warner side, the investigations increased their anxiety about the possibility that Mr. Case had somehow misled Time Warner's executives and board about AOL's prospects.
Mr. Case defended himself to colleagues and shareholders, saying he was not directly responsible for accounting at the AOL division and could make important contributions to AOL Time Warner's future strategy, people at the company said.
But his critics among the company's shareholders and executives complained that he did not take enough responsibility for the AOL division's problems.
Tom Wolzien, an analyst at Sanford C. Bernstein, said the resignation "clears the decks from the past."
"From this point on it is Time Warner and Time Warner management,'` he said, adding, "It was effectively that way yesterday, and this does not change the future. We still have the overhang of the investigations and the new strategy at AOL to work out."`
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