Business CEOs: A New Wave Of Space Leadership
There is much romanticism about the early days of the satellite industry. The history of scientists and engineers such as Conny Kullman, Bob Berry and Steve Dorfman leading the development of such technological achievements as the first Ariane rocket, Globalstar and the Pioneer Venus program, respectively, are legendary.
It seemed a natural progression that these industry stars would go on to head the biggest satellite companies of the day: Kullman at Intelsat, Berry at Space Systems/Loral and Dorfman at Hughes Electronics.
But the path from top engineer to chief executive is increasingly left to history. In fact, the climb has become so steep that few now make the summit. Most recent appointments of CEOs to satellite-based companies are business people, not engineers.
There are several reasons for the paradigm shift, but the most common is the influx of private equity into the satellite market, says Armand Musey, president and partner at Near Earth LLC, a boutique investment banking and advisory services firm for the satellite and telecom industries.
“I haven’t heard the equity firms say ‘no engineers,’ but look at who they’ve picked,” Musey says. The list of non-engineer CEOs includes David McGlade at Intelsat, Michael Targoff at Loral Space & Communications, Patrick DeWitt at Space Systems/Loral, Matthew O’Connell at GeoEye, Jill Smith at DigitalGlobe, Andreas Georghiou at Spacenet, Matt Desch at Iridium Satellite, John Kealey at iDirect and Jay Monroe at Globalstar.
Several CEOs are quick to point out their technical experience, often in leading teams of engineers. However, a look at their backgrounds shows that companies are increasingly looking for executives with an understanding of technology but expertise in business management, development and finance. Many are graduates of prestigious MBA programs. All have proven their business acumen either by building corporate programs, overseeing the launch of new product lines or turning startups into hugely profitable enterprises. Increasingly, satellite executives are expected to have a broad understanding of all facets of the industry with an eye for possible mergers, acquisitions or partnerships either inside or outside the satellite industry. They are to be exceptional leaders with a vision for the company, and they should know how to please customers and shareholders at the same time, analysts and executives say.
“The skill set needed to be a CEO has definitely increased,” Musey says. “It’s harder and harder to run companies today with the demands investors place on you. The understanding of financial complexity you have to have, as well as the ability to manage things and deal with customers make it much harder.”
Moreover, the skills needed to be an executive are specific to each company, says Andy Steinem, CEO of Dahl-Morrow International, an executive search firm which specializes in satellite and other technology industries. “My clients are very specific about what they want. It’s A, B and C, but very distinct to the company.” Steinem sees the trend away from engineers more as happenstance than strategy. “I don’t think it ever was the case where people went out and said, ‘We want an engineer at the top.’ The industry grew up from the engineering side and they developed the business around it.”
And being an engineer is not a liability to climbing the executive ranks, especially with companies focused on technology, Steinem says. However, by opening the door to more business people, “I think it will broaden the applicant pool” of executives, she says. “They just have to have the right business credentials from the right businesses. We’re not interested in CEOs from the paper industry.”
Steinem is among many who believe the outside influences will help the industry. “This has always been an insular industry, but that’s starting to change. If you’re too insular, you implode,” she says.
Peggy Slye, Futron Corp.’s division director for space and telecommunications, retired from Intelsat in November as senior director of integration. She also sees the trend toward business executives assuming the top spots in the space industry as a positive change. “This is absolutely wonderful for the industry,” Slye says. “This should make satellites much more than a niche market.”
Following the Trend
The shift toward non-engineer CEOs is a natural evolution that follows other technical industries from railroads and airlines to telephony and software, analysts say.
The first 20 years of the satellite industry — well into the 1980s — were focused on ensuring that the technology would work, Slye says. As the technology became better established, the focus began to change to allow for market and customer considerations. “They are now focused in a much more balanced way on the financial requirements and also on market and customer requirements,” she says. “Those three elements tend to coalesce.”
The clearest example of this new paradigm in leadership came in April 2005 when Intelsat, the world’s largest provider of Fixed Satellite Services and which had just been acquired by private equity firms, hired David McGlade as CEO. At 44, McGlade became the youngest person ever to run Intelsat and the first non-engineer. He also was new to satellites, having spent his 24-year career in cable and wireless telephony in a series of entrepreneurial and leadership roles. His specialty was bringing new technologies to market and overseeing converged services to customers. McGlade’s leadership was formed early. At 27, he was promoted to president of Cable Ad Net, which was acquired by Liberty Media. He is a former regional president of Sprint PCS and was CEO of O2 UK (previously BT Cellnet) before joining Intelsat.
McGlade’s main charge at Intelsat is to strengthen the company’s financial performance and customer service. “We’re doing more aggressive product development and getting the most out of our satellites,” McGlade says. “I’ve been on the cutting edge of technology. I want to see us continue to be creative and innovative and not take unnecessary risks to customers and shareholders. I want a lot of rigor in deciding what’s proven.”
With former PanAmSat President and COO James Frownfelter, an aeronautical engineer, hired as Intelsat’s COO, McGlade said the pair’s leadership creates “a balanced team here now.” As for pleasing both customers and shareholders, “It doesn’t have to be mutually exclusive goals,” McGlade says. “We can run a much more efficient company, bringing down costs in some areas by as much as 90 percent, and if we do it well, we can get better customer satisfaction.”
Like other business executives, McGlade is quick to acknowledge engineers as the backbone of the industry.
“Even though I am not an engineer, I do celebrate the wonderful legacy we have at Intelsat,” McGlade says. “It all began with technology, and I do not in any way want to diminish the accomplishments our engineers have had. That’s something that is in the life blood of Intelsat and in the very technical world we live in, we have to have that technical acumen.”
McGlade sees much of his role as the importance of leading Intelsat employees. More specifically, he wants them to become customer-centric. “Once you get all employees on that path, they become evangelists to leveraging technology to the benefit of customers,” he says. “That’s a very powerful thing a company can do. I want them focused on customer concerns — how to help them grow in product development, quality of service and setting the right expectations. It’s about bringing everybody into a more sophisticated view of the world.”
Overcoming Past Failures
In part, the push for business executives is a reaction to the “colossal failures” of Iridium, GlobalStar and Orbcomm in the 1990s, Musey says. Many blame the collapse of those start-ups to the fact that they were led by engineers who “were driven by engineering dreams rather than real market demand,” he says. GlobalStar, Orbcomm and Iridium Satellite have all been reorganized under business executives.
Matt Desch, a former president of Nortel Network’s Global Service Providers and Wireless Networks divisions, was hired as Iridium Satellite’s CEO in September. Desch, whose background is in computer programming, was the CEO of Telcordia Technologies Inc., a supplier of software and services to telecoms, before joining Iridium Satellite. “The main reason I’m here is because I spent 15 years in wireless, and I grew up through the transition to wireless,” Desch says. “I understand the value proposition of mobility and why people are increasingly using wireless devices to connect to each other.” Although Desch says, “I fancy myself an engineer,” his charge is to bring the business oversight that was missing from the first Iridium. “The most important thing we can bring is the right product at the right price at the right time in the market.”
Iridium has spent the past five years putting itself on solid financial footing, Desch says. Now the company is entering a new era, having just announced the design phase of its next-generation satellite system, dubbed Iridium Next. While this an exciting time for Iridium engineers, Desch says the big picture still has progressed to product management and customer relations. “As our business becomes a commodity, we’ll probably be looking at purely financial management” from senior executives, he says. “But we’re not at that point yet. There’s still a lot to be done to grow our services and our subscribers.”
Analysts and executives describe the industry as being in a sort of adolescence of maturity where rapid changes are causing some awkwardness. While the climate can be difficult for employees, it is important to the long-term vitality of the industry, they say.
“The rate of change won’t slow down; at least we hope it doesn’t” Slye says. “All [executives] can do is make people comfortable with it. Executives must recognize that customers are their lifeblood and employees their strength. They have to ensure that both groups see the change as positive. We’ll know we’ve turned a major corner when the industry talks about content and applications rather than technical platforms as a primary consideration in discussion. It’s happening, but it’s a process that is not yet complete” she says.
Striking a Balance
Clearly, most satellite executives still have some technical background. The shift away from engineers as leaders raises the question of how much technical know-how is enough.
Georghiou, who was hired as CEO of Spacenet in August, developed technical and business specialties by moving between engineering and marketing and sales roles, first at General Electric, then SES Americom. He began his career at the RCA David Sarnoff Research Labs and was so adept at engineering, though he is not an engineer, that he was Americom’s senior vice president of engineering and operations. But armed with an MBA from the Wharton School of Business, where he was a Fulbright Scholar, he quickly moved into the executive ranks.
For a CEO, “It really is more skills like leadership and people skills, in general, and you have to have the fundamentals of understanding technology,” Georghiou says. “You can’t have people [at the top] who don’t understand the technology. They don’t have to do the calculations, but they need to understand the ramifications.”
One company still solidly controlled by engineers is Hughes Network Systems (HNS), where three of the top four executives — Chairman and CEO Pradman Kaul and Executive Vice Presidents Bahram Pourmand and Paul Gaske — are electrical engineers.
Kaul, whose career was built on early satellite engineering feats, says HNS’s leadership distinction speaks to the company’s brand. “Hughes, from the days of Howard Hughes, has epitomized technology and innovation,” he says. “We view ourselves as a technology company, first.” That said, Kaul sees the general push toward business executives as good for the industry. “Like anything in life, moderation is optimum,” he says. “Historically, our industry has been dominated by technocrats. We probably need more understanding of the financial marketplace.”
Kaul says he is confident in his team’s business leadership, which was honed on the job. Starting as an engineer “I think is still the best way to climb, assuming you can pick up the business skills,” he says. “My job is easier than someone else [without an engineering background] because I understand the limits of technology and the opportunities. I understand when someone wants to make an investment in new products.”
But Kaul admits much has changed since the company went public last fall. “Now we are a totally public company, and that changes significantly how we operate,” he says. “Now we not only have to satisfy our bosses in the big corporations but our bosses who are our shareholders give us a report card every day in our stock price.”
That change, while uncomfortable, puts the satellite industry where so many technology industries before it have gone.
“I’m sure the early airline companies were all about airplanes and technology,” Desch said. “As they evolved, they became more about what their products are. Today, they’re more about bankruptcy protection, commoditization and consolidation. Now their leaders are not former pilots, they are bankers. I imagine we’ll get to that stage, but we’re not there yet.”