Lessons Of The Fall_06.09.2008
From left to right: David Neeleman, Founder of JetBlue; Jim Donald, Former CEO of Starbucks; and Ed Zander, Former CEO of Motorola Photograph by Ben Baker

Lessons of the Fall

Jun 08, 2008

A version of this article appears in the June 9, 2008 issue of Fortune.

What goes up must come down. It's a law of CEO physics. Every year a few star bosses succumb to it and lose their jobs. Most reemerge smoothly a few years later with a new job, an investment fund, or a philanthropy project. But whether it's out of shame or an optimistic focus on the future, few ever discuss what it's like—for a CEO, a spouse, or even the CEO's kids—to survive the fall from a corporate pinnacle.

In mid-May, Fortune lured three of these former chiefs to Manhattan to trade insights on some of their bumpy moments at the top and on what came after. Jim Donald, who spent most of his career in the grocery industry (including three years building WalMart's supercenter business), enjoyed two smooth years as CEO of Starbucks (sbux), perking up the company's share price from $26 to $39. But when sales sagged and the stock dropped by nearly half in 2007, Starbucks chairman Howard Schultz fired Donald, now 54, and reinstalled himself as chief executive.

Another onetime highflier, Ed Zander, 61, went from No. 2 at Sun Microsystems to CEO of Motorola in 2004. He made the RAZR the best selling cell phone in history, then fumbled the follow-up. Profits collapsed, as did Motorola's stock price, and Carl Icahn began agitating for change. Zander stepped down at the end of 2007.

Both Zander and Donald were noticeably anxious when we convened on May 14. The third participant, David Neeleman, didn't seem nervous at all. Neeleman is the freewheeling entrepreneur who in just eight years built JetBlue (jblu) into the eighth-largest U.S. airline and a model of innovation and customer service. At least that's how it was seen until a 2007 ice storm pounded JetBlue's reputation and Neeleman's career. The board replaced him as CEO, though he remained chairman until this May. Neeleman, as we'll see, is the only one of the three who has decided on his next chapter. But all three had plenty to say about their lives at - and after - the top.

Describe your last job—in a sentence.

Neeleman: When we started flying, oil and gasoline was 70 cents a gallon. Today it's $3.50. We burn half-a-billion gallons of the stuff every year. In a sentence, it was a wild ride. An absolutely crazy, wild ride.

Zander: That's a paragraph!

Ed, your run, in a sentence?

Zander: Fun, lots of fun. I'd do it again in a second. Hard. Hard and challenging, probably the toughest job I've ever had.

Donald: We went from 4,000 stores to 16,000 stores, from 20 countries to 40 countries. The sentence would be: Working for the Starbucks employees is a very humbling experience.

You were all hotshots who stumbled. What might you have done differently to prevent it?

Neeleman: We were like a frog that got boiled one degree at a time by rising oil prices. We had a board member who, when oil got to $50 a barrel, said, "Don't hedge, it's going back down to $25."

And you believed him.

Neeleman: They seemed to know what they were talking about. The second thing is—and I realize it now that I'm a board member, looking at the company through this little hole once a quarter at a four-hour meeting—board members don't know that much about the company. They really don't. I would've been much more engaged with the board. After the February storm, I was so busy trying to hire a new COO, get someone at Kennedy Airport, do all these things, that I didn't have time to update the board on everything. If you don't, somebody else will. You have to be able to give them an accurate picture of what's going on, or they develop their own perceptions and start creating their own stories. And then they make their decisions. How do you keep these people up to date and give them the whole picture? That's the job of the CEO, and I failed.

Donald: I made it a habit of every other week updating the board through an e-mail on revenue, any store openings, any issues around the world.

Neeleman: When things start going south, communication should increase. Even if you think you're doing enough, you're not doing enough. I didn't do a good enough job because [board members] developed their own perceptions of where things were headed.

Zander: I had kind of a Jekyll-and-Hyde situation. I had three marvelous years—I could almost do no wrong. The last year, the problems were in one division, the mobile-cell phone division. As it came around in 2007, we weren't ready. There was a bust in the software platform. We missed execution in our products. When you don't have the products to put on AT&T and Verizon and Vodafone's shelf, you're going to pay the price, because it's a very, very punishing market.

What could you have done differently, Jim?

Donald: My worst decision was not investing earlier in international. The international markets don't have as quick returns as the U.S. But if I'd known the U.S. economy was going to crash, I would have invested earlier.

If we're talking woulda, coulda, shoulda, what would you say, Ed? Zander: I go back, and the big thing was people. I didn't move fast enough on some people. I know it sounds trite, but as a CEO, you can't design a cell phone. It's the people you hire. You always talk to CEOs and they always tell you that when you come in, you've got to move fast on people. And there's some truth to that. I took a different approach at Motorola. When I first got there, I moved fast on a few people, promoted a few from within, and waited, and actually got some real stars from the people that I looked at. But in the case of the mobile business, I think there had to be some changes made quicker. One or two that I missed really cost me.

Ed, did you handle Carl Icahn as well as you could have?

Zander: Look, activists are part of, it seems, today's business world and more so than in the past. And they're shareholders, and you have to treat them as shareholders. I would say that it is distracting. I spent a good amount of time trying to fix some of the business, spending a lot of time with that proxy battle. But you've got to deal with it and move on. I was taught early on—this goes back to my beginning days in the computer businesses—you build long-term value. So to me, in driving Motorola in the good days of 2004, 2005, 2006, and then the mobile division hit the wall, [the goal] was to keep focusing on where we had to go, what decisions I had to make, what the long-term strategy was—don't do anything for the short-term. And sometimes that's painful for short-term shareholders.

"Howard hugged me when I walked in. Then he informed me that the board had decided to make a change."

In that sense, do you think that Icahn and other activists of his ilk are unhealthy for corporate America?

Zander: I'm going to—

Oh, come on, you've got to go—

Zander: No, I'm going to stop there. I'm just going to say that I handled it the way I wanted to handle it, and I think the company is stronger and has a long-term strategy.

Talk about your toughest day.

Donald: Howard [Schultz] and I had a meeting. It was on a Sunday evening, at Howard's house. Howard hugged me when I walked in. Then he informed me that the board had decided to make a change, and they were going to reinstall Howard as the CEO. As I drove home, I wasn't in shock. Because this is what happens in the big leagues. When I walked in my house, my wife, Laura, said, "Wow, that was a quick meeting. Did you lose your job?" I said, "As a matter of fact, I did."

What was your first phone call?
Donald: First phone call was to my mom. Probably the toughest day I've ever faced, ever. Ever, ever, ever! Because moms have a way of putting their sons up on pedestals. I had to let her down easy, and she was great.

What did you say to her?

Donald: I said, "Mom, how are you?" And she goes, "Great. Why are you calling me at ten in the morning?" I just said, "Hey, I just want to tell you, I'm not with Starbucks anymore, but everything is fine."

What did you do later that day?

Donald: I went for a long row. By myself. In a single shell. It's an interesting coincidence that on Feb. 14 last year, the day that Howard Schultz put out a well-publicized memo talking about the watering down of the Starbucks experience, David was dealing with his nightmare: an ice storm that grounded thousands of flights and left hundreds of passengers stranded on the tarmac for hours.

Neeleman: That just about killed me, really.

Zander: Would you have done things differently, from a PR point of view? Because we've all faced crises.

Neeleman: I think on the PR side, we did it right. I've always learned, if you make a mistake, you admit to it. You explain what happened. And then you explain how it's never going to happen again and what you're doing to make sure it doesn't. It's a very simple formula, I think. But really there were two events: the stranding of people on airplanes, which was absolutely inexcusable. Then there was the lingering on—how it took us three, four days to get more than 1,000 flights in the air. We learned our lessons from that.

[Later] a couple of board members came to my office and said, basically, "We want you to step down as CEO and be the chairman and be responsible for strategy." I was flabbergasted. I couldn't believe it. Just the fact that I was flabbergasted—either I'm the biggest idiot on the planet or maybe the process could have been better.

The ice storm was Feb. 14. This was a few months later, right?

Neeleman: May 9. I couldn't get hold of my wife. Her mother was dying. So on the morning of May 10, I got hold of her to tell her, "Honey, it's going to be in the press that ..." She said, "My mom just died." Timing was horrible.

Oh, boy. How'd your wife feel about the job loss?

Neeleman: I think your family—they sacrificed a lot to start JetBlue. We picked up and moved from Salt Lake to Connecticut, and the kids were uprooted from their grandparents. I think they felt they had sacrificed. I think among the kids there was a little bitterness. You forget sometimes that they're part of the business with you and that they feel what you feel. It's a family deal to do it and a family deal to leave. It's something they have to go through together.

Tell us about the day you stepped down, Ed.

Zander: The day I announced, it was toward the end of November 2007. I took off for India to make sales calls. So I went to India and came back through the Middle East and then did a lot of traveling, visiting employee sites, in December. I left Dec. 31.

And it was bittersweet?

Zander: Yes. You want to keep going. I love customers. I loved every time I'd get into the field with the employees in India and China and Brazil and Israel and Russia, and all these places where Motorola has sales and development offices. I averaged probably one to two town hall meetings a week for four years. And you get inspiration from that. The business looked like it was starting to come back, but you have to know when your time is up.

When you go back to work, Jim, are you going to work for a founder?
Donald: I offered to go to work for David. [Laughter.] Founders have a way of being engaged in the business, being emotionally connected to that brand or to that product that you don't see anywhere else. So would I work for a founder? Yes, absolutely.

Zander: I worked for a founder—Scott McNealy at Sun. That was a phenomenal experience. The other side of the house is Motorola. The founding family was gone before I got there, but trying to change a culture of 80 years is very, very tough.

Neeleman: I can't even imagine working for a company. I need to create something. When I get to the point where I can't run it anymore, I just need to give it to somebody who can run it.

David, you're the only one in this group who knows what he's doing next. Tell us.
Neeleman: More insanity. When I left JetBlue, I thought there were two things I didn't want to do: start another airline and run a public company. But the stars aligned in Brazil. Brazil is the country of my birth. I hold dual citizenship. The investors all came together. They gave me the $150 million.

"I was so busy that I didn't have time to update the board on everything. That's the job of the CEO and I failed."

That's $150 million to build a new airline you've just named Azul. How much money have you put in personally?

Neeleman: Ten million. I started with 25% of the company, with 80% of the voting control—in a country I absolutely love and that is just exploding. The economy is just vibrant. There are about 42 million people a year traveling by air. I have a friend who has a bus company, and he has 25,000 employees. He told me that two years ago, nobody in the whole company had a credit card, and now everyone has a credit card. Everybody has a cellphone.

What's the biggest difference between building Azul and building JetBlue?

Zander: It doesn't snow down there.

Neeleman: Yes, we're not going to be deicing airplanes. No ice.

They Know There's No Success Like Failure

Business titans agree: A reversal or two can pave the way to triumph.

We've all been told that adversity makes you stronger. It's certainly an article of faith for many CEOs. But how, exactly, do you transform the career stumble (or worse) into a lesson that helps preserve a career or even allows it to blossom? What follow are a few nuggets of wisdom gleaned from some renowned rebounders I've interviewed over the years.

KEEP TAKING RISKS. David Neeleman's attention deficit disorder, not diagnosed until his 30s, helped him figure out that he's better at creating businesses than fitting into established ones. In 1994, just five months after he sold his startup Morris Air to Southwest Airlines (luv), his new boss, Herb Kelleher, gave him the boot. "There wouldn't be a JetBlue today if Herb hadn't fired me," Neeleman says. "So it's really not what happens to you. It's how you deal with it and what you make of it."

DON'T LET THE DOUBTERS GET YOU DOWN. Brutal criticism and the eventual suicide of his tyrannical father turned out to be motivators for Ted Turner (who also overcame widespread doubts when he launched CNN). Turner's son Rhett recalls his father holding up a copy of Success magazine two decades later and shouting, "I'm on the cover of Success magazine! Is that enough?!" Rhett says his dad "always wanted to be better than his father." For another entrepreneur, Martha Stewart, the doomsayers simply egged her on to recover from her legal turmoil. "I cannot be destroyed," she vowed after she got out of prison in 2005. Fortune put that promise on its cover—and Stewart delivered on it.

SEEK A PURPOSE. "The ability to impact with purpose," said Oprah Winfrey, when I asked her to define power. Part of her success formula is setting broad themes—to improve the world, for example—instead of narrow goals that can be self-defeating. Oprah's power and her message are all about recovery—from childhood adversity and abuse, from her frequent weight gain. "I bring all my stuff with me," she says.

VISUALIZE THE NEXT BIG WIN. After John Mack lost a bitter power struggle to Phil Purcell at Morgan Stanley (ms) in 2001, he quit the investment bank, joined rival CSFB as CEO, got ousted, and returned to Morgan Stanley as chief in 2005. Through all his ups and downs, Mack, whose close pal is Duke basketball coach Mike Krzyzewski, does what most great athletes do: "I think about winning all the time," he says.

LEARN FROM YOUR MISTAKES. After building Gap into a $14 billion giant, Mickey Drexler was fired in 2002. "I was angry. I cried," he recalls. "But getting fired was one of the best things that could have happened to me. It so taught me about opening too many stores." Today, as CEO of J. Crew, Drexler wouldn't dare let overexpansion hamper profit growth: Getting fired "made me a much better operator."

REMEMBER: FAILURE CAN BE TEMPORARY. Hedge fund investor Eddie Lampert, who knows something about distress (he bought Kmart in bankruptcy and later acquired Sears), is being seriously tested, as the value of his largest investment, Sears Holdings (shld), has fallen 46% in the past 12 months. "It's been difficult, but I keep remembering that Warren Buffett was down 50% or more two times during his career," Lampert told me over breakfast one morning this spring. Actually, Buffett has been down three times. Nobody's perfect.

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