Franklin reigns.

Franklin Raines returns to Fannie Mae as the first black CEO of a Fortune 500 corporation

Raines, Clinton's budget director, is leaving the White House for corporate America's major league

THE SPRING OF 1969 WAS A combustible time. Vietnam was raging half a world away. And on college campuses across the United States, demonstrations protesting police actions were becoming commonplace. One protest on the campus of Harvard University met with particular resistance. After a group of students took over the university's administration building, police from the city of Cambridge swarmed across the campus.

It would have been easy for a slender, well-mannered 20-year-old from Seattle to shy away from the spotlight because of the threat of losing a college scholarship. Surely in the back of Franklin D. Raines' mind there were insistent fears about bringing shame on his parents, blue collar workers who were overjoyed to have a child getting an Ivy League education. But that afternoon Raines pushed his way to the front of the crowd, grabbed a bull-horn and urged his classmates to stage a campus-wide strike.

Three decades later, he's still taking risks and grabbing center stage. Raines, 49, recently announced that bell be leaving his position as director of the Office of Management and Budget (OMB) at the White House to become chairman and CEO of Fannie Mae, where he had earlier served as vice chairman. He'll Like over the reins of this multibillion-dollar concern in January 1999.

Over the years, BLACK ENTERPRISE has monitored with keen interest the steady progress of key executives as they've inched closer to becoming the first black CEO of a major U.S. corporation. The "usual suspects" have included Ken Chenault of American Express, Lloyd Ward, now at Maytag, Anne Fudge of Maxwell House, Richard Parsons of Time Warner, Barry Rand of Xerox's U.S. Marketing Group and, until recently, Richard Nanula of Wait Disney (see "CFO Bids Farewell to World of Disney," Newspoints, July 1998). But Raines, a key member of the Clinton cabinet, appears to have beaten them all to the punch. Fannie Mae is currently ranked No. 33 on the Fortune 500 with $27.8 billion in revenue.

While the designation is substantial and significant, it stops short of the definitive shattering of the glass ceiling because of the very nature of Fannie Mae. Formerly known as the Federal National Mortgage Association, Fannie Mae is defined by Congress as a "government-sponsored enterprise." Chartered in 1938 to spur home ownership by ensuring market liquidity through the buying and selling of mortgages, this government-created institution controls one-fifth of the trillion-dollar American mortgage market.

During the 1960s, Fannie Mae was converted into a shareholder corporation privately owned by stockholders. But it still enjoys significant government-backed privileges. First, Fannie Mae is exempt from state and local income taxes, and its capital maintenance standards are lower than those required for purely private institutions. Second and more important, because the company enjoys a government guarantee of its debt, Fannie Mae can borrow billions at ridiculously low rates, gaining competitive advantage and driving up profits. Fannie Mac (NYSE: FNM
FNM Free National Movement (Bahamas)
FNM Foot and Mouth ) first traded on the stock market in 1970 at $1.28 a share. In 1991, it sold for $17 a share and prices have been on a nonstop climb ever since. At press time, the stock was selling for $58 a share.

Another key factor is Fannie Mae differs from almost a other U.S. corporations in that it doesn't actually produce any consumer products. And with the exception of its Washington-chartered rival, Freddie Mac, Fannie Mae has no direct competitors. In many ways Raines' appointment is similar to that of Cliff Wharton, former head of the worlds Largest private pension fund, TLAA-CREF (No. 30 on the Fortune 500 with $29.4 billion in revenue) until he retired in 1994.

Despite the distinct nature of Fannie Mae, many still perceive Raines' selection as a unique breakthrough. "I consider Frank Raines the Jackie Robinson of corporate America," says National Urban League President Hugh Price. "Fannie Mac's roots may be in the public sector, but it has been spawned into the private sector."

W. Frank Fountain, president of the Executive Leadership Foundation in Washington, D.C., an organization composed of many top black executives in Fortune 500 firms, agrees. The quasi-governmental nature of Fannie Mae, he says, shouldn't detract from its significance. "Fannie Mae is publicly held by shareholders who are just as demanding for a return on their equity' as any shareholder," says Fountain, who's also vice president of governmental affairs for Chrysler. "We should all be proud to see Raines not only became the CEO of a Fortune 500 firm, but of a firm that is critical to prospective African American home buyers."

Raines' mandate at Fannie Mae is clear. He'll have to continue the record-breaking growth of the company's earnings while staving off foes who'd like to see Fannie Mae stripped of its congressional privileges. If nothing else, Raines' appointment signifies yet another critical step as African Americans continue their quest up the ladder. While the impact of his appointment on other prospective black CEOs can't be determined yet, the high profile and stature of the position could very well speed up what has long been a slow climb for blacks in corporate America.

TAKING THE HELM

Franklin Raines has successfully hopscotched between corporate and political worlds for over 20 years. Earning a B.A. in government in 1971 from Harvard, he was selected as a Rhodes Scholar at Oxford University in England shortly after. In 1976, he received a law degree from Harvard Law School and the following year landed a coveted position as an assistant director of the White House Domestic Policy Staff during the Carter administration. After working on social issues such as welfare reform, food stamps and social security, he moved to OMB.

Following Carter's defeat in 1980, Raines jumped to the corporate arena and took, a job with Lazard Freres & Co., a New York investment bank. There he quickly rose to general partner in, the municipal finance division. But in 1991, he traded in his Wall Street post and a life that kept him away from his family most of the week for a job at Fannie Mae back in Washington D.C. He spent five years there, from 1991 to 1996, as vice chairman.

His accomplishments during that time were many. Raines was primarily responsible for corporate development, new initiatives, information systems and credit policy. He also crafted the company's mortgage standards and led the effort to streamline paperwork associated with processing mortgages. Hewn instrumental in crafting the Desk Top Underwriter, an automated underwriting that allows lenders to originate mortgages cheaply and efficiently, also helped create the Desk Top Home Counselor, an electronics system that helps loan counselors work with prospective home buyers to repair their credit in order to qualify for mortgages.

Outgoing Fannie Mae company CEO James A. Johnson approached Raines this past February and asked him to return to the fold. "Frank's integrity and business acumen make him the ideal leader of Fannie Mac as it enters its fourth decade as a privately managed, shareholder-owned corporation," says Johnson, who will step down as the day-to-day manager of the $400 billion secondary marketing giant effective January 1.

John Buckley, senior vice president for communications at Fannie Mae, says Raines' previous tenure at the company, now coupled with his invaluable White House connections, made him an obvious choice to lead Fannie Mae into the next century. "He's a strategic thinker and a brilliant business analyst," he says. "He has all the values we want to make sure Fannie Mae fulfills its mission to home buyers."

Raines also sees his appointment at Fannie Mac as a breakthrough for African Americans in corporate America. He will earn salary and benefits exceeding $7 million annually, and command major influence throughout corporate circles. "The boards of companies tend to be fairly conservative, and the fact that the Fannie Mae board saw me as the best CEO, I think, will be reassuring to other boards as they seek to promote black executives," says Raines. But for blacks to head more Fortune 500 companies along the lines of a General Motors or an AT&T, Raines believes they'll have to strategically position themselves where the action is. "There aren't many black executives in the pool. We have focused on the nonprofit world and the world of government."

SWITCHING GEARS

While Raines enjoyed his first stint at Fannie Mae, a phone call from President Bill Clinton in 1996 lured him back into the world of politics. He left the company and a $2.25 million compensation package to become director of OMB. Raines says he's been most proud of the key role he played in balancing the trillion-dollar federal budget, implementing management reforms across the government and helping the District of Columbia get back on its feet financially' Raines crafted a budget compromise that, if approved, would lead to the end of the annual federal deficit for the first time since 1969. The agreement cuts taxes, slows the growth of Medicare and creates new programs in education, children's health insurance and welfare.

Hailed as a team player, Raines has become the most visible African American on Clinton's senior staff, a group largely composed of white men. Eleanor Holmes Norton, Washington, D.C.'s delegate to Congress, has worked closely with Raines over the last two years to repair the District's financial infrastructure. "Between the Balanced Budget Act for the nation and the Revitalization Act for the District, Frank's contributions are of the largest dimensions. His signature is memorably spread across the Clinton years."

Raines will have many challenges at Fannie Mae, a corporation with more than $404 billion in total assets. For one, a recent report shows that blacks are far less likely than whites to be homeowners. According to Fannie Mae, 72% of white American, own homes vs. 45% of African American, and 44% of Hispanics. This inequity is no lost on Raines, who wants to increase the rate of home ownership among black and Hispanic families.

Consumer advocate Ralph Nader say, Raines may be sailing into choppy seas a, Fannie Mae seems to be less; focused on providing secondary mortgages as it quests for greater profits.

Raines will ultimately have to answer to more than one critic as he comes under increasing scrutiny as the country's first black Fortune 500 CEO. He may not have aggressively pursued the label, but now that he has it, he plans to set an example for all to follow. "Either you say yes to position like this or it passes you by," say Raines. "This appointment is a once in lifetime opportunity."