The route to the top.

TODAY'S CEO KNOWS MORE ABOUT TECHNICAL MATTERS THAN NUMBER-CRUNCHING - AND HE OR SHE MAY KNOW A THING OR TWO ABOUT OPERATIONS. AN IN-DEPTH STUDY OF THE CEOS OF THE LARGEST U.S. PUBLIC COMPANIES PROVIDES A LOOK AT WHAT CAN HELP - OR HURT - EXECUTIVES IN THEIR CLIMB UP THE CORPORATE LADDER.

Is there a new breed of CEO today? Are some career paths more certain routes to the top than others? Do education and mentoring make a difference when it comes to climbing the corporate ladder?

The answer to all these questions is yes. In fact, more CEOs today have operations/manufacturing or technical/scientific backgrounds than ever before - specialties that are supplanting the more conservative financial backgrounds that were prevalent in the 1970s and early 1980s.

Based on a comprehensive study of the backgrounds of 464 CEOs of the largest public industrial and service companies in the U.S. (the study included companies with 1994 revenues of $400 million or more, and excluded all banks, financial institutions, and companies with CEOs not selected by boards of directors, such as founders), as well as a survey of CE readers, Management Practice Inc. has identified several trends in board selection of CEOs and what factors most contribute to an executive's ascension to the top corporate spot. Among current trends:

* Operations/manufacturing backgrounds are becoming more prevalent among the newest crop of CEOs of the largest industrial corporations in the U.S.

* Fewer CEOs have administrative, legal, and financial backgrounds than ever.

* An MBA is a good predictor of a CEO's ability to generate company performance, when performance is measured by sales growth over a two-year period.

* Most new CEOs are company insiders.

* CEOs who were appointed from the inside have weaker company performance records than CEOs who were brought in from the outside.

* A majority of CEOs have had mentors throughout their careers, and frequently mentor others themselves.

* Since 1993 (the first year MPI tracked age data), the average age of newly appointed CEOs is younger than the average for all CEOs.

* Among newly appointed CEOs in 1995, the average tenure at the company before being named to the top spot is about 18 years.

CORPORATE BACKGROUND

We looked at two groups of top executives in our study of U.S. CEOs: those who had been newly appointed in the 18 months after December 1, 1993 (noted as "newly appointed CEOs"), and those who were in place in 1995. We then compared the backgrounds of in-place CEOs with those in place in 1985 (see chart).

An executive's experience in "getting his or her hands dirty" as an engineer, power-plant manager, chemist, or similar position now places him or her several steps up the ladder from his or her marketing, legal, finance, and administrative competitors for the top spots in U.S. industry.

Why the shift? CEO selection is mirroring market trends: Today's highly competitive market demands improved operations efficiencies to increase margins. Driving this trend, too, is boards' increased focus on the end product or service when they select a CEO; boards more often are seeking executives with expertise in manufacturing and delivery, and those who can develop new products better, faster, and more efficiently.

In short? there is more pressure - both on boards by shareholders and on CEOs by boards - to adhere to the objective described by Steve Raymund of $2.2 billion Tech Data: "Execute flawlessly."

Perhaps it's not surprising that operations/manufacturing backgrounds are more prevalent among newly appointed CEOs today than they were 10 years ago. Efficient operations are the key to future success: Controlling costs - while at the same time developing ever-more individualized products and services - will be the basis for sustainable competitive advantage. The numbers bear this out, according to our research: Fully 26 percent of newly appointed CEOs have operations/manufacturing backgrounds, compared with 20 percent of all CEOs currently in place.

Another important, long-term trend, meanwhile, is the steady increase of CEOs with technical or scientific backgrounds. Fully 24 percent of all CEOs in place this year have technical or scientific backgrounds; in 1985, 21 percent had such backgrounds.

What's driving this long-term trend? In addition to providing analytical training, a science and technology background is also increasingly necessary to keep current with the fast pace of technological change in industry today. "Technology is becoming increasingly important to companies in all sectors in the economy," says Alan G. Merten, dean of Cornell University's Johnson School of Management. "In today's world, no industry is isolated from technology."

In fact, a recent survey of 500 senior managers of Fortune 1000 companies conducted by the Johnson School corroborated our study: More than 90 percent of the Johnson School's survey respondents said that as the economy continues to become more knowledge-based, senior managers increasingly need technological backgrounds to understand business opportunities, limitations, and the implications of technology decisions. The survey found that about a third of companies expected to hire more scientifically trained professionals for management positions than they have in the past.

The trend is expected to continue well into the next decade. Two out of three respondents to the Johnson School survey said that scientific training, with its emphasis on quantitative and analytical skills, creativity, and problem solving, is a good background for the next generation of managers.

"Professionals who combine scientific or other technical knowledge with business training may indeed become the so-called 'gold-collar' workers - a new generation of business elite with several distinct areas of expertise," Merten says.

Arthur C. Martinez, newly appointed CEO of Sears & Roebuck, is a good case in point. "I've always thought my engineering background was a great facilitator," he says. "One thing engineering did for me early was help me organize a thinking process: analytical, problem-identification, problem-resolution kind of thinking."

Counterbalancing these trends, however, is a drop in the number of CEOs with a generalized, administrative background. Since 1985, the number of CEOs with administrative backgrounds has fallen off 5 percent, from 19 percent of all in-place CEOs in 1985 to 14 percent in 1995. The prevalence of administrative backgrounds no doubt will be eroded further: Only 8 percent of newly appointed CEOs in 1995 have such backgrounds.

Again, this trend mirrors what is happening in the market. In the conglomerate decades of the 1970s and 1980s, complex business structures required executives who could manage diverse companies; today, as businesses become more focused, leadership requires specialized training.

Financial backgrounds have remained consistent among CEOs, accounting for 17 percent of in-place CEOs in 1985 and 1995, and 17 percent of newly appointed CEOs this year. Marketing/sales backgrounds have gained two percentage points since 1985 - now accounting for 17 percent of all in-place CEOs' backgrounds. Marketing/sales backgrounds are gaining in importance; since this year, 19 percent of newly appointed CEOs have a marketing or sales background. Companies again are emphasizing the classic marketing orientation, choosing CEOs who think like visionary entrepreneurs, not short-term accountants.

PREDICTORS OF PERFORMANCE

A CEO's corporate background is not always an accurate predictor of company performance, if performance is measured in sales growth [ILLUSTRATION OMITTED].

To quantify this point, we looked at chief executives of large public industrial corporations who had been appointed in 1993 and tracked the percentage sales increases of their companies over two years. We then categorized these companies by the CEOs' backgrounds: whether they had MBAs or other graduate degrees, and whether they had technical or operations backgrounds. While technical or operations backgrounds may be what's needed in the marketplace, the fact that they appear on a CEO's resume hardly guarantees his or her ability to generate sales growth. CEOs with technical or operations backgrounds headed companies with average sales increases of 10 percent; CEOs with all other backgrounds led companies with average sales increases of 18 percent. On the other hand, a solid business education is a strong rung on the ladder toward the chief executive suite. Having an MBA is a good predictor of a CEO's ability to generate sales performance. CEOs with such degrees headed companies with significantly higher percentage sales increases than those headed by CEOs with other graduate degrees, 18 percent versus 12 percent. Moreover, CEOs with MBAs run companies that had higher sales increases than those headed by CEOs without any advanced degrees, 18 percent versus 11 percent.

Excluding all CEOs of financial and insurance companies, as well as founding CEOs, 29 percent of CEOs of the largest publicly held companies have MBAs. Perhaps not surprisingly, more CEOs have MBAs than any other advanced degree, including technical or science degrees. However, more than half of CEOs with MBAs have scientific or technical undergraduate degrees. Harvard Business School can claim the largest share of CEOs with MBAs: 32 percent, followed by the University of Chicago's Graduate School of Business (7 percent) and the University of Pennsylvania's Wharton School of Business (6 percent).

INSIDER VERSUS OUTSIDER

Boards of directors tend to select a new chief executive from within company ranks: Some 80 percent of newly appointed CEOs in 1995 were chosen from the inside. Of those appointed in 1994, 83 percent were insiders.

However, insiders tend to have weaker sales performance records than outsiders. CEOs who rose through their own company ranks averaged only a 9 percent sales increase over two years. Outsiders named CEO in 1993 averaged a 35 percent increase [ILLUSTRATION OMITTED].

THE AGE OF INFLUENCE

CEOs may be getting younger. Just as the pace of business is getting faster, so too, is the time it takes to climb the corporate ladder. The average age among newly appointed CEOs in each of three years, 1993-'95, was about 54; the average among all in-place CEOs this year was 57. Among CEOs who were newly appointed in 1995 and who ascended as insiders to the top spot, the average company tenure was 18 years.

PARLEZ-VOUS FRANCAIS? ESPANOL? SOMETHING ELSE?

Given the global nature of business today, international experience is almost imperative to an executive's rise to the top. It's especially critical in the eyes of recruiters, according to Gerard Roche, chairman of Heidrick & Struggles, a New York-based executive recruitment firm. "There isn't a search I've done in the last two years that didn't demand international experience," he says. "We don't live in a parochial world: Every top manager has to be a global manager."

Concurs Jean-Pierre Rosso, French-born chief executive of $4.3 billion farm-equipment manufacturer Case Corp., based in Racine, WI, who spent more than 10 years managing Honeywell's international business before joining Case in 1994: "Borders have disappeared. This planet has become one large marketplace."

According to the CE/MPI Route To The Top survey, about half of respondents have no international experience, 26 percent have more than five years' experience abroad, 15 percent have three to five years' experience abroad, and 7 percent have one or two years.

THE MENTORING MENTALITY

Sometimes a mentor can be a make-or-break factor in the route to the top. Consider the experience of A.W. Dahlberg, chief executive of $8.3 billion Southern Co., based in Atlanta, parent of five utilities in the Southeast. Dahlberg joined Georgia Power, one of the subsidiaries, as a 19-year-old meter installer. Despite his lack of a college degree, Dahlberg moved into management. He took night classes intermittently at Georgia State University, but work and family commitments kept him from finishing his business degree. A new boss and mentor, Walter Bartley, saw Dahlberg's potential and told Dahlberg unequivocally to finish college: "If you don't, I'll fire you." After graduating from Georgia State at age 30, Dahlberg began his ascent up the corporate ladder. He became chief executive of Southern Co. in March 1995. He credits Bartley with helping him make the climb; in 1988, Dahlberg established the Walter Bartley Scholarship Fund for Southern Co. employees and their children.

Dahlberg's reliance on a mentor is not unique. When asked in a recent interview (see Cover Story) to name the turning point in his career, Stanley C. Gault, chairman and CEO of Akron, OH-based Goodyear Tire & Rubber, replied, "I've had the privilege of serving under some of the most outstanding leaders in American industry. Some of them would view me like a son - and perhaps were as hard on me as they would have been on their own. But I've learned tremendously from that, and it's served me well."

More than 88 percent of CEOs have had at least one mentor, according to the CE/MPI Route To The Top survey. Some 64 percent had two or more mentors. Having a mentor ranked as the third most important factor among CEO respondents in their way to the top, after personal drive and personal ambition (see sidebar).

Not surprisingly, CEOs often act as mentors themselves. Fully 79 percent of survey respondents said they mentor three or more junior executives, including potential successors. Fewer than 3 percent report having no mentees.

BENCHMARKS FOR SUCCESSOR SELECTION

In the end, what do these trends mean for CEOs who are already poised on the top rung of the corporate ladder? These trends can be used as benchmarks for selecting key executives or a successor. Although there are no certainties, CEOs have all the probabilities on their side if they choose an MBA who was mentored by a highly regarded person in the industry, a company outsider with operations or technical career background and a stint managing a foreign operation.

RELATED ARTICLE: An Outsider in Continental's Cockpit? That's OK, He Knows How To Fly

Gordon Bethune is late for an interview. No matter. At least his planes are on time. In just over a year as chief executive of Continental Airlines, Bethune has taken control of the troubled Houston-based carrier in the firm, calculated way he would pilot a Boeing 767 jet that he's licensed to fly.

Piloting Continental is tougher, however. The 53-year-old Bethune neatly fits the emerging trends among many newly appointed CEOs. A Continental outsider, he brought nearly three decades of operations experience in the aviation industry.

He joined in March 1994 as president, and became CEO that November after his predecessor was forced out. Continental was hurting; it would later post a $613 million loss in 1994.

Bethune is the CEO as "Everyman," who saves the company from itself. He pulls no punches when he speaks, and his rapid-fire Texas drawl is generously peppered with expletives. "I could never have been an insider," at Continental, he says, "because I never would put up with this s ---. Continental was a very dysfunctional organization that only measured costs."

Adds Bethune: "Any dumb S.O.B. can manage costs. Revenue is a lot harder. You can make an airline so cheap nobody will fly it. It's not how cheap the product is; it's got to have some value."

Bethune's formula is deceptively simple: He restored first-class seats and personally courted top customers. Thinly traveled markets were cut. He replaced 34 of 60 vice presidents with two dozen handpicked corporate doctors, focused on revenue, cost, and margins. For the first nine months of 1995, Continental earned $183 million. And a $6,500 investment in its Class B shares in January 1995 was worth $36,000 just 10 months later. In November, there were rumors that the airline might be sold.

On his route to CEO, Bethune earned his wings. A native of rural Texas, Bethune is the son of a crop duster. He joined the U.S. Navy and became an airplane mechanic. Bethune graduated college with a general studies degree, intending to become a lawyer, when a friend recommended him for a job as manager of engines for Braniff Airlines, then one of the nation's leading carriers.

At Braniff, Bethune caught the attention of William Huskins, at the time Braniff's VP of engineering and maintenance. Within two years, Huskins moved up, and Bethune got his old job. When Braniff went broke, Bethune went to Western Airlines. In 1984, Piedmont Airlines tapped him as its senior VP of operations. And after USAir acquired Piedmont in 1988, Bethune joined Boeing, where he served in a number of executive positions, and which sent him to Harvard Business School's Advanced Management Program. When Continental called, Bethune returned to his native Texas with his wife and three sons.

Continental was a risky craft to fly solo, but Bethune so far is proving himself an adroit pilot. Not only can he fly, he can take off and land, too.

GORDON BETHUNE CEO CONTINENTAL AIRLINES

Corporate background: Aircraft maintenance. Education: BS, Abilene Christian University. Insider: No. International experience: None. Mentor: William Huskins, vice president, Braniff Airlines. Value-added: Back-to-basics approach.

Jonathan Burton

RELATED ARTICLE: Out Of The (Big) Blue...And (Eventually) Into The Black

Like many executives who make it to the top of the corporate ladder, Charles Haggerty hung up his wing-tips after a long career at a blue-chip firm to go to a struggling company in need of wings.

When Haggerty joined Western Digital as president and chief operating officer in June 1992 after 28 years at IBM, the Irvine, CA-based maker of hard-disk drives was faced with a debt of $210 million and had $35 million in cash. Fiscal 1992 had just ended with a $73 million net loss on sales of $938 million - not exactly the kind of results that create a stable workplace.

Haggerty knew the risks, but he was about to turn 50 and was ready to toss his security blanket. Haggerty was IBM's vice president of worldwide OEM storage marketing, living and working in the New York City suburbs. But IBM was not changing as much as Haggerty would have liked, so he changed instead. "In one way, it was an easy decision," he recalls, "because once you come to a much smaller company, the ability to make decisions and to move forward very quickly increases 100-fold."

Haggerty was on a fast track himself. He'd been at Western Digital only seven months when Chairman and CEO Roger Johnson resigned in January 1993 to head the federal government's General Services Administration. The board named Haggerty CEO, and kept him on as president.

Now Haggerty had free rein, but the pressure was on to increase shareholder value. To Haggerty, hard drives are commodities. Manufacturers compete on service, not price, he says. The winners, he adds, bring product to market fast and "out-execute" the competition. Haggerty's game plan for Western Digital: be the highest-quality producer, have a leadership position, and sustain profitability. "I wanted to take all the good attributes that Western Digital had, and the good attributes that IBM had, and bring them to the middle," he says.

Something clicked. In fiscal 1995, which ended last June, Western Digital posted net income of $123 million on sales of $2.1 billion. At the end of September, it had $242 million in cash and no debt. And the price of Western Digital's common stock, which cracked $5 when Haggerty came, was then at about $16.

Thank Big Blue for the turnaround. "It's probably one of the finest training grounds in the world," says Haggerty. IBM, he adds, emphasizes management skills, respect for the individual, and taking responsibility for actions. At IBM, Haggerty held positions in finance, manufacturing, industrial engineering, sales and marketing, and international operations. In the process, he acquired a solid technical background. Haggerty, now 53, joined IBM in 1964 as a clerk at the company's Rochester, MN, facility, with undergraduate degrees in business and political science. After nine months, Haggerty moved to finance. "I sat across the hall from the general manager. I decided I would prefer to be over in that office."

Twenty years later, he got his wish. Haggerty managed the Rochester site from 1983 to 1985 before moving on to run worldwide operations for one of IBM's data-processing systems. Haggerty's storage-products team in Rochester was instrumental in the site's winning the Malcolm Baldrige Quality Award in 1990.

For Haggerty, teamwork is its own reward - and the key to success. He's had plenty of experience.

"I was the youngest of six children," says Haggerty, who's been married for 32 years and has two children of his own. "At the dinner table, by the time the food got around to me, it was teamwork."

CHARLES HAGGERTY CEO WESTERN DIGITAL

Corporate background: Computer operations. Education: University of St. Thomas, St. Paul, MN. Insider: No. International experience: Japan, United Kingdom. Mentors: Many at IBM. Value-added: Button-down IBM training is tough on costs, focused on quality.

Jonathan Burton

RELATED ARTICLE: CEOs Say It's All In The Attitude

Lee Iacocca and Al Dunlap probably would not be shocked to learn that when it comes right down to it, most CEOs think they got where they got because of their own ambition, drive, and values. In fact, that's what the majority of respondents to the CE/MPI Route To The Top survey said when they were asked to rank the factors that influenced their climb up the corporate ladder. Personal drive and ambition, specifically, was the No. 1 factor among survey respondents, followed closely by personal values.

And while CEOs can be a fairly self-congratulatory lot, many pointed to other influences - namely, mentors and learning from their own mistakes, as third and fourth most important.

Background and education, which, according to MPI's research, can sometimes be accurate predictors of a CEO's performance once he or she makes it to the top, are not perceived by CEOs as important on the way up the ladder: Respondents to the survey ranked them near the bottom of the list.

CEOs were less uniform when they were asked to describe the "single most important turning point" in their careers. The answers ranged from the serendipitous ("being in the right place at the right time" and "two men retired, two died, two quit, and one got fired - all in five years") to the sentimental ("my wife"), while many cited leaving large corporations for smaller start-ups or start-up divisions. But it was "getting the sack," as the CEO of a $3 billion tourism company unceremoniously put it, that may be the surest-fire route to success, based on the number of CEO respondents who cited it as the major turning point in their careers.

On mentors and mentoring, CEOs are united. Not only did they have mentors themselves, they mentor many others - typically three and usually more, according to the CE/MPI Route To The Top survey. Only 12 percent of respondents said they have never had a mentor; by contrast, 64 percent said they have had two or more mentors in their careers. Fully 79 percent of CEOs, however, mentor at least three junior colleagues. Some 31 percent mentor six to 10 colleagues.

According to the CE/MPI Route To The Top survey, CEOs do not job-hop often or move from industry to industry: About 17 percent of CEOs reported their entire career had been spent at one company; fully 47 percent said they had stayed in only one industry; and only 36 percent said they have careers that straddled two or more industries.

TOP 10 FACTORS IN A CEO'S ROUTE TO THE TOP

Ranking

1 Personal Drive 2 Personal Value System 3 Having A Mentor 4 Learning From Mistakes 5 Being A Team Player 6 Industry Experience 7 Educational Background 8 Career Background 9 International Experience 10 Being In Right Place At The Right Time

Frances Nuelle

RELATED ARTICLE: An Insider Tries To Dig Morrison Knudsen Out Of Its Troubles

Robert Tinstman has spent most of his 49 years in and around mines. Now he's shoveling hard to dig out Morrison Knudsen from the bottom of the shaft.

Tinstman became president and chief executive of the troubled Boise, ID-based engineering and construction concern in March, after 21 years with the company. But his appointment was no reward for loyalty. Tinstman inherited a sickly business with $347 million in debt and less than $20 million in cash. After 1994's $349.6 million net loss on $2 billion in sales, book value sunk below $2.

Morrison Knudsen had just fired William Agee, its mercurial CEO and a company outsider. Tinstman, then the president of the company's Mining Group, encouraged the board to replace Agee with an insider, perhaps even himself. Only someone familiar with the business, Tinstman reasoned, could preserve client relationships and ask demoralized employees for the sacrifices necessary to save the company.

Rescuing Morrison Knudsen is Tinstman's most ambitious project yet. The alternative: Chapter 11 bankruptcy and the forced breakup of the company, a cornerstone of Boise since 1912. Tinstman works six or seven days a week trying to avoid that end. He boldly predicts that Morrison Knudsen will return to profitability next year. But first, it must repay its lenders. A $100 million bridge loan is due this March, and another $100 million loan comes due in September.

Non-core businesses are on the block, including locomotive builder MK Rail, which could fetch more than $100 million. Asset sales so far have been only fair, bringing in about $45 million. The company also jettisoned its transit car manufacturing unit, which accounted for $225 million of 1994's loss. Additionally, Morrison Knudsen hopes to raise $100 million to $150 million from a public or private stock offering in the second quarter of 1996.

Tinstman is a mining engineer by training (in 1968 he received a BS degree in mining engineering from the University of Wisconsin at Platteville), a technician with an eye for operations. He's managed some of Morrison Knudsen's most lucrative construction contracts since he joined in 1974 as an assistant manager of mine engineering. These early experiences, Tinstman insists, along with an involved mentor, prepared him for the task he now faces. He singles out a job he received shortly after being promoted to vice president of engineering in 1977. Tinstman directed construction of a $2 billion coal mine, rail, and infrastructure project in Colombia - still the company's biggest turnkey effort. "It was a major stepping stone in my career," he recalls, one that acquainted him with Morrison Knudsen executives and company operations in the U.S. and abroad.

From there, Tinstman was groomed for greater authority. In 1985, he moved to San Francisco as president of MK Engineers in charge of the company's transportation and environmental projects and his expertise developed beyond mining. Tinstman returned to Boise in 1988 as president of the company's key Mining Group, where he was when the board called on him.

Many executives can point to someone who took an interest in them early and helped shape their careers. Tinstman found a mentor in a veteran mining engineer named Odean Anderson. They met at Texas Gulf, where Tinstman worked as an assistant mine superintendent between 1968 and 1974. Anderson was vice president of the industrial and mining engineering division, and Tinstman's boss. When Anderson left for Morrison Knudsen in 1974, Tinstman came along.

Dirt under the finger-nails is second nature for Tinstman, who grew up on a 400-acre dairy farm in rural Wisconsin. School was one room with eight grades. In fact, Tinstman had no college plans until his senior year of high school, when a mineralogy professor he met suggested he become a mine engineer.

Never one to discount advice, Tinstman heeded the suggestion. Besides, he admits, "I got tired of the farm. It's a lot of hard work, and you get very little out of it."

ROBERT TINSTMAN CEO MORRISON KNUDSEN

Corporate background: Mine engineer.

Education: BS, University of Wisconsin, Platteville.

Insider: Yes.

International experience: Colombia, Germany.

Mentor: Odean Anderson, former Morrison Knudsen vice president of mine engineering.

Value-added: Insider tries to pull company out of disaster.

Jonathan Burton

C. Meyrick Payne is senior partner of, and Jacqueline E. Jeffrey is senior consultant for, Management Practice Inc., a New York-based consulting firm specializing in organization and compensation management.