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Seasoned execs mine gold, new adventure with Net start-ups

The race to hire high-ranking corporate executives to run e-commerce start-ups has reached a torrid pace, fueled by an insatiable demand for seasoned managers, as well as a seemingly endless supply of stock for the recruits.

The race to hire high-ranking corporate executives to run e-commerce start-ups has reached a torrid pace, fueled by an insatiable demand for seasoned managers, as well as a seemingly endless supply of stock for the recruits.

This week alone, a high-ranking AT&T executive quit to become president of Net grocer Peapod, and the chief executive of Mercedes USA left for AutoNation, an auto retailer with a growing e-commerce presence. Last week, Andersen Consulting's chief executive left for the CEO slot at Webvan, and in June, a Black & Decker executive resigned to become Amazon.com's president.

"Internet companies need the 'gray hairs,'" said James Schrager, a professor at the University of Chicago graduate school of business, referring to the firms' need for experienced executives. "They have difficult strategy questions, and they need people who have experience and know-how to make money."

As for the executives, the draw is "to have a big impact in the business and to make a lot of money in a hurry," Schrager added.

Although not new, the raid of corporate executives by Internet companies is accelerating as traditional retailers--whether car dealerships or booksellers--invade their online turf.

"I've only been hearing the term 'clicks and mortar' for about three months," said Philip Anderson, associate professor at the Tuck School of Business at Dartmouth College. Anderson is referring to brick-and-mortar giants such as Ford or Wal-Mart that are building a presence online and putting intense pressure on Net pioneers.

In addition, Net companies are facing more competition from online upstarts, because barriers to entry online are minimal.

Shopping for bigwigs
Nowhere has the executive recruiting campaign been more apparent recently than in the online grocery business, one of the hottest e-commerce markets of late. However, the sector faces tremendous challenges in technology, marketing, and distribution. As a result, the start-ups are turning to seasoned executives. Some examples are as follows:

• Three weeks ago, Home Grocer tapped Mary Alice Taylor, a former executive of Federal Express and Citigroup, as chief executive.

George Shaheen• Last week, Andersen Consulting chief executive George Shaheen, 55, caught the staid managing consulting industry by surprise when he jumped ship for Webvan, the Net grocery start-up.

• This week, Peapod said it named AT&T executive Bill Malloy as chief executive. Malloy, 46, previously was executive vice president of AT&T's wireless group.

The succession of moves begs the question: Why would these executives leave secure jobs at corporate giants to join money-losing Net start-ups? As Malloy put it in an interview with CNET News.com: "If you are into these kind of adventures, it's a great fit. The challenge of taking something that's small and growing it to something of significant size is really a rush."

Veterans lead the way
As for the Net grocery companies, the executives offer needed management expertise.

For example, Homegrocer cofounder and former CEO Terry Drayton, who lead the search for a new chief executive, said the company chose Taylor because of her experience with Federal Express and Citigroup. At Federal Express, she was responsible for pickup and delivery operations in North America. At Citigroup, her title was vice president of global operations and technology.

"The grocery piece is not the most difficult of the things we have to do well," Drayton said, mapping Homegrocer's three primary concerns--technology, distribution, and groceries. Taylor's experience in the first two areas made up for her lack of experience in the third, he said. "There's a lot of things in the grocery business we really do not want to emulate. We haven't seen a lot of innovation coming out of that space," Drayton said.

The logistics management know-how is crucial. "Online grocers are facing challenges that no one faced before," said David Simons, managing director at Digital Video Investments. "This is a scale and speed of operation" that is unprecedented, he said.

In addition, the bigger-name executives can help attract investors, which is important because many of the Net grocery companies are preparing to go public.

"Shaheen will help [Webvan's] name recognition and the valuation of the company," said Sandeep Thakrar, an analyst with Ecom Advisors. And as with Taylor, Shaheen's management background is helpful, he added. "Although it is definitely going to be a different experience, the base behind Webvan is technology. That's what Shaheen did; he managed the largest tech integration firm in the world."

The temptation of riches
Although downplayed by executives, the almighty dollar also has got to be a lure to any of these executives, according to analysts. Shaheen will earn a base salary of $500,000 per year and could receive up to a 5 percent stake in Webvan, according to regulatory filings.

Amazon is paying former Black & Decker executive Joseph Galli a base salary of $200,000 per year to be president, along with stock options that could be worth at least $20 million.

Meg Whitman Analsyts often point to the success of Meg Whitman, who left Hasbro to become the chief executive of eBay, and now is ranked among Forbes's richest executives--at least on paper.

"Look at Whitman," said Dartmouth College's Anderson. "Two years ago she was managing Mr. Potato Head for Hasbro, Playschool, and Teletubbies. But look at her now: Do you think she would have been worth $960 million if she stayed?"

Money isn't the only lure, however. As Anderson pointed out: "[Whitman] is a leader of the Internet. It's an ability to make a difference."

Other shareholders benefit as well. Under Whitman, eBay is "very efficient" and a "winner," the University of Chicago's Schrager said.

Bloomberg contributed to this report.

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