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A CEO's Tough Task

By Dina ElBoghdady
Washington Post Staff Writer
Monday, July 25, 2005

After the movie "A Civil Action" portrayed W.R. Grace & Co. as a callous corporate polluter, it seemed that the company's image and fortune could plunge no lower.

Grace was featured in that 1998 drama, which depicted the events of a decade earlier, when eight Boston area families negotiated an $8 million settlement with the company over claims that corporate chemical dumping had poisoned some of their children.

The Columbia-based chemical maker is still in a legal and ethical tangle. It is fighting criminal charges tied to a mining operation that exposed a small Montana town to asbestos decades ago. It faces civil charges linked to its cleanup efforts at a now-defunct New Jersey plant that processed asbestos ore from that mine. And it is operating under bankruptcy protection for the fifth consecutive year as it tries to resolve about 129,000 personal-injury claims related to asbestos.

Alfred E. Festa, the new chief executive who is trying to lead Grace out of bankruptcy, said problems run so deep that he considered changing the company's name when he took over in June in hopes of distancing Grace from its past.

Losing Ground: W.R. Grace's revenue has grown consistently during the past five years. But civil lawsuits have hurt its profitability and forced the company to declare Chapter 11 bankruptcy in 2001.
"This could be the most troubled period in the company's 150-year history," Festa said. "Everyone in this company feels terrible about the asbestos problems from all those years ago . . . But we can only focus on what we can control, like our relationships with our customers. We have to be mentally strong to do that."

So now what?

There is no shortage of advice on how to recover from inherited problems that haunt companies for years, such as the gas leak that killed thousands at Union Carbide Corp.'s plant in Bhopal, India, in 1984, or the multibillion-dollar lawsuits stemming from the tobacco industry's alleged cover-up of the dangers of cigarette smoke.

Experts who study companies in crisis agree that Festa has a brief window to establish his leadership and prove to employees, customers and creditors that he can steer the global enterprise, which employs 1,200 people in Maryland and 6,500 worldwide, through its troubles.

"People are willing to give a new guy the chance to prove he can overcome legacy issues," said Michael Useem, a management professor at the Wharton School of the University of Pennsylvania. "But about 18 months later, the new guy owns the issues. If the company is not moving in the right direction by then, the honeymoon is over."

The new guy is not new to corporate America. Festa, 45, spent a decade at General Electric Co. and another at Allied Signal Inc., reaching the executive ranks of both firms. The Rome, N.Y., native then ran a start-up software company in Philadelphia for a short time before joining Morgenthaler Private Equity, a venture capital firm, in 2003.

Festa was itching to return to his corporate roots that year when he got a call from Paul J. Norris, Grace's chief executive at the time, urging him to consider joining the company. So Festa started looking at Grace's fundamentals, legal issues aside.

When he accepted the chief's executive position in June, after a year as chief operating officer, the appeal was not the $1.75 million signing bonus that came with it or the $760,000 salary, Festa said. He might have done better at another firm, he said.

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