Who Will Run Harman Now? Who Else?

By Amy Joyce
Washington Post Staff Writer
Wednesday, August 23, 2006

Sidney Harman never gave up running the company he founded, so the sudden departure of his chief executive Monday after just four months on the job won't cause any disruption at District-based Harman International Industries Inc., analysts said this week.

Harman, the 88-year-old executive chairman of the high-end audio manufacturer, would hardly disagree. "It could readily be argued that we don't need a CEO except for one thing," Harman said yesterday. "Although he is enormously active and very bright, the chairman is, by chronological matters, a very old man. So the need for a CEO is an insurance policy."

He needs a successor, not a replacement, he suggested, because of course he's going to retire eventually -- "within the next 25 years."

Douglas A. Pertz, who came to Harman in May after several years as chairman and chief executive of IMC Global Inc., a producer and marketer of phosphate and potash nutrients for the agriculture industry, left this week with a $3.8 million severance package.

Analysts said his job would be tough to fill. "They need to find someone with strategic vision and strong operational skills, but one that can work closely with, and still be willing to answer to, Dr. Sidney Harman, whose name is on the door and still Chairman of the firm," wrote Scot Ciccarelli, an RBC Capital Markets analyst. "We believe it will be difficult to find the 'perfect suitor' for such a job."

Harmon is likely not to dispute that analysis.

"The only concern that was expressed in those reports was that the chair continues to be very active in the company and that might discourage an otherwise very qualified candidate who really wants to run the show all by himself. That's not unreasonable," Harman said.

"On the other hand, in this company we have had executives who worked for a long time with me and found it both constructive and rewarding. So we need to find one very qualified candidate."

The company, which also makes high-end video and electronic systems, was founded by Harman in 1953.

Harman said Pertz's departure wasn't caused by one event and that it wasn't a particular failing on Pertz's side or a failure by the company to meet his expectations.

"There are aspects of judgments and leadership that are impossible to assess, or at least I find it impossible to assess those matters . . . through interviews," Harman said. They "can only be determined through experience."

Harman called himself demanding and "someone who seeks excellence and tries to provide it."

Pertz had been hired to replace Bernard A. Girod, chief executive since 1998, who had said he would retire by year's end. Girod, vice chairman of the board of directors, will take over until a replacement is chosen.

A call to Pertz was not returned. Girod was on vacation and unreachable.

The sudden departure of a chief executive can lead some companies' stocks to plummet. But because Pertz was seen as an odd choice and because a replacement is expected to be found soon, most analysts remained upbeat.

"Our checks gave us reservations about the relevance of his experience, and we think this course correction will free Harman to appoint a more suitable candidate," wrote Ronald A. Tadross, an analyst with Banc of America Securities LLC.

Spencer Stuart, the search firm that found Pertz, will look for his replacement.

"This board continues to take a view that we should seek a qualified senior executive," Harman said. "At some point, Sidney Harman will retire."

The company said last week that fourth-quarter earnings fell 8 percent, to $64.8 million (95 cents a share) from $70.2 million ($1.01) in the corresponding period a year earlier. Revenue grew 6 percent, to $859 million. Profit for the fiscal year ended June 30 was $255.3 million ($3.75), up about 10 percent from $232.8 million ($3.31) the previous year. Annual revenue was up 7 percent, to $3.25 billion.

Shares closed at $81.05, down 4 percent.

Staff researcher Richard S. Drezen contributed to this report.