AOL Time Warner Inc. chief executive Richard D. Parsons has emerged as the leading candidate to replace Steve Case as chairman, further consolidating his power atop the world's biggest media company, according to sources familiar with the matter.
In many ways, sources said, Parsons has already been functioning as chairman, running board meetings, co-chairing the long-range strategy committee and making key decisions on a range of issues after consulting with major stockholders.
The question of who will succeed Case as chairman is likely to come up when AOL Time Warner directors gather in New York for tomorrow's regularly scheduled board meeting. The issue will be discussed, but not necessarily decided, when the board holds its day-long meeting on the 29th floor of the Time-Life Building in Midtown Manhattan, sources said.
There is no pressing need for the board to resolve the issue this week because Case's resignation does not take effect until May. But sources familiar with the board said a decision will be made before the corporation sends out its proxy statement to shareholders prior to its annual meeting in May.
Choosing Parsons, who gets along well with members of the board, would have a healing effect on a corporation wracked by internal dissent and lack of cooperation in the aftermath of the $112 billion merger of AOL and Time Warner in January 2001, sources familiar with the board said. Case said the primary reason he stepped down as chairman this week was to avoid the "distraction" that would have resulted had several major shareholders waged a public campaign to oust him in the months leading up to the annual meeting.
The primary argument against naming Parsons as chairman is that splitting the roles of chairman and chief executive is often cited as one of the elements of good corporate governance because it provides more accountability. A separation of the duties also can prevent one individual from wielding clout over both the board and the company's day-to-day operations.
Having a separate chairman and chief executive might also be viewed positively by Securities and Exchange Commission officials and Justice Department investigators, sources said. Federal authorities are conducting full-scale probes into $190 million of earnings restatements by America Online because of advertising deals that artificially inflated the company's revenue and profits before and after its merger with Time Warner.
"Parsons needs some checks and balances on his power," said Jeffrey Chester, executive director of the Washington-based Center for Digital Democracy. "AOL Time Warner desperately needs an outsider to oversee what is going on. Given the specific AOL-related investigations and the overall corporate accountability issues, someone who will really watch out for shareholders and the public is required."
After Parsons, the AOL Time Warner director considered the best candidate to replace Case is Reuben Mark, chief executive of Colgate-Palmolive Co., sources said. Mark has a good working relationship with Parsons and is respected by other AOL Time Warner directors and the business community at large. It is unclear, however, whether he would be willing or have time to take on the additional duties since he also serves on a number of other major corporate boards.
Another factor in favor of Parsons serving as both chairman and chief executive, sources said, is that several directors of AOL Time Warner have both titles themselves in the companies they run, and they regard it as an effective way to manage. Franklin D. Raines serves as chairman and chief executive of Fannie Mae, and Stephen F. Bollenbach serves as chairman and chief executive of Hilton Hotels Corp.
The AOL Time Warner board is highly unlikely to look outside its existing slate of directors for a chairman, sources said. In contrast, naming Parsons would provide stability and continuity of leadership. "No one is emerging other than Parsons as the likely chairman right now," said electronic media analyst Gary Arlen.
Parsons, who became the corporation's chief executive last year, has served in senior management posts at Time Warner since 1995. "The company needs healing," said a source familiar with the board. "Even if Dick Parsons became chairman and chief executive officer, he would still be held accountable by the board. This is an activist board."