Early in his career at Fannie Mae, Lawrence M. Small was facing 500 employees and wondering how to drive home the value of cooperation and goal-setting. He knew many a higher-up had preached the same message and he didn't want any eyes to glaze over.

So Small took out his guitar, his choice for inspiration for the past 40 years. "Here," he said, "is how you strum. Here is how the notes glide up and down." Replaying the moment now, he moves his fingers in the air. The employees watched him intently as he added a second finger, talking about how the two work together, and then he added another finger, emphasizing all this teamwork makes a richer piece.

People still talk about that session, and those who were there swear that by the end, this towering, lean man who was still relatively new to the company had them cheering.

"If you are the president of the company, and you stand up and play the guitar, obviously it gets their attention," Small says, a gotcha smile splitting his long face.

Now Small will try to capture the attention of a larger audience. Yesterday the 58-year-old executive became the 11th secretary of the Smithsonian Institution, in a brief ceremony in which Chief Justice William Rehnquist handed him a gold key to the museum's Castle on the Mall.

Will the same techniques work at the Smithsonian? Will guitar playing, inspirational books, five-page single-spaced evaluations, slogans like "inspect, not expect" and "you are what you track" fly at the staid, sometimes obstreperous Smithsonian?

Sitting on a leather sofa in his art-filled home on a winding street of mansions in Woodley Park, Small said he is confident the Larryisms are transferable.

"My feeling is that you have to make sure that everybody knows what he or she is supposed to do. If there is anything that I stand for, it is in being clear and specific," he says. "I believe that one has to be inherently suspicious if things aren't going right. And you have to inspect, not simply expect it." He says he has learned that just because something has been told to you doesn't mean it is automatically going to get done. "That doesn't mean I'm cynical about the work of close colleagues," Small says. "But I know when things aren't on the plan, usually something is not working right."

Small has been a leader in the financial world for more than three decades: 27 years at the banking giant Citicorp/Citibank, ending up as vice chairman and chairman of the executive committee; followed by nine years as the second-in-charge at Fannie Mae, the country's largest investor in home mortgages and a politically connected powerhouse. Until now, Small has always been the inside guy, the in-house trouble-shooter. Now for the first time, the shop is his.

For the 6,000 people who work throughout the Smithsonian, a hard-knuckled business type is a shift from the long line of scientists and scholars. Never fear, say Small's friends. "He has a personal passion for the things the Smithsonian does. He is not an expert in astronomy or archaeology. But he will learn them, and he will have time to learn them because the running of the organization will be easy because he has run larger organizations," says Walter Massey, the president of Morehouse College, where Small served as a board member for 25 years.

Sandra Roche Small, his wife of 32 years, points to a blend of curiosity and restlessness that fits the cultural mind-set. "He is always growing himself. He is not frozen, he is always in process," she says.

There is, she says, a lot more to him than the jobs he's held. An accomplished flamenco guitarist, he collects guitars, Lionel trains and art from Third World countries; he also speaks several languages and carves time out for long bike rides around metropolitan Washington.

"My so-called avocations are simply my night job. My avocations haven't been passing fancies," he says, standing by a huge table of model trains, one dating back to 1942. An inexhaustible traveler, he went windsurfing and diving in the British Virgin Islands this winter before returning home to prepare for the Smithsonian job.

"I have never missed a day of vacation in 35 years," he says with a wink.

One trait that friends predict will smooth Small's way at the Smithsonian is his skill in the art of plain talk. "CEOs can be a little Delphic, driving their own grand ambitions," says Franklin D. Raines, the current Fannie Mae chairman. Small has mastered the task of breaking down pronouncements. "He would say, 'If that is what the chairman wants, then we have to do the following 10 things, come with the assignments, and then measure what they are doing.' "

Measurement is taken very seriously at Fannie Mae, and it soon will be at the Smithsonian, too. "What we want to get done can't be squishy," he says. "One of my responsibilities is to help people get the best out of themselves, whatever way I can."

One way is showing that you respect the other person's task by listening. In the 4 1/2 months since his appointment was announced, Smith has had long talks with about 80 Smithsonian employees. Although he comes from a financial background, the first people he talked to at the Smithsonian weren't the museum's money people. Rather, he sought out the curators, the scholars, the exhibit designers. "I want to know how come you used this armature to display this piece of sculpture this way. Why did you pick russet with a black border? Have you thought of using white? I am very interested in that because I love that," says Small. Behind him are two huge Amazon feather pieces, protected behind Plexiglas, and there are hundreds of rare finds in a private gallery he established. He knows the story behind each one.

Through and Through

When Small was on the board of the U.S. Holocaust Memorial Museum, he was chairman of the budget and personnel committees.

"He was on the search committee for the director, and when I came to the interview, he had read everything I wrote--books, articles, every review. I couldn't figure out how he had the time to do this," recalls Walter Reich, a professor at George Washington University and former director of the museum.

This all-consuming approach isn't as intimidating as it might sound, says Kenneth J. Bacon, a senior vice president at Fannie Mae. He says Small knows how to make the best of a situation. Bacon and Small were once driving through Philadelphia when they were pulled over by a police officer. Bacon, who is black, was immediately on guard, figuring he'd been pulled over for "driving while black" and with his white boss. What a way to start the day! "I was nervous, and [Small] says: 'This reminds me of the time I was in New Zealand,' and such and such happened. He put me at ease."

The Natural

Small might just have inherited his knack of managing large institutions.

His mother ran Walton High School in the Bronx; it had a student body of 8,000 girls. That's more people than work at the Smithsonian and more than work at Fannie Mae. His father, an architect, operated on a large scale, too. One of his projects was the Strategic Air Command base in Greenland. Small's father died when Lawrence was 15. His stepfather, now 86, balanced art and a business, working as a stockbroker and running a butter, egg and cheese business while pursuing a career as an abstract painter.

In his freshman year at Brown University, Small was walking up the stairs when he heard a recording of Carlos Montoya playing flamenco guitar. A love was kindled. He wound up spending a year in Spain studying the instrument. Though he immersed himself in it, he eventually concluded that a guy who started playing in his late teens was not going to be one of the best in the world. Now he plays every day, using about 20 guitars, including some belonging to his son, 24, a law student who plays funk guitar. (The Smalls also have a 20-year-old daughter, an art student.)

Putting aside his flamenco career dreams, he joined the banking world and ended up quickly in Chile. He thought international banking would be a way to travel, but he ended up liking management as well. There he met his wife, the former Sandra Roche, then an itinerant teenager who had been born in a prisoner-of-war camp in China, lived in Asia and the United States and was studying psychology in South America. It was a blind date, chaperoned by her mother and uncle. Sandra spilled tomato juice on his white dinner jacket, but somehow things worked out. One of their first joint adventures was traveling around the world in 53 days on borrowed money.

"In a way it is much easier for him to find a soul mate at the Smithsonian," says Sandra Small, a freelance simultaneous translator, speaking of her husband's varied interests.

Collecting is a shared passion, she says, walking through the first floor of their house, where masks and tribal art are precisely hung. She tells a story about how they were in the hills of Sri Lanka watching a dance and they both fell in love with the mask. Larry Small bought it for $14 and then gave the man 25 cents to take the bus to get another one from the carver.

One of his rules when he traveled a lot, she says, was to come home on weekends from South Africa or Australia and drive the children to ice hockey practice. Larry Small played in high school, a little in college. The game, he says, is tough and hazardous, but time and again just being around it has given him a sense of relief.

More than a decade ago, the family went through a crisis that Small finds hard to discuss. Sandra Small was diagnosed with non-Hodgkin's lymphoma, and their lives became a series of doctors and treatments. "One night she was having a terrible time, and we were at the hospital in New York, and I get a call that my son had been injured in a game and is on his way to the hospital. I just sat back and like Tevye in 'Fiddler on the Roof' and said, 'What did I do?' "

He has been influenced by many people but particularly by Richard Salmon, the chancellor of Brown University; Saul Farber, a dean of New York University Medical School; and Albert Abramson, the owner of White Flint Mall, who served with Small on the board of the Holocaust Museum. "In the end, they recognized that the most important thing in life is what you end up meaning to other people," Small says.

Taking Charge

Though both Citibank and Fannie Mae had had their critics and controversies, Small has managed to stay out of the line of fire.

Citibank was rocked by plummeting profits after a series of bad loans for commercial real estate operations. Fannie Mae enjoys an exemption from local taxes, a sore point for some, and its profit levels enable the company to pay its executives handsomely. Small will be taking quite a salary cut. He made $4.2 million plus bonuses in 1998. The Smithsonian salary is $333,000.

"I have been extremely fortunate," he says. "I am perfectly fine with reducing my salary."

Though Smithsonian secretaries have faced nasty disputes, Small has weathered battles that would make most jobs tame. In Chile he had to negotiate with bank employees who expressed their displeasure by throwing the accounting machines off the balcony onto the business floor. He was vice president for human resources at Citibank in the 1970s, when radical groups threatened to blow up banks. Small had to order employees to evacuate and leave millions of dollars on their desks while he and bomb disposal experts combed the offices for explosives. He set up a command center in New York when a plane carrying five Citibank executives was hijacked by terrorists and taken to Bulgaria. He watched Walter Wriston, then the CEO, keep the lines open to the families of the kidnapping victims. "I learned when something is important to your people, you've got to be out front if you are the leader. There was not one time when he said, 'This is a personnel matter; you handle it.' "

In 1994, then-Mayor Sharon Pratt Kelly asked Washington businesses to close because a cold snap was draining electricity. Small was afraid that closing Fannie Mae, which moves about $40 billion a day, would have a domino effect on other financial markets. So he ordered the company's fuel truck to fill up the spare generator, and Fannie Mae switched to its own power. "He said, 'There has to be a rational answer. Let's not assume the city is irrational.' It was very much a 'let's see how we can make this happen,' " Raines says.

Outside Fannie Mae, Small is seen as a good manager. "It is fair to say that Larry Small's management of the company led to its high performance," says Karen Shaw Petrou, president of ISD/Shaw, a financial consulting company.

So his friends expect that planning talent to be on display at the Smithsonian. For example, Small is rethinking the plan of I. Michael Heyman, his predecessor, for a traditional capital campaign; he's considering something more focused. New millionaires are his target. "Am I going to devote a huge amount of my time to fund-raising? You bet I am. Do I think it is tremendously important? Yes, I do. Do I think the flow of money to the Smithsonian needs to be increased by $1 billion? Yes."

He plans to scout for the new millionaires and teach them a thing or two about philanthropy, preaching that the nation's museum needs to be a place that looks first-class. Presentation is obviously on his mind. At his first press briefing, following the Smithsonian regents' closed-door meeting yesterday, Small was relaxed, dressed in a white shirt and red tie dotted with Smithsonian landmarks. He went over the business of the day without notes. His eye for detail was evident. "At the National Air & Space Museum, we have a quarter-million square feet of carpeting, and probably a hundred thousand square feet of chewing gum on it," he said, indicating one aspect of the 16-museum complex that could use some immediate attention.

His grooming as a corporate executive was evident as well. Small said he would stick with Heyman's controversial decision to give almost two-thirds of the exhibition space in the Old Patent Office Building to the National Museum of American Art and one-third to the National Portrait Gallery. He also directed that no museum officials make any public statements on the matter. "This involves less than 2 percent of the visitation to the Smithsonian Institution," he said. "I haven't changed my mind at all. I am not aware of any organization where the individuals who are down at the lower levels of the hierarchy are authorized to speak for the institution."

And Small showed he has already mastered the politics of pandas.

"I am a panda lover. I am in favor of pandas and I hope we can figure out a way to get pandas to the National Zoo," he said emphatically.

But the CEO turned cagey when asked about the the fate of Hsing-Hsing, the beloved panda who died recently, prompting a surprisingly broad outpouring of grief. Some have suggested the panda be stuffed and put on display.

"I haven't really gotten a chance to consider the issue," he said.

CAPTION: "My avocations haven't been passing fancies," says Lawrence Small, a financier-guitarist who yesterday took the reins at the Smithsonian.

CAPTION: Small at home in Woodley Park. His many avocations include collecting model trains and Third World art.