Rosen: The power behind the throne

So said Compaq Chairman Ben Rosen in a 1997 address at the Columbia Business School.

And now look where he is.

Indeed, for the second time this decade, Rosen finds himself in the middle of a power play leading to a changing of the guard in Compaq's executive suite. On Sunday, Compaq (NYSE:CPQ) announced the departure of Pfeiffer. Rosen, along with two vice-chairmen, will run a temporary Office of the Chief Executive to oversee the company's daily operations until a replacement is hired.

The last time this happened was 1991, when Rosen ousted then CEO and Compaq co-founder Rod Canion, replacing him with Pfeiffer.

"[Rosen is] one of the fathers of the PC industry," said Ashok Kumar, at Piper Jaffrey of Minneapolis.

He's also not one to let sentimental ties get in the way.

Strictly business
In 1991, Compaq was losing ground to aggressively priced computer clones, especially from increasingly prominent direct suppliers like Gateway (Nasdaq:GTW) and Dell Computer (Nasdaq:DELL). Canion, who argued against developing a line of low-cost PCs, warned that a clone counteroffensive would ultimately damage Compaq's brand and prevent the company from charging a premium for its products.

But the old order was crumbling. Without Canion's knowledge, Rosen sent two low-level employees to Comdex to see whether Compaq could build cheaper computers by using components on display at the show. They proved it could be done, but Canion still refused to go along. After Compaq announced a $70 million third-quarter loss accompanied by big layoffs -- caused in part by continuing market share losses to the PC clones -- it was curtains for Canion.

As it turned out, the decision to replace Canion with Pfeiffer turned out to be a stroke of genius. Under the new regime, Compaq struck back -- hard -- with the rollout of aggressively priced computers that helped catapult the company past rivals IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HWP). At the same time, Pfeiffer spearheaded a drive to build the company into a supplier of sophisticated products and services, acquiring giants Tandem and Digital Equipment Corp.

All the while, Rosen remained behind the scenes. In recent years, he had increased his involvement with a company founded by his brother Harold to develop a replacement for the internal combustion engine.

But with Compaq again stumbling -- in part by its inability to find an effective answer to suppliers of cheaper computer clones -- Rosen didn't let his professed debt of gratitude to Pfeiffer stand in the way of a cold, hard business decision.

A proven crystal ball
"I would put [Rosen] in the same league as Andy Grove," said Kumar. "Clearly it's not a long-term solution. He can't be running day-to-day operations. The key is to bring in the talent to run the company."

In early 1981, after leaving Morgan Stanley, Rosen joined forces with L.J. Sevin to raise $30 million to start a venture capital partnership.

The company's first two investments turned out to be busts. The next opportunity was a software startup whose founder whose resume listed past employment as a disc jockey, a teacher of transcendental meditation and an orderly in a mental health hospital.

That investment in Mitch Kapor and Lotus Development turned into a smash hit. So was the next decision to back Canion and two fellow Texas Instruments (NYSE:TXN) engineers, who went on to found Compaq in 1983.

Rosen, who remained in the background as Compaq's chairman, also earned a reputation within the industry as a keen observer of trends and technologies.

The scene was a posh New York hotel in 1985. As Compaq executives took the wraps off the company's new 386 PC -- thereby becoming the first computer maker to embrace Intel's new chip -- they knew they were taking a gamble.

But in the back of the room, seemingly going out of his way to remain inconspicuous, Ben Rosen was wearing a smile that seemed to stretch all the way across town to Broadway.

"This is going to put us on the map," said Rosen, the chairman of what was still an upstart challenger to mighty IBM. "This is what users are going to want."

When a reporter asked whether Compaq might be at risk of getting too far ahead of software developers, let alone its customers, Rosen shook his head. No, he said, speed is what will count.

It was a spot-on prophecy, as Compaq stormed ahead of IBM, which was so besieged that it felt forced to develop its own proprietary PC architecture.

A talk with the troops
For the past two days, Rosen has been in spin mode, talking up a storm in countless interviews with the media. But behind the scenes, he was also delivering a sterner message to Compaq's brass.

"The first thing he said was that Compaq was now a casual company. A lot of the highfalutin suits and highly buffed presentations -- that's over," said one executive familiar with the theme of the pep talk. The executive said Rosen was keen on opening up blocked lines of communication within Compaq.

"Pfeiffer did not have close enough control to see what was going on financially," said the executive. "With all [these] shenanigans, it was only a question of time whether Ben would come out of the shadows."

In urging his employees to pull together for a renewed charge -- even if they don't succeed at first -- Rosen is returning to a familiar theme.

In his 1997 address to the Columbia Business School, for example, Rosen reminded his audience not to be afraid to be wrong.

"Failure is not only OK, it's the only sure sign that you're swinging for the fences," Rosen said. "As I recall from baseball history, the best career home run hitters have always been among the leaders in strikeouts."

Strikeouts, apparently, were not OK for Canion and Pfeiffer.