Fred Salerno isn’t a household name unless your household is in the $1.7 trillion telecommunications industry.
During his 40-year career, he has shunned the limelight, given few interviews but has completed more deals than even the most successful banker on Wall Street.
Salerno, 77, was certainly at the center of the revolution in the way people communicate. He climbed up the ladder to become a top executive at NYNEX. One of the original "Baby Bells" — the original seven regional holding companies then under the AT&T umbrella — NYNEX was spun off after the landmark divestiture of AT&T in 1984. As chief financial officer and vice chairman, he was part of the team that built this "baby" into a colossus, creating what is now Verizon Communications.
Salerno retired from Verizon in 2002, but he hasn’t stopped working. He’s a mainstay on the boards of some of the nation’s biggest companies – such as the Intercontinental Exchange, Inc, owner of the New York Stock Exchange, with a market value now of more than $60 billion – and has developed a reputation as a turnaround specialist.
One of his most successful projects: The once ailing Akamai Technologies, today a leading cloud provider. When Salerno got there as a director 18 years ago, Akamai was a penny stock. By the time he retired in March – after stints as chairman of the board and lead director – shares hovered above $100.
FOX Business sat down with Salerno to get his perspective on deal-making, leadership and what it takes to be a successful board member.
(Note: This Q/A has been edited)
Charles Gasparino: Fred, you're not an investment banker by trade, but being in the telecom space for so long and during such transformational times, it all but made you one. Walk us through your deal-making and how it reflects the current makeup of the telecom business.
Fred Salerno: The most transformative change was from landline telephones to the cellular phones, which almost every American has today. I remember at NYNEX when we were making the commitment to a cellular network that involved significant capital expenditures. There were serious questions as to whether this new service was just a fad. We also determined at the time that we needed national scope and scale to compete. As such, M&A actively ramped up as it was the only path to achieve that goal. NYNEX and Bell Atlantic were involved in the first merger of cellular assets. That led to a full merger with Bell Atlantic, which was then followed by a merger with GTE and lastly a merger with Vodaphone, which was called Verizon and created the national footprint that we envisioned.
CG: Of all the deals, which was the most transformational?
FS: The initial Verizon–Vodaphone merger in 2001 gave us the ability to create the most powerful cellular network in the U.S. and continues as the cellular leader today. When cellular service first started to expand, each regional company was given the franchise in the area it served. The major metropolitan market was serviced partly by Bell Atlantic and partly by NYNEX. Each company knew it was imperative that we join forces to better serve that market. However, that was not a sufficient footprint and we realized that we needed a broader U.S. market to secure a national base. That is why the Vodaphone merger was transformative.
CG: After retiring from Verizon, you went on to serve on some of the most prestigious corporate boards. Can you explain what it's like serving as a director, including the lead director, of some of these companies?
FS: I was blessed to be surrounded by great visionaries. At Verizon, I was both CFO and vice chairman of the board under Ivan Seidenberg, who was CEO of NYNEX. Ivan was a master of understanding the other side’s position. He was able to put his own ego aside and temporarily accept a lesser position for the good of the company. This enabled NYNEX, arguably the weakest of the seven regional [phone] companies, to become a leader in the cellular space. In short, you must "give in order to get."
This skill applies well beyond M&A and is critical in all managerial matters. Listening to both sides of an issue is a necessary requirement in deal-making. Board members also need to be able to shape strategic direction. The plan must be kept fluid because over time you must anticipate that some of your assumptions might change. It is my own belief that a necessary step early in the planning process is to "seize the center of the chessboard."
This gives you the flexibility to be agile enough to adapt to potential changes. I remember a presentation that Ivan and I gave to the board of directors in the late ’90s in which we laid out the strategic plan that actually contained the mergers that I discussed earlier. It was probably the most important presentation that each of us gave in our entire careers. After the meeting, a newly appointed director who was attending his first board meeting came up to us and asked us the following question: "Do you guys do this at every meeting?"
CG: As a board member, what was the most difficult situation you needed to work through with management?
FS: Maintaining independence from the CEO is probably the hardest task for a board member. Any board member may be asked to deliver the news to a CEO that he is no longer supported by the board and needs to step down.
CG: I noticed a stock chart of Akamai during your years on the company’s board. It went from a near penny stock to now trading at around $100 a share. Explain what you and management did to turn things around.
FS: Soon after I first arrived at the board of Akamai, the company had just been removed from the Nasdaq public company list because it fell below $1 per share. What attracted me to the board was how impressed I was with its intellectual property, strategic plan and the brilliance of the founders. What was needed was a realistic assessment of the pace of expansion.
As many startups, Akamai grew its assets faster than its supporting revenue stream. By making selective but necessary cost cuts, matching revenue and expenses, we were able to become cash-flow positive. This enabled us to deploy a truly unique service called "catching," which basically moves the internet very close to the end-user and thereby improves the quality of delivery. Most of us remember those days when it took painfully long for computer screens to populate with data. Catching virtually eliminated that latency.
With the help of a balanced financial plan, internal product development and selective acquisitions, we now have a network of 340,000 servers throughout the world and a revenue stream of $3.5 billion, which includes a cybersecurity service (established less than five years ago) and represents $1 billion of that revenue. Serving as chairman of the board was an honor I will always treasure.