BUSINESS: The Ultimate Resource

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MANAGEMENT GIANT

Christos Cotsakos

Timeline
1948 Born. 1973 Receives B.A. in communications from Paterson State College. 1983 Graduates as M.B.A. from Pepperdine University. 19671968 Serves as a rifleman in the 101st Airborne Division in Vietnam. 1973 Starts as a package handler at Federal Express in Los Angeles. 1988 Becomes vice president for European operations. 1995 Becomes co-C.E.O. at A. C. Nielsen. 1996 Appointed C.E.O. at E*Trade. 1998 Implements bold strategic plan. 1999 E*Trade reaches 1.5 million accounts, with $28 billion under management. 2000 E*Trade number two Web-based broker. 2002 Despite posting $240 million loss, Cotsakos pays himself $80 million. 2003 Resigns from E*Trade.

Summary
There are few leading companies that can boast a decorated war hero as a former C.E.O.: E*Trade is one of them. Christos Cotsakos made the transition from errant schoolboy to successful businessman, with the help of a few wise words from a Greek Orthodox priest. In between, he served in the U.S. military during the Vietnam War and was honored for his bravery. A stint at the marketing research firm of A.C. Nielsen proved he had the management nous to succeed in business. Hired by Bill Porter in 1996 to put some fizz into the Internet operations of E*Trade Securities, a stock brokerage firm, Cotsakos had, by 2000, built the company into the number two Web-based brokerage. However, major losses in 2002, coupled with a massive and controversial $80 million personal bonus, put the pressure on Cotsakos and he resigned in 2003.

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Background and Rise

The second youngest of five children, Christopher Cotsakos was born to a family of poor Greek immigrants on July 29, 1948. He grew up on the streets of Paterson, New Jersey, and, like many of the children in his neighborhood, he was an unruly child. Caught helping himself to the communion wine at St. Athanasioss Greek Orthodox church, he received a timely lecture from the priest on the responsibility of leadership. It was an incident that shaped his life thereafter. The priests words stayed with him, as Cotsakos was both surprised and impressed to hear that he had leadership potential. Although he may not have realized it at the time, he was already displaying the qualities that would serve him so well in business. His natural authority had already secured him the incongruous dual responsibilities of ringleader of the local gang and captain of the altar boys at St. Athanasioss. It became even more evident during military service in the Vietnam War. When in March 1968 his unit was pinned down by enemy fire, Cotsakos, then aged only 19, single-handedly fought his way out, receiving a Purple Heart and Bronze Star for his heroic actions.

Defining Moments
When he returned home from the war, Cotsakos attended Paterson State College in New Jersey, majoring in communications. In 1973, after graduating, he went to work for Federal Express as a package handler. It was a good time to join the company, which was undergoing a period of rapid expansion. He rose quickly through the ranks and by 1988 was in charge of European operations. Choosing to remain in Europe, he switched from FedEx to the market research company A.C. Nielsen, at the time a unit of the Dun & Bradstreet Corporation. At AC Nielsen, Cotsakos was once again swiftly promoted, although his management style put a few noses out of joint along the way. Christos didnt follow the rules, noted Robert Weissman, D&Bs former C.E.O. He made people feel unsafe. Weissman liked his style, however. In 1995 he promoted Cotsakos to the position of co-C.E.O., handing him the responsibility for putting the company in shape before it was sold by Dun & Bradstreet. It was a difficult period for Cotsakos, who struggled to find common ground with his fellow co-C.E.O. Robert J. Lievense. In the end he left A.C. Nielsen for another challenge at E*Trade. This Internet share trading company had started life as an electronic trading network, Trade Plus & Co. Trade Plus had been founded in 1982 by Bill Porter, an M.I.T M.B.A graduate, to provide trading services to the stock brokerages Fidelity, Charles Schwab, and Quick & Reilly. By 1992 it had changed its name to the E*Trade Group, and, under the name of E*Trade Securities, was providing share dealing services to the public via AOL and CompuServe. Porters aim was to offer a low-cost service on the back of highvolume business. Economies of scale allowed E*Trade to reduce its commission charge seven times between 1991 and 1995. In 1996 things really took off when Porter saw the Bloomsbury Publishing Plc 2004

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potential of Internet trading, and launched E*Trade.com. He brought in Cotsakos to manage the new venture. Although E*Trade had stolen a march on its competitors, the advantage did not last long. To survive, Cotsakos had to fight a battle on two fronts. On one side were the deepdiscount brokers swarming onto the Internet and undercutting E*Trade on price. On the other were the traditional broking services such as Charles Schwab & Co., Morgan Stanley, Merrill Lynch, Prudential, and PaineWebber, pursuing a clicks-and-bricks strategy. The established brokerages charged more but provided an added-value service, and possessed strong brand image. Luckily for E*Trade, Cotsakos was no stranger to a fight. In 1998 he decided the time was right for drastic action. The company was doing wellturning in a $7 million profit on $72 million salesbut Cotsakos believed that this belied the companys shortsighted strategy. Being a major player in the share trading market, he realized, was not enough to secure the future of E*Trade. What was required was a bigger visiontransformation into a financial portal covering insurance, financial news, banking, and other financial sectors. The company had to become the obvious destination for anyone with an interest in online financial information and products. Such a strategy required an investment of billions of dollars in technology and marketing, at the expense of profits for some time to come. But the end, in Cotsakoss view, would justify the means. It was a bold move and carrying it off would require special qualitiesresolve, single-mindedness, and excellent managerial skills. But he was confident he could see it through. To deliver on his ambitions, Cotsakos employed his own idiosyncratic, unconventional management style. It was an approach that owed more to his experiences in the army than to conventional management textbooks. He deployed an array of unusual methods to instill his own particular brand of company culture at E*Trade. His unorthodox tactics included subjecting new members of staff to an initiation ritual in which each had to stand on a chair and reveal something insightful about himself or herself. To lighten the mood, employees tended to carry around rubber chickens. Executives also were subjected to some unusual management development experiencesbeing sent off for some team building at a cooking school, for example. Motivating employees and building teams is Cotsakoss specialty. Employees who arent a good fit with the E*Trade culture are swiftly rejected by it. One new recruit who didnt last, for example, balked at standing on a chair. Its all about getting people excited about how they can make a difference as a person and as a team, says Cotsakos. Cotsakos leads from the front, and hes a tough act to follow. He crams more into a day than many executives manage in a week. He serves on the boards of a number of leading technology companies, and even managed to juggle his job as C.E.O. with studying for a Ph.D. in economics at London University. He demands the same uncompromising standards from his employees. My job is to make people do the impossible, says Cotsakos. I push people hard and I dont tolerate excuses.

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Between 1998 and 2000 Cotsakos and E*Trade made progressbut at a price. As he predicted, the company bled money and posted mounting losses. Yet it also rapidly expanded its consumer base from fewer than 100,000 to more than two million, placing it third behind Schwab and Fidelity Investments in terms of online accounts. By 1999, it had 1.5 million accounts and funds of $28 billion dollars under management. Despite terrible trading conditions in 2001, the company still managed a small second quarter operating profit, with revenues down by less than 10%helped by drastic cuts in the marketing budget. With its customer base approaching four million, it was now the second biggest web-based stockbroker and appeared to be in good shape to bounce back even higher when stock buying picked up again. However, 2002 proved to be a disastrous year with losses of $240 million. Despite that Cotsakos paid himself a package worth $80 billion, causing outrage amongst shareholders. Although he backed down and agreed to just a token salary, it was too late and he was forced to resign in 2003.

Context and Conclusions

Christos Cotsakos is an example of what strong leadership and force of personality can achieve in business. After a successful career at A.C. Nielsen, he has hauled E*Trade up by its bootstraps with bold vision and unorthodox management. Rubber chickens, standing on chairs, and cooking courses may seem strange tools with which to build a world beating business, but so far they seem to have worked. During his tenure as C.E.O., Cotsakos wasnt coy about his plans for E*Trade. Business is a war and he wanted to be on the winning side. As he observed in an interview: Its all about loyalty and trust and who you have in the foxhole with you. At E*Trade, were an attacker, were predatory. We believe we have a God-given right to market share.

For More Information

Web site: E*Trade: www.etrade.com

Bloomsbury Publishing Plc 2004