Marjorie Scardino: Can she do the business?

It is characteristic of Marjorie Scardino, chief executive of Pearson, that when two Boeing 737s ploughed into the twin towers of the World Trade Centre in New York on 11 September, her first thoughts were about the well-being of her staff – not just the 64 who in various guises worked in the building, but the whole "family" of Pearson's 28,000-strong workforce. While most chief executives would have been gloomily appraising the economic damage of the terrorist atrocities to already depressed revenues, Ms Scardino dispatched one of her internally famous "Dear Everyone" e-mails.

"I want to make sure you know that our priority is that you are safe and sound in body and mind," she wrote. "Be guided by what you and your families need right now. There is no meeting you have to go to and no plane you have to get on if you don't feel comfortable doing it. For now, look to yourselves and your families, and to Pearson to help you any way we can."

How many chief executives can truthfully claim to have behaved so correctly and sensitively? Not many, and it is why everyone at Pearson, a substantial media empire which takes in the Financial Times, The Economist, Penguin books and Simon & Schuster educational publishing, thinks she is wonderful, one of the most inspired business leaders any company could hope for. The City, on the other hand, is not quite so sure.

Over the last year and a half, her share price has dropped by two thirds and there have been two profit warnings in less than three months. Meanwhile, the group's £1.7bn ($2.5bn) purchase of the Minneapolis-based National Computer Systems, a company specialising in on-line educational testing, funded by a cash call on shareholders, is beginning to look at best ill timed. Already under considerable pressure from the downturn, advertising revenues have been pole-axed by the events of 11 September. With its heavy reliance on business and financial advertising, revenues at the FT were down 40 per cent last month, far worse than any other national paper.

It is important not to exaggerate. Nobody in the City is calling for Ms Scardino's resignation. Pearson is no Marconi, another company which attempted to transform itself in the late 1990s and has virtually gone bust in the process. With Pearson, by contrast, there is still confidence both in the central thrust of the Scardino strategy of focusing the group on business and educational publishing, and the way she has set about pursuing it.

Even so, doubts are starting to emerge. Is she the right person to manage the company through the much more severe business and media climate Pearson now finds itself in? Is the very feminine, touchy feely management approach that seemed so right for the internet-driven boom of the late 1990s, appropriate today?

Ms Scardino says she is determined her business aims and management style will be unaffected by the business downturn and advertising slump. She'll cut costs as necessary, but she's not going to eat into core investment.

But is this realistic? In business downturns, companies are invariably forced to abandon their expansionist ambitions. Investment in human capital goes out the door and the cost cutters reign. "Guerrilla" style management takes over. Has the woman who became known as the "First Lady of the FTSE 100" – the only female chief executive of a FTSE100 company – got the will to make that change? Ms Scardino, 54, was born in Arizona and retains a faint southern drawl. Her early career was as a lawyer but by the mid 1980s she had gained quite a reputation as one of a new generation of female executives, having attained the position of managing partner at a Savannah, Georgia, law firm.

Perhaps inspired by her husband, Albert, a journalist, she had long had an interest in the media. Together, they founded and published The Georgia Gazette. Editorially, the paper was a big success, winning a Pulitzer prize, but as a business it was a failure. Still, it opened doors, and Ms Scardino soon found herself in New York to spearhead The Economist's assault on America, eventually becoming chief executive of the whole Economist Group.

Under her reign, The Economist became one of the most powerful business magazines in the world. Just recently, for instance, the UK-based publication overtook Business Week for US news stand sales, a breakthrough Ms Scardino can reasonably claim the credit for after all her work in building the brand's US profile.

Not everything she did at The Economist was an outstanding success. The acquisition of the Journal of Commerce in New York, which seemed a logical enough extension of the business, turned out to be financially disastrous, and there has long been a nagging doubt among some Pearson veterans about whether her deal-making powers are quite as good as portrayed. Even so, The Economist was an outstanding business achievement, and Marjorie was the person who ran it. Her brand-building, long-term approach to business investment seemed ideally suited to the boom that developed from the mid-1990s.

Small wonder, then, that when Pearson decided finally to grasp the nettle by clearing out the old guard and appointing a new chairman and chief executive, Marjorie was at the top of the list. The Economist is only 50 per cent owned by Pearson, so she was enough of an outsider to satisfy demands for a new broom. She'd never run an organisation the size of Pearson before, nor had she much experience of the corporate restructuring that seemed necessary, but she would be supported by Dennis (now Lord) Stevenson, a corporate Mr Fixit and City schmoozer, in the position of chairman, and she was, well, a woman.

In itself, this added a certain frisson of daring and glamour, and it is often said that in the early years of her reign at least, the "Marj factor" accounted for a good quarter of the company's share price value. Without it, the City might not so wholeheartedly have backed the strategy. Ms Scardino rarely gives interviews and she dislikes the media spot light. She prefers to think of any success she's achieved as a team effort. But that didn't stop the City idolising her. It was love at first sight. Not only was she charming, approachable, and clever, she also impressively managed to juggle her job with bringing up three children, and most importantly, she seemed to be doing all the right things. What's more, she was an American, which after the fuddy duddy regime that used to run Pearson, seemed like a breath of fresh air.

The hotchpotch of assorted media and other assets she inherited was fast reshaped into a specialised business and educational media powerhouse. Out went Madam Tussauds, Alton Towers, the 18 per cent stake in the investment bank, Lazards, and the disastrous foray into computer games. Pearson TV, too small on its own, was merged with the broadcasting assets of Germany's Bertelsmann and Belgium's Albert Frere to create a separately quoted European TV company, RTL.

Then came the acquisitions. Simon & Schuster's education business was bought from Viacom in May 1998 for £3.2bn ($4.6bn). In Britain, the illustrated book publisher, Dorling Kindersley, was snapped up for £324m ($466m) in March 2000, and in July 2000, National Computer Systems was bought for £1.7bn ($2.5bn), funded by what was then the biggest-ever rights issue on British soil.

It was not just in the field of deal making that Ms Scardino was making her mark. Building on her success with The Economist, she announced that she would invest £100m to enable the FT to take on The Wall Street Journal in its own back yard, the US. Associated daily business papers were also launched in Germany and Russia. With the internet boom in full swing, Ms Scardino announced £200m of investment in new media activities – the FT's online site, FT.com, and an educational portal called Learning Network. The more she announced, the more the stock price rose. Never mind about payback, this was the dot.com boom of the late 1990s and all the City needed to know was that Pearson was in the thick of it.

Well, what goes round comes round, and most of this expenditure has proved a waste of money. Ms Scardino doesn't agree. She asks investors to wait for the upturn. Already their patience is wearing thin. FT.com lost £130m last year, and despite cost cuts it won't be much better this year. Ms Scardino reckons she can get it to break even by the end of 2002, but few believe her. Like most websites, the business model was flawed and attempts to make it more subscriber based have failed. The internet is regarded as a millstone round Pearson's neck.

All this has piled in on Pearson at a time when the advertising market is showing its worst downturn since the recession of the early 1990s. The jury is still out on the FT's extraordinarily expensive attempt to buy circulation in the US, but even there things hardly look encouraging. The meltdown in financial markets finds the FT with its biggest ever cost base, including a staggering 50 journalists in New York alone.

In theory, the company should be cushioned by the resilience of Penguin and educational publishing interests, but the latter are heavily dependent on US public expenditure, and it may be that post 11 September, other priorities will come to the fore. The old truism that when one thing goes wrong, everything goes wrong, applies as much to business as anything else.

The City is a place of short memories and fickle loyalties. Ms Scardino is accused of not cutting fast or deep enough, yet you only have to go back a few years to find analysts openly wondering whether she was not being too cautious in her expansion. Ms Scardino thinks this a fashion thing, but there's more to it than that. The City will back her for now, but she needs that bounce in confidence more than most if she is going to stay loyal to her instincts and her family of employees. Ms Scardino is very good at expansion. Nobody knows how good she is at contraction.

If more fundamental restructuring is required she may think it time to move on. This would be a shame for whatever else she's done, she's changed the face of big corporate management in Britain, making it less stuffy, more approachable, less cynical, more human. She's also blazed the trail. The First Lady of the FTSE100 is unlikely to be the last.