Majority of One : Fate of IBM Bid May Rest With Lotus Chairman

As representatives for both companies hunker down in New York this weekend, it is very likely that the fate of IBM’s bid to buy Lotus Development Corp. will be determined by a single man among the many who will crowd that room: Lotus’ strong-willed and controversial chairman, James P. Manzi.

“If Jim wanted this deal to happen, it would have happened already,” said Jeffrey Tarter, editor of Softletter, a Cambridge, Mass.-based industry newsletter.

Last Monday, IBM announced a $3.3-billion hostile takeover bid for software pioneer Lotus after five months of talks between IBM Vice President John Thompson and Manzi failed to produce a merger agreement. IBM’s offer amounts to $60 a share for Lotus, almost double the company’s stock price before the Monday morning announcement. At that price, Manzi’s shares of Lotus would net him a rather sizable fortune--more than $70 million--and it is expected that IBM will sweeten the offer before the weekend is over.

Even so, Manzi appears to be the only obstacle to a friendly acquisition.

“The [investors] love this deal,” said one investment banker. “It’s the best thing that’s happened to them all year.”

Even Ray Ozzie, Lotus’ star software designer, has given his blessing, saying he would be happy to work for an IBM-owned Lotus.

“This might be the only hostile takeover where the employees open the gates for the invader to come in,” Tarter said. Morale at Lotus has been sagging as the company began layoffs several weeks ago after losing $17.5 million in the last quarter.

But few can picture Manzi taking orders from IBM’s headquarters in Armonk, N.Y. “If this happens, I think Jim’s leaving is inevitable,” said Lotus founder Mitch Kapor.

Manzi’s departure would come at a time when he has few fans in the computer industry.

“For Jim, winning is everything,” said one former Lotus executive. “And it’s hard to see how he comes off looking like a winner in this one.”

A former reporter who worked on a small newspaper in Rochester, N.Y., Manzi had aspirations to be a foreign correspondent. Instead, he went to work for consulting firm McKinsey & Co. In 1983, he was assigned to Lotus, which had hired McKinsey to help it manage its skyrocketing growth.

Kapor remembers little about Manzi from their first meetings. “He was very quiet,” Kapor said. “He was the junior person on the team, and I wouldn’t say there was anything really distinguishing about the work he did for us.”

Nevertheless, the two stayed in touch after McKinsey’s work with Lotus was finished. Kapor hired Manzi in late 1983 as marketing director.

“He seemed like the kind of guy who wouldn’t be intimidated by the pace at Lotus,” Kapor said.

For the three years they worked together, Manzi often played the “bad boss” to Kapor’s “good one,” Kapor said.

“It’s unfortunate that things worked out that way, because I’m not an angel and Jim’s not a devil,” he said.

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But Manzi’s reputation for toughness is largely earned, former Lotus employees say. “He likes to pit people against each other,” said Heidi Sinclair, a former Lotus marketing communications vice president. “It creates a lot of insecurity and turnover.”

Executives who made mistakes were often fired, causing those who remained to become cautious.

“At Microsoft, there’s no penalty for failure,” said Softletter’s Tarter. “They like their people to take chances. Sometimes they work and sometimes they don’t. At Lotus, the penalty for failure is you get your head chopped off.”

Yet many of the mistakes were made by Manzi himself.

Kapor left voluntarily in 1986, leaving Manzi in charge.

“I decided to leave completely,” Kapor said. “Jim didn’t need me back-seat driving.”

With Lotus 1-2-3, the spreadsheet that Kapor and partner Jonathan Sachs created, Manzi was given the first certifiable hit in the software industry.

Eager to leave his mark on the company, Manzi searched for a follow-up, his own Lotus 1-2-3. He thought he had found it in Notes, a software package that allows PC users to share their work.

Manzi devoted most of Lotus’ resources to Notes, neglecting 1-2-3, a product he felt had a limited future.

“It allowed Microsoft to get a foot in the door with Excel,” a 1-2-3 competitor, said Greg Jarboe, a former director of corporate communications. “The rest is history. We lost the franchise.”

As Microsoft went after it in the spreadsheet business, Manzi began making decisions “not because they would be good for Lotus, but he looked at everything as whether it would help Microsoft,” said former technology vice president Ed Belove. Lotus was late to introduce products for Microsoft’s popular Windows operating system “because it would help Microsoft.”

Manzi became the subject of harsh criticism in the press and among his peers in the software industry, who never welcomed him--a non-techie--into their club.

“He keeps to himself,” said Dan Bricklin, considered the father of the Boston software industry. “And I can’t think of anyone I’m close to who is close to him. I’m sure there are people he’s close to, but they’re not in our business.”

PCLetter, an influential industry newsletter, began calling for his resignation three years ago.

“Lotus was not the same after Mitch left,” said former Borland Chief Executive Philippe Kahn. “Manzi’s not a product guy. He never was.”

Complex is a word often used to describe Manzi.

“The people who are on his good list liked him and the people who don’t obviously don’t,” said Frank King, a former Lotus executive who had spent 19 years with IBM. “If you’re on the bad list, you’re actively ignored, which is worse than being ignored. And I never saw anyone who was able to turn it around with him.”

Even those who like him say it’s sometimes difficult to keep his attention.

“It’s hard to have a discussion with Jim; he goes into debate mode,” Belove said. “He doesn’t listen. It becomes about competition. He sees everything in competitive terms.”

But Manzi failed in the greatest competition he faced--with Microsoft Chairman Bill Gates.

Even Kapor, who brought Manzi to Lotus and who handed over the reins without rancor, said the two aren’t especially close.

Manzi is unusual in an industry largely populated by companies run by former computer programmers.

“If you walked by Manzi’s office, you saw him reading the Economist, not a book on object-oriented programming,” King said.

Added Belove: “Computers never held a great deal of interest for Jim, and that was a problem at times.”

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Manzi’s Legacy

Faced with flagging sales of its pioneering 1-2-3 spreadsheet software and the loss of its lead in the personal computer software market to Microsoft, Lotus Development Corp. has been struggling to reinvent itself in the 1990s. Chief Executive James P. Manzi, often described as a strong-willed executive who dominates the Lotus board, has borne heavy criticism for lacking technical expertise and squandering Lotus’ chance to make more of its position in the lucrative spreadsheet market. Some highlights of the 13-year-old company’s ups and downs under Manzi:

* Bestseller: Lotus 1-2-3, released eight months after the company was founded in 1982, is the first spreadsheet program to translate numbers into graphics. It helps build the personal computer industry and becomes Lotus’ flagship product.

* On board from the beginning: While still a consultant for McKinsey & Co., Manzi is actively involved in developing the marketing strategy for Lotus 1-2-3. In 1983, Manzi, a former journalist, joins Lotus as vice president of marketing and sales.

* Changing hands: After its next software product, Symphony and Jazz, has disappointing sales, Chief Operating Officer Manzi assumes the chief executive duties from company founder Mitchell D. Kapor in April, 1986. Manzi becomes chairman in July.

* Battling Microsoft: Lotus loses more ground in the late 1980s after being slow to develop products to operate on Microsoft’s popular Windows operating system. In 1990, it attempts to take on Microsoft by purchasing Samna Corp. and the company’s successful Ami Pro word-processing line for $65 million.

* Renewed innovation: Industry watchers hail the re-emergence of Lotus when it releases Notes in December, 1989. The product, which by January, 1995, has 1 million users at 4,500 companies, allows employees to work together over computer networks. However, 1-2-3 continues its dramatic slide in the market, and two merger attempts with network software leader Novell fail. Lotus continues its diversification efforts in the early 1990s, releasing new software products for word processing, graphics, networking and electronic mail.

* Mounting criticism: Lotus reports a loss of $20.9 million for 1994--its first annual deficit since going public in 1983. Analysts criticize the company’s slowness in developing “suites”--software that combines several programs for different applications, such as spreadsheets and word processing. They also blame Manzi’s failure to keep talented executives, Lotus’ release of bug-ridden software and its overreliance on Notes. The company’s stock, which rose more than fourfold between mid-1992 and early 1994, tumbles in the second half of 1994.

* IBM bid: IBM launches a hostile $3.3-billion takeover bid for Lotus. Sources: Who’s Who in America, wire reports, Lotus Development Corp. Researched by JENNIFER OLDHAM and DAVID NEIMAN / Los Angeles Times