For many banking industry observers, Bank of Boston Corp.'s recent reorganization was a bloodbath. Three of the company's executive vice presidents - Kevin Mulvaney, head of corporate banking; Michael Simmons, head of technology; and Newton Merrill, head of global banking - were sent packing, causing rumors about personality clashes with chairman Ira Stepanian.

But Charles K. Gifford, president of the $40 billion-asset institution, says the bank's watchers have gotten it all wrong.

From where Mr. Gifford sees it, personality had little to do with the October dismissals, which attracted national media attention.

Instead, the firings were a difficult but necessary step Bank of Boston had to take to flatten its hierarchy and better compete against mutual fund companies like nearby Fidelity and other financial services firms.

Billed as a "reengineering," the shakeup led to the promotion to vice chairman of two other Bank of Boston executive vice presidents - Edward O'Neal, head of New England banking: and William Shea, chief financial officer.

In an interview with American Banker, Mr. Gifford, a 27-year veteran of Bank of Boston, explained the motivation behind the management decisions and what the banking company hopes to accomplish.

Q.: Where did you and Mr. Stepanian get the ideas for your reorganization?

GIFFORD: We identified six or eight companies that were most thoughtful in thinking about change and adopting it, such as General Electric, which is such an impressive story. Ira and I and the other managers, including the three that have now left the bank, all visited on their premises.

When we started to get the consistency of what these companies had done, Ira and I said, "Damn, we've gotta change, we've gotta flatten, we've gotta get rid of some layers of management." We thought, if we don't change, Fidelity or someone else will eat our lunch, even more than they are eating it now.

We started thinking the bank has recovered asset-quality-wise, we think we have very strong franchises, and we're certainly not happy with our stock price. Now, let's think of how we can truly take advantage of our franchises.

So Ira and I put together an organizational chart following these principles, getting rid of some layers of management. Once we decided we couldn't have a level of executive vice president, we made the decision on people.

Q.: Why did that level of management have to go?

GIFFORD: It does no good to say to the lowest levels of management, "Get rid of some layers." I don't see that as leadership. I think people would like to see us practice what we preach.

The bank is a 208-year-old company, which is not the easiest kind of thing to change. It's a very traditional hierarchy. The only way to do it is to send a very dramatic message that we think this is critical in order to achieve our objectives.

To do that, we had to make some very difficult decisions. We had to say there is not a level of executive vice president between the seniormost group and the business levels. We then set up the new chairman's office.

And that's what led to the personnel decisions.

Q.: How did you ultimately make the personnel decisions?

GIFFORD: We had a hell of time (with the media) because they insisted on thinking it was a personality issue. But from a strategic point of view, we knew we ought to have a global bank, a corporate bank, and a retail-regional bank.

Ira and I are both corporate lenders by background. We both spent time abroad. We have no experience in retail.

So, if you need experience in the chairman's office, on the corporate and global sides, the two of us have that experience. But we didn't have retail experience. We think we needed it.

We looked for someone with that experience and Ed was the only one. Furthermore, at Chemical, he had technology and operations experience, so he brings that to us. Bill brings the financial, the control discipline. He was a vice chairman at Coopers & Lybrand. That's what led to those decisions. It's that simple.

Q.: How did you feel after you made that decision?

GIFFORD: With as much sincerity as I can say to you, it was the worst decision, the most difficult business decision of my life. They have made tremendous contributions, they are my friends, but this is the decision we have made.

Q.: What impact did the three dismissals have on morale?

GIFFORD: To be sure, there was suprise that we had made a decision like that. In the past, when we made changes, we didn't change the boxes, we just changed the names in the boxes. We hadn't made a fundamental, structural change, let alone had individuals of this caliber leave the bank.

I don't expect people to come to the president of the bank and say, "God, you made a terrible decision." I think that is human nature. But following 24 hours of "holy mackerel," increasingly, to this day, I have heard it was the gutsiest, the best, an incredible decision.

Q.: Will the reorganization lead to more layoffs?

GIFFORD: We've asked our businesses not to stop with what we've done. We want more people getting closer to the customer, making decisions. If there are unnecessary elements in their structure, they should get rid of them.

I do not, I repeat, do not, expect there will be an announcement that another layer of management is gone. But every business is going to be constantly assesing ways they could be more efficient and more focused on the customer.

Q.: Hasn't that created anxiety among your employees?

GIFFORD: I tell employees if they are doing something that is increasing the focus on our customer, that is increasing our efficiency, they're okay.

This is a growing company. We're $40 billion in assets now and we will be considerably bigger than that in future years. You always want to be with a growing company.

I just can't say there won't be layoffs. But it won't be wholesale layoffs.

Q.: The reorganization has been described as a "reengineering" - a term that has become a management buzzword for the 1990s. Can you explain Bank of Boston's take on the concept?

GIFFORD: Reengineering specifically describes how you're going to modify some of your operating procedures and do them in a more efficient way. It's a means of making your operation more efficient.

I prefer the word "change" because it's much broader than that. We have realized that competition in the 1990s for financial services companies is going to be a whole new ballgame.

We can no longer benchmark ourselves against just banks. We can no longer assume that people will want to do business with us just because we're a bank. If we don't change, we will be at a very severe competitive disadvantage:

Reengineering is just a part of that change. More than any single change, we've got to be much more totally immersed in what our customers want and expect from us and what the might expect two years from now.

We also have to figure out how we might do it efficiently. The two concepts we are really trying to build on are customer focus and efficiency.

Q,, How does Your new management structure allow you to do that?

GIFFORD: It gets Ira Stepanian closer to customers. And it gets the people dealing with customers - the relationship managers, the people in the branches, closer to us.

The day after the announcement, one of my lending officers said to me this is great. I feel closer to the board of directors, which was literally true. But more importantly, it was figuratively true.

Every layer of management is an excuse to slow down a decision. You can leave some layers because we have some decisions to make. But in my opinion, financial services companies have too many layers of management.

Q.: Can you give an example of how eliminating a layer of management changes a basic part of your job?

GIFFORD: All of what we do, from promotions and compensation decisions, used to go from division to department to group. Now, I say you don't need me for that. You make the decision.

We have 15 businesses and 10 support areas. About 10 of the businesses link to me. They don't report to me, they link to me. We do not use the word "report," because we want them to run the business.

It's a constant forcing down of decisions. If you force down decisions, you're being kinder to your customers.

Q.: How do you make sure your employees buy into this change?

GIFFORD: I'd be deceiving myself if I assume all of those great changes will go on overnight. We are constantly reinforcing ourselves. one of our brighter guys asked me, "What are the things you want to delegate down to us? What don't we have to go to the chairman's office for?"

I said, "I don't know. I want you to tell me that. I want you to tell me what they are so you can run your business." The fact is that we are going to work it out together.

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