Bertelsmann Appoints Outsider to Head Random House (by Motoko Rich and Mark Landler, the New York Times)

By MOTOKO RICH and MARK LANDLER
Published: May 21, 2008

On the day that Bertelsmann, the German media conglomerate, quelled weeks of speculation by announcing that Markus Dohle, head of the company’s printing unit, would take over as chief executive of Random House, industry executives were largely reserving judgment on what it would mean to have a relative outsider in charge of the world’s largest publisher of consumer books.

Mr. Dohle, 39, will succeed Peter W. Olson, Random House’s current chief executive, on June 1. Mr. Olson, 58, who led the publishing division for the last decade, is in negotiations for a senior faculty position at Harvard Business School, according to a person knowledgeable about his plans. Mr. Olson declined to comment.

The appointment of Mr. Dohle, one of the youngest people to lead Random House, is the first significant executive shake-up since Hartmut Ostrowski took over as chief executive of Bertelsmann in January. Mr. Ostrowski previously was chief of Arvato, the company’s printing and services division. In Mr. Dohle, head of Arvato’s print unit since 2006, Mr. Ostrowski clearly picked his own man.

Mr. Dohle, who is described as charming by those who know him, speaks fluent English and will move to New York this summer. He takes over a division with an author stable that includes Toni Morrison, Dan Brown, John Grisham and Salman Rushdie. Along with other important players in the industry, Random House has recently suffered a slowdown, despite best sellers like Mr. Grisham’s “Playing for Pizza” and “Women and Money” by Suze Orman.

Mr. Ostrowski acknowledged that Mr. Dohle, who has been with Bertelsmann since he graduated with a degree in economics and industrial engineering in 1994, did not have direct experience running a book publisher, although Arvato Print has many publishing clients.

Mr. Ostrowski said in an interview Tuesday that he could have appointed a traditional publisher to succeed Mr. Olson, but he said he wanted someone to bring a fresh perspective to the book division, which is steeped in tradition. “Markus is a proven entrepreneur within the organization,” Mr. Ostrowski said. He “has shown he has been able to turn a mature business into a growing business.”

Separately, Bertelsmann announced that Richard Sarnoff, the president of the company’s digital media investments group, had been appointed co-chairman of Bertelsmann Inc., where he would play a critical role in directing strategy in the United States.

In a memo to staff Tuesday, Mr. Ostrowski said that Mr. Olson was leaving “of his own initiative.”

Last fall, Mr. Olson was out of the office for two months with double pneumonia, contracted on a business trip to China. Mr. Ostrowski said that Mr. Olson had approached him about leaving in January. “From our perspective, it was not the right time to replace him,” Mr. Ostrowski said. “But we could accept that he wants to pursue other life plans.”

A senior Bertelsmann executive, however, said the factors behind Mr. Olson’s departure were more complex. This executive, speaking on condition of anonymity because it was an internal personnel issue, said that Mr. Olson’s split with the German management began last September, when he proposed dismissing Gail Rebuck, the chief executive of the Random House Group in Britain. This was vetoed by Mr. Ostrowski and Thomas Rabe, Bertelsmann’s chief financial officer.

Ms. Rebuck did not return a call seeking comment. Stuart Applebaum, a Random House spokesman, said: “I wouldn’t dignify it with a comment. I would just label it as gossip.”

With pressure mounting, the Bertelsmann executive said, Mr. Olson began to look for an exit strategy. He hired a lawyer to negotiate a severance package. The company agreed to a deal, but it left some hard feelings, according to this person.

Mr. Olson, a former banker and lawyer and a voracious reader, also had no direct experience in the publishing industry prior to 1992, when he took over as chief financial officer of the Bantam Doubleday Dell Group, a book division owned by Bertelsmann that was merged with Random House in 1998. Mr. Olson took over as chief executive and became the first American to join Bertelsmann's executive board in 2001.

Although Random House produced more than 4,000 best sellers in 19 countries during Mr. Olson’s tenure, he had a mixed reputation because he often showed a zealous focus on the bottom line. Yet last year, sales at Random House fell by 5.6 percent, and operating profits declined 4.9 percent.

Mr. Ostrowski said that one year’s results did not affect his thinking. “If someone has a proven record and he only misses his numbers once, you don’t get fired for that,” he said.

In a letter to employees, Mr. Ostrowski wrote, “Let me state very clearly: we want to see Random House grow.” He said in the interview that he wanted the entire company to achieve 4 percent organic growth in revenue each year.

According to a senior executive at Bertelsmann, the decision to change the leadership of Random House reached the uppermost levels of the company, which is controlled by the family of Reinhard Mohn. Liz Mohn, Mr. Mohn’s wife and a powerful influence, was consulted, according to the executive. She had sometimes tense relations with Mr. Olson, this executive said, and was a champion of Mr. Dohle. Gunter Thielen, chairman of Bertelsmann’s supervisory board, was also involved, the executive said.

The publishers and editors of Random House’s imprints, rarely shy about expressing their opinions, were uncharacteristically reserved about the appointment of Mr. Dohle. Several said they would take Mr. Ostrowski at face value when he said that Mr. Dohle would continue to give publishers independence. “There’s every indication that Markus Dohle is looking forward to doing that with a lot of energy and business experience,” said Irwyn Applebaum, president and publisher of the Bantam Dell Publishing Group, whose authors include Danielle Steel and Dean Koontz.

Some publishers and agents outside Random House said it was not a good sign that someone without intimate knowledge of the book industry was taking over the venerable house.

But others said they were open-minded about Mr. Dohle, especially as he was young and might bring new ideas about digital initiatives and other matters. “I hope that this man will be a very strong competitor,” said Jane Friedman, chairman and chief executive of HarperCollins. “Time will tell.”