Turnaround Guy

By Michael Duffy/Washington

At a NASDAQ board meeting in Manhattan last month, a visitor approached a compact, white-haired guy who looks as if he belongs in a college chemistry lab and asked if he was thinking about a top job in the new Administration. "No way," replied Paul O'Neill, with a smile. "I'm too old." O'Neill, 65, allowed as how he might consider running a task force on something really messy and complicated, such as fixing Social Security. But having spent the past 23 years running Alcoa and International Paper, O'Neill and his wife Nancy Jo were looking to step back and enjoy life for a while.

That only partly explains why O'Neill had to be coaxed into taking the job of Treasury Secretary. The other reason is that O'Neill didn't know George W. Bush well. So the two men, joined by Vice President-elect Dick Cheney, had lunch in Austin three weeks ago. O'Neill told friends later that Bush and Cheney made him feel like an instant insider, and he was happy the conversation had been so candid.

They will need to keep that conversation going, because in the 10 years since the fall of the Soviet Empire, the Treasury Secretary has vaulted past the Secretaries at State and Defense in Washington's pecking order. Our national security is increasingly defined by economics: America now defends currencies more often than it defends borders, and its stability has been threatened as much by Russian hedge funds as rogue Russian nukes. But O'Neill's immediate task is to translate still nascent Bush economic policies to lawmakers and financial markets at a time when the engine of the world economy is downshifting. "He has been getting ready for this all his life," said Frank Zarb, chairman of the NASDAQ. "He is honest, straightforward and has a good, hard mind."

Returning to Washington, O'Neill will find himself with new problems but also old friends. O'Neill met Fed Chairman Alan Greenspan back in 1969, when both men worked as junior aides in the Nixon White House, and has stayed in touch ever since. O'Neill was such a whiz at mastering the details of Medicare and Social Security that Gerald Ford's White House chief of staff, a young guy named Dick Cheney, promoted him to deputy director of the Office of Management and Budget. By 1975, Cabinet officers like Donald Rumsfeld, the once-and-future Pentagon chief, were trudging hat in hand into O'Neill's office.

O'Neill left government after Ford lost in 1976 and spent 23 years turning cyclical smokestack companies into sturdy profit centers. He first worked his way up the executive ranks of International Paper by boosting the quality of its products, shutting down marginal plants and investing heavily in others. While working at IP in the dark days of the late 1970s, O'Neill made a habit of visiting the plants of competitors overseas that were stealing market share, and then bringing back ways to beat them at their own game. In the late 1980s, he took over as CEO of Alcoa, a company that had just about given up on aluminum as a reliable line of business. But O'Neill refocused Alcoa on its core products, made a huge push for workplace safety, sold its corporate aircraft and hacked away at decades of hierarchy to help encourage ideas from the bottom up. He worked out of a 9-ft. by 9-ft. cubicle on the top floor of the Pittsburgh, Pa., headquarters. "It's a pretty nice cubicle," said a friend, "but it's still a cubicle."

Quiet and intense, O'Neill described himself recently as a "free-ranging, self-admitted maverick," but he's also a wonk, drilling down into the details of a problem personally until he finds what he wants. When Hillary Clinton's health-care plan came out in 1994, O'Neill stayed up all night and read the 240-page document. "Mention Social Security to some people," says former U.S. Trade Representative Carla Hills, who serves with O'Neill on the board of Lucent Technologies, "and their eyes glaze over. But Paul's eyes light up. He knows about the details and is not afraid to tell you what he thinks."

There's no sign that O'Neill is an ardent supply-sider. Zarb, the NASDAQ chief who also served with O'Neill in the Nixon White House, said, "Paul's not an ideologue by any stretch of the imagination." But even those who know him well can only guess at O'Neill's views on the big, trillion-dollar tax cut Bush campaigned on last year. The prevailing view is that O'Neill will fight loyally for whatever package the President sends to Capitol Hill--but then take the lead in the hunt for a final compromise. "Paul may not shape what goes up to the Hill," said Fred Malek, a Washington investment banker who has known O'Neill for 25 years. "But he will shape what comes back."

O'Neill doesn't mince words: a colleague recalls introducing O'Neill to Newt Gingrich at the height of the Republican revolution. Gingrich had just launched into one of his tirades about the need for trimming entitlements when O'Neill cut him off and said, "That's the problem with you guys. As long as you're only tinkering at the margins, you'll just make things worse." A Bush official suggested last week that O'Neill, who has actually lived through a real downturn or two, may be just what the nation needs right now. Besides, he added, Bush and Cheney had only one constituent in mind when they chose O'Neill: Alan Greenspan. "And he was ecstatic."