HOW BUSINESS BOSSES SAVED A SICK CITY Could this happen in your town? With local government in shambles and companies fleeing, CEOs took charge of Cleveland's fate. The turnaround is impressive.
By Myron Magnet REPORTER ASSOCIATE Constance Gustke

(FORTUNE Magazine) – ONE LESSON Americans learned in the Eighties was that they had to take responsibility for their own fates. For companies, in the age of raiders and Darwinian global competition, this was luminously so -- and hence the restructuring wave that defines this business era. Individuals, their jobs and expectations rattled by the corporate convulsions, discovered that they and not some institution must shape their careers, a perception that bred legions of new small businesses. Cities, especially old industrial centers, made the same discovery. With their economy, politics, and social fabric frayed by vast forces seeming to make them as obsolete as Pompeii or Atlantis, they were said to be turning ungovernable, unlivable, and bankrupt. But instead of subsiding gracefully into the dustbin of history, some cities stood and fought. And some -- Baltimore, Pittsburgh, and Lowell, Massachusetts, for instance -- are winning. No city has battled more cannily than Cleveland. A microcosm -- almost a caricature -- of all the recent ills of urban industrial America, the nation's 12th-largest metropolitan area had much to overcome. Two decades ago it seemed a place decomposing into spontaneous combustion. In 1969, for instance, its oil-smeared Cuyahoga River -- the river -- burst into sooty flames, a presage of the inner decay of Cleveland's crucial heavy industries. In 1966 the Hough ghetto, and two years later the Glenville neighborhood, flared into wild rioting that left scores of stores charred and gutted. Today weed-grown lots mark where burned buildings were bulldozed. The town's political framework threatened to go up in smoke too, an immolation that had more the air of farce than of tragedy. When Cleveland needed strong leaders to navigate these urban ills, its mayors seemed to have stepped out of a Three Stooges movie. In 1972, Mayor Ralph Perk -- whose wife had just declined a chance to meet with President Nixon because it interfered with her bowling night -- made Cleveland a national laughingstock: While wielding an acetylene torch to cut the metal ribbon at a bridge opening, he set his hair alight. His successor, the boy mayor Dennis Kucinich, wrote the City Hall farce's last act with a wild-eyed, publicity-hungry, populist style of government that ended by bringing Cleveland into default, the only major U.S. city to have suffered that fate since the Depression. Elected as a 31-year-old to a single two-year term in 1977 and nearly recalled nine months later, he treated business as the archenemy of ''the people.'' His business-bashing helped drive Diamond Shamrock out of town in horrified disgust. With the city till empty and municipal services a shambles, Clevelanders decided to take their civic fate in hand. Says Richard Pogue, managing partner of Cleveland-based Jones Day Reavis & Pogue, the nation's second-largest law firm: ''In a sense, Kucinich was the best thing that ever happened because he became a unifying element. People looked at him and said, 'Enough is enough here. Let's get together and change things.' '' In response, Clevelanders achieved a unity almost startling in this every-man-for-himself epoch. E. Mandell de Windt, the now retired CEO of Eaton Corp. and unofficial dean of Cleveland businessmen, organized the troops and devised a strategy, setting in motion a benign conspiracy of executives and entrepreneurs that still operates. The impressive feat of organizing that cabal and persuading Cleveland's most senior businessmen to take charge of the grittiest aspects of civic life was the real key to the town's turnaround. Cleveland bosses are arguably more public spirited than most, but they had hitherto focused that spirit on their especially successful United Way or their superb art museum or the world-famous Cleveland Orchestra, not on bread-and-butter civic matters. By the start of the Eighties, though, top executives realized they had to get their hands dirty if they wanted to keep viable the Cleveland life they liked so much -- the Cleveland of excellent cultural institutions and big-league athletic teams, the Cleveland ringed by enviably comfortable, old-fashioned, family-oriented suburbs, where $300,000 buys you $1 million worth of house by New York City or Boston suburban standards. The civic rescue operation was more than a personal extracurricular activity for these executives. Says Del de Windt: ''It was an extension of my role as a CEO of a major corporation to recognize that we had to do something about the environment in which we lived.'' Tackling civic problems in concert rather than singly gave top bosses the necessary confidence to invest their time and their corporations' money in Cleveland -- when they could have followed Diamond Shamrock out of town. They knew they wouldn't be left alone holding the bag, like the last person in a chain letter. THE BUSINESS CABAL'S first campaign was political. Shortly after Cleveland defaulted in 1978, de Windt sent an emissary to implore Republican Lieutenant Governor George Voinovich, a former Cuyahoga County commissioner, to come back and run for mayor. Financed largely by the corporate leaders, he beat Kucinich handily. ''All they wanted was somebody to bring some saneness and just establish a C+ city administration, so the city would function,'' says Voinovich. But they got much more. They got a mayor with a gift for nurturing all the incipient impulses toward unity and cooperation that the town's revulsion for Kucinich had engendered. According to lawyer Pogue, ''Voinovich always says, 'I don't like to make war. I like to make love.' '' In agreeing to run, Voinovich had extracted from the executive cabal a promise that cemented its cooperation with the city. Executives agreed to scrutinize the operations of city government with the hardnosed skepticism of a bank workout squad, looking for ways to impose corporate efficiency on city hall. Almost 90 executives took up the task. From over 650 of their proposals -- ranging from a new financial management system to contracting out car and truck maintenance -- Voinovich adopted about 500, saving Cleveland $200 million in his 9 1/2-year tenure. Besides modernizing the city administration, this exercise gave business leaders a personal stake in municipal government's success. They have kept volunteering. Voinovich also established harmony between the mayor's office and the entirely Democratic city council, in place of the Beirut-like dissension of the Kucinich era, when in two years the mayor vetoed more council measures than in all the rest of Cleveland's modern history. Council president George Forbes met the Republican mayor halfway -- a potentially problematic move for a big-city black Democrat to make. But Forbes and the council were sick of all the fighting and failure. Voinovich, Forbes recognized, had a mandate to revitalize the city, doable only in concert with the business community. ''I recognized that we politicians don't provide the jobs,'' Forbes says. ''Those are the guys that provide jobs, and if we don't make them viable, we don't have jobs for our people.'' Clevelanders have their differences, often sharp ones, but today's prevailing tone of cooperation gives local politics an oddly unideological character. The city's cold season of adversity has persuaded Clevelanders of the importance of economic development. Most of them agree that you have to create wealth before you can think of redistributing it. Most believe that the long-term way to help the poor is to make the local economy flourish. For beyond its race riots or Keystone Kops former politicians, Cleveland's fundamental problem was, and is, economic. Like other Rust Belt capitals, it saw its heavy industries -- steel, auto parts, iron ore -- dwindle in the face of global competition. Compounding its problem, Cleveland had execrable labor relations; remote, dictatorial bosses were in constant confrontation with unionized workers, whose work rules were rigid and wages uncompetitively high. In the early Eighties recession and the strong dollar hit Cleveland companies with bewildering suddenness. They cut back and restructured with a vengeance. AS A RESULT, unemployment in greater Cleveland, 4.7% when Kucinich took office in 1978, peaked at a vertiginous 11.3% in 1983. Manufacturing employment, from its 1979 high of 276,300, slid to a 1987 low of 200,600. But last year unemployment was only an estimated 5.5%, and even manufacturing employment had risen to an estimated 201,700. In 1988 employment finally recovered to its 1979 level. Cleveland's CEO conspiracy led the economic as well as the political turnaround. Just after Voinovich took over City Hall, Del de Windt, along with now retired TRW chief Ruben Mettler, recently deceased Harris Corp. chief executive George Dively, and other local powers, hired the McKinsey & Co. consulting firm to figure out how to brighten Cleveland's economy. The first prescription: Set up a formal conspiracy of CEOs to provide leadership. The beauty of that organization -- called Cleveland Tomorrow and founded in 1982 -- is that it unified the formerly cliquish, factionalized chief executives of Cleveland's top 50 companies into an almost irresistible force. Says Ohio Governor Richard Celeste: ''Cleveland Tomorrow derives its strength from the fact that the CEO is the only participant. There's no delegating it to anyone else. He can commit real resources in a way that only a CEO can.'' The CEOs didn't have the option of turning Cleveland into a heartland Silicon Valley or Route 128, as they saw it, but they certainly could help put the shine back on the heavy Rust Belt industries that, if somewhat diminished, would remain Cleveland's economic anchor for a long time. That meant improving the sorry labor relations that made Cleveland workers, despite their well- developed skills and work ethic, so uncompetitive. Like most Cleveland Tomorrow efforts, this one produced a new institution, the Work in Northeast Ohio Council. Under the aegis of a board of union and management representatives and now heavily financed by the state of Ohio, the council's staff spreads the gospel of productivity, product quality, and quality of work life on the factory floor and in union halls. Staff members do extensive consulting, promoting the whole array of modern management techniques that get workers and managers to see themselves as partners rather than adversaries. Meanwhile the Greater Cleveland Roundtable, a separate group of CEOs, union chieftains, and political leaders formed just before Cleveland Tomorrow, fostered labor- management cooperation among the panjandrums. The result is an utterly transformed labor climate in Cleveland, where today you can find hot-metal shops managed like Silicon Valley startups. Not just labor relations but also manufacturing technology needed modernization. Cleveland Tomorrow mobilized the resources of local colleges and universities, helping Cleveland State University, for example, set up a research center that solves quality improvement and industrial engineering problems for area companies. A program at Cuyahoga Community College provides customized training for companies. For example, it taught a small, growing defense subcontractor how to choose a CAD/CAM system and then taught the company's employees how to use it. TO FOSTER new businesses, Cleveland Tomorrow in 1984 established a venture capital fund of $30 million raised from Cleveland Tomorrow companies and the Ohio state pension system. Investing mainly in Cleveland-area startups, most based on innovations in old industries, the fund has done well enough so that it recently had no trouble raising an additional $75 million. In Cleveland's spirit of cooperation, which makes the whole greater than the sum of the parts, small businesses have flourished by pooling know-how in the nation's largest self-help organization for small enterprises. Thousands of these firms trade expertise in how to market or computerize or do cost accounting, and their bosses regularly exchange advice on specific problems. Without exotic cultivation, Cleveland's big law and accounting firms have prospered, with demand for their services largely unruffled by the vicissitudes of their big-corporation clients. The health services industry has expanded to become, unexpectedly, Rust Belt Cleveland's No. 1 employer. The Cleveland Clinic, which brings $300 million from out of town into the city each year, has become a center of civic improvement, joining with other institutions to restore economic vitality to their sadly decayed neighborhood. All these happenings add up to a sea change, but it is subtle and hard to discern if you don't look attentively. Says developer Albert Ratner, president of Forest City Enterprises: ''The real thing that's changed is people's heads.'' But Ratner and another Cleveland-based developer -- Cleveland Indians co-owner Richard Jacobs, chief of Jacobs Visconsi & Jacobs -- are close enough to see how profoundly the city's civic culture and economic climate have improved. These developers are just starting to give outward form to that change with big projects that in three or four years will transform downtown. Like crocuses forlornly peeping through the snow, a few brave projects, starting with the new BP America headquarters, finished in 1984, have shown that Cleveland isn't frozen lifeless. In 1986, Dick Jacobs's son Jeffrey built a bar, restaurant, and boardwalk on the ''Flats'' by the newly cleaned-up Cuyahoga River, setting off a wave of recreational development that in summer produces traffic jams and boats rafted up three deep by waterfront restaurants. Neil and Myron Viny have refurbished parts of the handsome but derelict warehouse district nearby for now bustling offices and apartments. The last drop of paint dried in April on the spectacular restoration of three adjacent splendid 1920s theaters, and now concerts, plays, and ballet draw big crowds downtown. The new downtown is springing up as rapidly, extensively, and glitteringly as if by Prospero's magical conjuration. A year and a half ago Dick Jacobs and his brother opened a suave, glass-vaulted galleria, where two levels of such tony shops as Ann Taylor and Williams-Sonoma have lured suburban matrons back into the city. This month the Jacobs brothers broke ground in the center of downtown on the first of two striking towers, designed by world-class architects, to house Cleveland's two biggest banks and two new hotels, a Hyatt Regency and a Marriott. Representing a total investment of some $750 million, they'll be finished in 1992 and 1993, and at 60 stories, the taller will be Ohio's tallest building. Nearby, Albert Ratner is completing a $15 million renovation of Cleveland's landmark 1920s Terminal Tower office building. He is also putting up two smaller office complexes, one containing a Ritz-Carlton hotel, and constructing another office building in the shell of the old Post Office. These will all be joined to the Terminal Tower by a vast, three-level, vaulted mall containing restaurants, movie theaters, a new commuter rail station, and 120 shops. A walk through the site suggests that the $400 million project -- to be finished in the spring of next year and partly built on the foundations of a similarly ambitious project aborted by the Depression -- has the makings of a truly sophisticated urban forum. All this building will take Cleveland's comeback a step further. Says managing director James Bennett of McKinsey's Cleveland office: ''You need big symbols of physical progress. They are momentum-building and pride-building. You can't move the city without physical splashes.'' The city is providing plenty of encouragement. It has helped builders get hefty federal grants and produced a master plan to guide development. It has also enlarged the Cleveland convention hall and offered a 20-year full tax abatement to encourage new hotel construction, hoping to turn Cleveland into a regional convention center. Attracting more revivifying downtown activity is only part of the benefit a convention industry would provide. Says council president Forbes: ''It means young people can be hotel managers and desk clerks and cooks and waiters. They won't be making $20 an hour, but they damn + sure can make $10.'' A city law sponsored by Forbes ensures that one-third of all jobs created with the help of a tax abatement or an urban development grant must go to minorities. For Clevelanders aren't kidding about wanting to spread the benefits of recovery through the whole community. The Cleveland Tomorrow companies have provided $2.5 million, for example, to help an innovative organization buy and refurbish houses to sell to poor people on a lease-purchase plan. The corporate community and local charitable foundations are putting up $16 million to motivate disaffected public school students by offering scholarship money for good grades. To keep kids in school, companies offer hiring preference to graduates of Cleveland high schools. Says BP America chief James Ross: ''You've got to get to the social fabric of the city, or you have the politics of envy ruling. I don't believe that a BP can exist as a wealthy company in a society where you have such a substantial underclass that it will pull the whole structure down with it.'' Listening to Clevelanders' earnest talk about how they are turning their town around, and looking at what they've accomplished, is an impressive, oddly moving experience -- and not just because it's exhilarating to see people take their fate in their hands instead of complaining about irresistible, impersonal forces. Beyond that, you can't help thinking that this is what community is all about. Doubtless it sounds comic to speak of Clevelanders in the same breath as Athenians, but isn't this at least a little like what the Greeks meant by the civic ideal -- the public life in which people achieve their fullest humanity?