Franklin reigns

Black Enterprise, August, 1998 by Hamil R. Harris

Franklin Raines returns to Fannie Mae as the first black CEO of a Fortune 500 corporation

Raines, Clinton's budget director, is leaving the White House for corporate America's major league

THE SPRING OF 1969 WAS A combustible time. Vietnam was raging half a world away. And on college campuses across the United States, demonstrations protesting police actions were becoming commonplace. One protest on the campus of Harvard University met with particular resistance. After a group of students took over the university's administration building, police from the city of Cambridge swarmed across the campus.

It would have been easy for a slender, well-mannered 20-year-old from Seattle to shy away from the spotlight because of the threat of losing a college scholarship. Surely in the back of Franklin D. Raines' mind there were insistent fears about bringing shame on his parents, blue collar workers who were overjoyed to have a child getting an Ivy League education. But that afternoon Raines pushed his way to the front of the crowd, grabbed a bull-horn and urged his classmates to stage a campus-wide strike.

Three decades later, he's still taking risks and grabbing center stage. Raines, 49, recently announced that bell be leaving his position as director of the Office of Management and Budget (OMB) at the White House to become chairman and CEO of Fannie Mae, where he had earlier served as vice chairman. He'll Like over the reins of this multibillion-dollar concern in January 1999.

Over the years, BLACK ENTERPRISE has monitored with keen interest the steady progress of key executives as they've inched closer to becoming the first black CEO of a major U.S. corporation. The "usual suspects" have included Ken Chenault of American Express, Lloyd Ward, now at Maytag, Anne Fudge of Maxwell House, Richard Parsons of Time Warner, Barry Rand of Xerox's U.S. Marketing Group and, until recently, Richard Nanula of Wait Disney (see "CFO Bids Farewell to World of Disney," Newspoints, July 1998). But Raines, a key member of the Clinton cabinet, appears to have beaten them all to the punch. Fannie Mae is currently ranked No. 33 on the Fortune 500 with $27.8 billion in revenue.

While the designation is substantial and significant, it stops short of the definitive shattering of the glass ceiling because of the very nature of Fannie Mae. Formerly known as the Federal National Mortgage Association, Fannie Mae is defined by Congress as a "government-sponsored enterprise." Chartered in 1938 to spur home ownership by ensuring market liquidity through the buying and selling of mortgages, this government-created institution controls one-fifth of the trillion-dollar American mortgage market.

During the 1960s, Fannie Mae was converted into a shareholder corporation privately owned by stockholders. But it still enjoys significant government-backed privileges. First, Fannie Mae is exempt from state and local income taxes, and its capital maintenance standards are lower than those required for purely private institutions. Second and more important, because the company enjoys a government guarantee of its debt, Fannie Mae can borrow billions at ridiculously low rates, gaining competitive advantage and driving up profits. Fannie Mac (NYSE: FNM) first traded on the stock market in 1970 at $1.28 a share. In 1991, it sold for $17 a share and prices have been on a nonstop climb ever since. At press time, the stock was selling for $58 a share.

Another key factor is Fannie Mae differs from almost a other U.S. corporations in that it doesn't actually produce any consumer products. And with the exception of its Washington-chartered rival, Freddie Mac, Fannie Mae has no direct competitors. In many ways Raines' appointment is similar to that of Cliff Wharton, former head of the worlds Largest private pension fund, TLAA-CREF (No. 30 on the Fortune 500 with $29.4 billion in revenue) until he retired in 1994.

Despite the distinct nature of Fannie Mae, many still perceive Raines' selection as a unique breakthrough. "I consider Frank Raines the Jackie Robinson of corporate America," says National Urban League President Hugh Price. "Fannie Mac's roots may be in the public sector, but it has been spawned into the private sector."

W. Frank Fountain, president of the Executive Leadership Foundation in Washington, D.C., an organization composed of many top black executives in Fortune 500 firms, agrees. The quasi-governmental nature of Fannie Mae, he says, shouldn't detract from its significance. "Fannie Mae is publicly held by shareholders who are just as demanding for a return on their equity' as any shareholder," says Fountain, who's also vice president of governmental affairs for Chrysler. "We should all be proud to see Raines not only became the CEO of a Fortune 500 firm, but of a firm that is critical to prospective African American home buyers."

Raines' mandate at Fannie Mae is clear. He'll have to continue the record-breaking growth of the company's earnings while staving off foes who'd like to see Fannie Mae stripped of its congressional privileges. If nothing else, Raines' appointment signifies yet another critical step as African Americans continue their quest up the ladder. While the impact of his appointment on other prospective black CEOs can't be determined yet, the high profile and stature of the position could very well speed up what has long been a slow climb for blacks in corporate America.