Following the resignation last week of embattled Cendant chairman Walter Forbes and eight Cendant directors tied to CUC International, the company is faced with the task of trying to move past its crisis. That won't be easy, given the widespread coverage of the alleged accounting fraud at CUC, which was merged with HFS to form Cendant last December.

Wall Street investors, who had been fleeing from Cendant stock since news of the wrongdoing broke in April, may need the most convincing. News reports indicate that many analysts are taking a cautious wait-and-see attitude as events unfold.

But the reaction has been more favorable on Main Street. Many of the brokerage franchisees and other customers that make up Cendant's real estate arm -- a mighty limb that encompasses ERA, Coldwell Banker and Century 21, as well as mortgage and relocation services -- have either remained supportive of the besieged conglomerate, or have returned to the fold following the company's decisive move.

According to Richard Smith, chairman and CEO of Cendant Real Estate, brokers voiced concern about the fate of their parent company throughout the debacle. But the "concern had been expressed more as concern for Cendant and Henry [Silverman, Chairman and CEO of Cendant]," he says. "They had been showing their support and saying, 'Tell us what we need to do to contribute to the successful outcome of all this.' We were very encouraged by that."

Prospective brokerage franchisees, whose fates and fortunes were not yet invested in Cendant, were less understanding, admits Smith. These individuals, who represent growth for what is reportedly Cendant's largest business area, had questioned the company's "credibility and integrity," he says.

Smith says he has also fielded worried calls from banking customers on the corporation's mortgage side, as well as from its mobility business, which has 1,700 corporate clients and 52% market share. "We've had a number of major clients express serious concerns," he says.

Yet the company's decision last week to resolve the problem -- by ousting Forbes at al -- has helped Cendant's real estate business sidestep a good amount of damage, says Smith.

"The most recent round of problems only occurred three weeks ago," he says. "We knew that if this had become protracted it was going to have a material impact on our business -- on both the real estate brands and mortgage and mobility. And that is exactly why we took the aggressive action that we took. We have very aggressive numbers to hit and we couldn't possibly hit those numbers in the balance of 1998 or 1999 if the board didn't take immediate action."

He adds that, "Now that the board has taken action, we now are better positioned to hit our numbers and continue to stay the course on our business plan. But had [Cendant's board] not been as finite in the decision making process, we would have had a much more difficult problem."

Smith notes that Cendant's damage control efforts must now focus on restoring "goodwill" behind its various brands. For example, he rejects the rumor that the company has considered consolidating its real estate brokerage brands. "You don't pay a lot of money for the goodwill behind a brand and then do away with it," he says. "Other people may be capable of doing that but not brand managers like Cendant."

Coming: Post-Crisis Report: The anticipated affect of the merger on Cendant's real estate division, and the effect of Cendant's woes on individual franchises.

Published: August 3, 1998

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