Education & Workforce Development

ITT leader is leaving business world behind: Chief Operating Officer Modany to step into CEO spot

January 29, 2007

Many CEOs take the word "retirement" figuratively, using the opportunity to become a full-time volunteer or to launch a second career.

Don't count 65-year-old Rene Champagne among those people.

"I'll be pursuing the leisure activities-like golf, tennis, fishing, traveling with my wife-that I don't have time to do as CEO," said the CEO and chairman of ITT Educational Services Inc., who announced Jan. 24 that he's retiring from the Carmel-based company.

Although he plans to remain in Indianapolis, "I don't intend to spend a lot of time in the business world."

Waiting in the wings is President and Chief Operating Officer Kevin Modany, 40, who will become CEO April 1.

Champagne will remain as chairman of the board and a non-executive employee of the company through January 2008, when he'll retire for good.

After a nearly 22-year run at the helm of the for-profit education provider, by most accounts Champagne deserves the break.

ITT Educational was a small division of conglomerate ITT Industries Inc. when Champagne took the helm in 1985. Now, it's a national powerhouse in the post-secondary education industry, with 87 campuses in 33 states and a stock market value of $2.9 billion.

The company has thrived since ITT Industries spun it off in a 1994 initial public offering. Since then, ITT Educational stock has appreciated 2,988 percent. That compares with a 211-percent gain for the S&P 500 during the same period.

A day after the announcement of Champagne's retirement, the company reported another strong quarter. For all of 2006, ITT posted profit of $119 million on revenue of $758 million. That compares with profit of $110 million on revenue of $688 million a year earlier.

"When you look at the evolution of the industry, it sort of loses an icon in Rene Champagne," said Jerry Herman, an analyst who covers ITT for the investment firm Stifel Nicolaus. "He's one of the guys that helped grow the industry."

Along the way, Champagne navigated ITT through some choppy seas.

Perhaps the lowest point of Champagne's tenure, by his own admission, was Feb . 25, 2004, when federal agents raided company headquarters and offices on 10 ITT campuses.

The resulting investigation into the school's recruiting practices lasted nearly 18 months and cost ITT more than $25 million in legal fees. The company's stock plummeted, temporarily erasing more than $1 billion in market value.

Eventually, federal officials unceremoniously dropped the investigation and no charges of violations resulted.

Although investor confidence faltered, ITT's operating results remained strong, and Champagne-already casting an eye toward retirement-worked overtime reassuring board members and Wall Street, analysts said.

During the investigation, Champagne's second-in-command and heir apparent, President Omer E. Waddles, left the company to join a New York-based private equity fund.

The departure apparently wasn't linked to the investigation, but the coincidental timing "without a doubt was scary to investors," said Alexander Paris, an analyst with Chicago-based Barrington Research.

At the end of the ordeal, Champagne said he felt vindicated.

"I never thought of leaving, because I knew we hadn't done anything wrong," he said.

With the investigation out of the way, Champagne and ITT's board looked to Modany, a former software company executive who joined ITT as director of finance in 2002, to fill Champagne's shoes.

Over the past two years, Champagne has been mentoring Modany to take over ITT's helm.

"Each week-really, each day-he's taken on more responsibility in the last 12 months," said Champagne, adding that Modany has in recent months been running the bulk of the company's operations.
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