(FORTUNE Magazine) – THE LONGEST-RUNNING act in chief execudom is taking final bows. J. Peter Grace, who in 1945 became CEO of W.R. Grace & Co., the chemicals company founded by his grandfather, relinquished his CEO title in January to J. P. Buldoc, 53, heir apparent. Investor response was positive but wary: What changes did this portend? Peter Grace had been a known commodity. For decades, the Great Conglomerateur had piled company on company, turning W.R. Grace into a purveyor of everything from bull semen to grilled cheese sandwiches. ''You never knew what business he'd be in next,'' says James Wilbur, an analyst with Smith Barney. Sales grew; profits didn't. During the Eighties, the stock retained a pancake flatness. For this performance, Grace was compensated royally by a compliant board. Now age 79 and sick with cancer, he still sits tall in the chairman's saddle, hugging it with both knees. When he appeared at the company's St. Patrick's Day party in New York City, bagpipers playing ''Amazing Grace'' piped him in. He made a speech. He sang a song. He danced a little jig. For an hour he held court, dressed in a blue pin-striped shirt, his skin the color of liver, as guests whispered homage in his hearing aid. When time came for him to leave, he glanced over at Buldoc and crooked a finger. The CEO followed. That Buldoc's chain occasionally gets a Gracely yank worries investors, who fear the old man's penchant for conglomeration might reassert itself. Not likely. Buldoc, with full support from directors (and from Grace himself), is two years into a three-year stem-to-stern restructuring. Buldoc first came to Peter Grace's attention when he served as chief operating officer of the Grace Commission, a private group charged by President Reagan with rooting out waste in government. He joined W.R. Grace in 1983, rising to become COO. Like his predecessor, he cultivates a reputation as a tough guy. When he started a company softball team last winter, he laid down a daunting regimen: ''Hell, I had them practicing at ten, eleven o'clock at night.'' The fingernails of both his hands are bitten to the quick. ''That's not all,'' he says. ''I break my toenails off. Just break 'em right off with my fingers.'' Doesn't that hurt? ''You get used to it.'' He's breaking parts off Grace. The restructuring, announced in 1991, called for shedding $1.5 billion in assets (25% of the total) by 1994. Two lines of business will remain: specialty chemicals (plastic packaging, petroleum- cracking catalysts, water treatment systems) and health care (mainly kidney dialysis services and equipment). By February, Buldoc had sold assets worth $1.25 billion. Yet Grace's stock sits about where it did when the plan was announced. Why? The company, says Buldoc, has a credibility problem. Investors % have been burned by previous promises of improved earnings. He doesn't expect bouquets until the whole restructuring is done. By then he hopes to have hit the one big target that's eluded him: earnings growth of 10% or better a year. Accounting changes, restructuring costs, and the closure of a plant in Europe resulted in a loss last year. But profits from the company's kidney dialysis business were strong, and Buldoc argues they'll remain so, despite Hillary Rodham Clinton's cost-cutting ax. First, the treatments aren't elective; patients who don't get them die. Second, they're cost-effective; patients can perform dialysis at home. For now Buldoc continues to prosecute a cost-cutting program that has saved a total of $100 million, eliminated as many as six layers of management, and reduced the company's worldwide work force from 52,000 to 44,000. He is pushing cultural reforms too. When layoffs and relocations have been necessary, he has met with employees to take the heat. He wants greater rewards for initiative. All bonuses, he thinks, should be paid in stock, not cash, even at the lowest levels. Confrontational himself, he wants to see managers fight passionately for ideas. If that prompts an exodus of the genteel and shell-shocked, his attitude is, good riddance. Assuming that Buldoc's mix of moxie, cost cutting, and restructuring gooses earnings up, how high might they go? The most bullish analysts think 15% by year-end. Buldoc himself, however, will not predict the upside. All he'll do, he says, is promise to meet his minimum: 10% or better by 1994. Given Grace's need to rebuild credibility, that's the right answer.

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