Dr. Leslie Gaines-Ross, who writes the ReputationXchange blog and Weber Shandwick’s chief reputation strategist, put together a clever blog post today on the need for visionary CEOs. She focused on the need for leaders (CEOs included),
… to step out of the shadows and speak up.
She goes on to briefly discuss a recent article in the Economist entitled, The cult of the faceless boss . The article,
… advises leaders to be bold, not bland. In another line that hit home, the writer says: “These are people who have created the future, rather than merely managing change, through the force of their personalities and the strength of their visions.” Less managing and more leading.
While not fully in favor of celebrity CEOs, I do agree that CEOs must lead by example and remain vocal to help their companies, guide their employees and work to improve the overall reputations of leaders which has been so damaged over the last few years. Check out the ReputationXchange blog.
Carl Gardiner has been a financial analyst for over 18 years, including eight years in investment analysis and management. Prior to joining Schafer Cullen Capital Management, he was an investment analyst and portfolio manager at two research-driven, value-oriented investment funds, Copper Arch Capital and North Sound Capital. From 1992 to 2000, he was a Director at Merrill Lynch, as an investment banker in New York and London. Mr. Gardiner began his career at Fox Asset Management, a value-oriented money management firm. He received a MA degree in International Economics from Johns Hopkins School of Advanced International Studies in 1992 and a BA degree with High Honors from the University of Virginia in 1989.
TWST: Would you be able to give us any examples of the type of companies that are like core holdings or new acquisitions?
There are far fewer of those just lopsided, obviously mispriced opportunities, so we are now back more into our normal mode of finding situations that are overlooked. In this vein, the last stock I’d mention is our most recent purchase, Omnicare (OCR). Omnicare trades at a little over 9 times 2009 earnings, with a $2.8 billion market value. Omnicare is the largest institutional pharmacy in the US, serving skilled nursing facilities and assisted living facilities, with a 50% share of this market. There are some interesting things going on at Omnicare that have great potential to boost returns over the next two to three years. Most importantly, having consolidated the industry, the company is finally taking advantage of its scale. Omnicare is nearly through an initiative to automate and centralize certain repetitive functions, so that it can downsize its over 200 regional pharmacies saving over $100mm a year in costs and freeing resource for customer retention activity. Omnicare has a number of other cost-saving initiatives underway as well. Finally, the wave of branded drugs going generic gives Omnicare a gross profit lift, and while this has been underway for the past few years, there is still some runway here.
Jennifer Reingold wrote a story for Fortune on the ‘science’ behind the CEO succession process that recently transpired at Procter & Gamble. I wrote an earlier blog praising the process at P&G but Reingold has managed to go into the process with just a bit more depth. According to Reingold,
It is something strange in this era of failed leadership, abysmal succession planning, and dueling egos: a transition atop one of the world’s largest and most successful companies that is notable for what’s gone right.
Like just a handful of other companies, including PepsiCo (PEP, Fortune 500) and General Electric (GE, Fortune 500), P&G (PG, Fortune 500) has seen its ability to groom top talent as a competitive advantage — as much of one as its trademark on Tide or patent on Pampers. Although the company is 172 years old, it has had only 12 chief executives, all insiders, and among them two family members.
Check it out.
Marks & Spencer’s MKS (LSE) well known CEO Sir Stuart Rose, who has been instrumental in turning the fortunes of the British clothing retailer around, will officially be replaced next year. The company has been working on a CEO search for nearly two years. Rose was even on my CEO Watch list back in September 2008. M&S selected Marc Bolland ,the highly regarde
d CEO of supermarket group William Morrison Supermarkets PLC, as it new CEO. Bolland is a real catch for M&S and a serious loss for William Morrison. According to a story by Sarah Shannon for Bloomberg,
Bolland joins M&S as the company seeks to restore same- store sales growth after two years of decline. He spent three years as CEO of Morrison, restoring profit after the 2004 purchase of competitor Safeway led to the company’s first-ever loss. M&S gets close to 50 percent of sa
les from food.
“To get someone with credibility in place is a huge positive,” said Paul Mumford, a fund manager at Cavendish Asset Management who holds Marks stock. M&S’s food division has been “suffering” from cheaper-priced supermarkets and Bolland will “help them move towards winning back market share.”
… The appointment “removes the uncertainty that’s been hanging over the stock for some time,” according to Mumford.
… “He brings a wealth of consumer marketing experience and has made a great success of his time at Morrisons,” Rose, who will remain as M&S’s part-time chairman, said in the statement. Rose will stay on to “ensure a smooth transition,” the retailer said, and will leave as planned by July 2011.
Bolland’s selection is a real feather in M&S’s hat. Despite the long amount of time it took to find a CEO, Bolland has many of the qualities M&S needs as it moves forward. According to a story by James Davey and Mark Potter for Reuters,
Bolland is widely regarded as having delivered a successful turnaround at Morrisons. Previous to that job he was chief operating officer at Heineken (HEIN.AS) based in the Netherlands.
… He took the reins from Ken Morrison, son of the founder and a major shareholder, and showed the kind of diplomacy he may need during what could be a period of powersharing with Rose.
Rose said the handover period would be about six weeks.
Ignoring some analysts’ calls for him to sell off Morrison’s food manufacturing operations and invest in non-food ranges, Bolland stuck with the group’s traditional “Market Street” format of fresh food counters and gave it a makeover.
Combined with innovative promotions and new product ranges, he transformed Morrison into the fastest growing of Britain’s top four food retailers for most of the past two years.
Bolland’s greatest risk as M&S’ new CEO is his lack of clothing expertise. He seems to be a quick learner and I would expect he will rely on his team to help him come up to speed. Stay tuned.
For more:
Colin Barr wrote a fascinating piece for Fortune on why investors, particularly institutional investors, will not restrict top executives’ salaries. According to Barr,
Waiting for investors to slam the brakes on runaway executive pay? Don’t hold your breath. Although Congress may give shareholders more of a say on pay soon, big money managers seem content to keep their mouths shut.
…The biggest investors — institutions such as mutual funds and pension funds that hold more than half of all shares — have shown little interest in playing pay watchdog. And it’s not clear that will change even if the government mandates say on pay as part of the financial reform taking shape in Washington.
“We just haven’t seen a huge amount of effort being put out by institutional shareholders to affect compensation levels,” said Bernard Black, a law professor at the University of Texas. “Whether it’s because they don’t mind the pay practices or because the money managers are making millions themselves, you don’t see them jumping up and down.”
… A recent study co-sponsored by a union pension fund and a top governance firm dubs many of the biggest mutual fund firms — including Ameriprise (AMP, Fortune 500), AllianceBernstein (AB), Barclays (BCS) and MFS — as “pay enablers” for supporting management pay proposals and opposing those by shareholders.
I highly recommend investors and corporate governance specialist read Barr’s piece.
EMS Technologies EMLG (NASDAQ), the maker of software used in satellite and ground networks, on Wednesday announced the immediate resignation of Paul B. Domorski, as CEO and board member of the firm. In his place, the company selected Neilson A. Mackay, the company’s executive vice president and chief operating officer. The announcement came shortly after the firm’s stock suffered a 28% fall after the company announced a sizeable decline in net profits
for the third quarter. According to a story by Peralte C. Paul for the The Atlanta Journal-Constitution,
John B. Mowell, EMS Technologies’ chairman, said the change is not because of the company’s recent earnings performance. The company reported last week it made a third-quarter profit of $5.3 million, down from $6.1 million a year earlier.
“It was a tough decision; it was not instigated by earnings,” Mowell said in an interview Wednesday. “This is not a reaction to an over-weakness on the part of Paul. He is a great leader, and he is a great man.”
The chairman then went on to state,
… the board opted to put Mackay at the helm because the company needs a leader with the technology and engineering background in addition to the business credentials.
It appears obvious that despite what the chairman said, the change was precipitated by the significant earnings decline and poor performance of the firm during the third quarter. The change from within may actually bode well for the firm going forward. Mackay has been with the firm for some time and understands the business. Domorski was not the only key change at the firm over the last number of months. Back in August , David A. Smith abruptly resigned as vice president and general manager of the company’s Defense and Space Division.Keep a close eye on the firm for the next couple of months.
TWST: You mentioned saturation in the market. Are we at market saturation in this sector?
Mr. King: Certainly these segments themselves are still growing, but growth has slowed significantly over the last several years. From an industrywide perspective, wireless net adds have fallen off by several million from their peak on an annual basis. You have carriers like Verizon (VZ) and AT&T (T) that continue to do well. But more and more, they are doing it at the expense of carriers like Sprint (S) that continue to lose postpaid subscribers. So from an industry standpoint, there is still growth, but it’s certainly much slower growth than it has been in the past.
CHRISTOPHER C. KING is a Senior Telecom Services Analyst and Principal at Stifel Nicolaus, where he covers telecommunications and cable services firms. His current coverage universe consists of rural local exchange carriers (RLECs) as well as Regional Bell Operating Companies (RBOCs), in addition to a focus on Latin American and national independent wireless carriers. Mr. King joined the Legg Mason telecommunications equity research team in January 2001. He was an Equities Trader and fixed-income Analyst with Wachovia Bank and Allfirst Bank. Five years prior to joining Legg Mason/Stifel, Mr. King was a Financial Analyst with Allfirst in the company’s brokerage and capital markets groups. Mr. King has a bachelor’s degree in politics and economics from Wake Forest University and an MBA with a concentration in finance from the University of Maryland.
Read more of the interview with Mr. King and other Telecom sector analysts.
Anyone following top executives has to read today’s story by Liam Pleven, Serena NG, and Joann S. Lublin in the Wall Street Journal. The column is entitled, AIG’s Benmosche Threatens to Jump Ship. Benmosche, AIG’s hard charging CEO, appears to be exacting pressure on the AIG board and the Obama Administration.
At a board meeting last week, the strong-willed industry executive told fellow AIG directors that he was “done” but agreed to think it over after other board members reacted with shock, according to the people.
… It isn’t clear whether Mr. Benmosche would actually resign. In his short tenure at AIG, he has developed a reputation for making provocative remarks and ruffling feathers as he seeks to achieve his goals.
He has only been CEO for three months and continues to make waves. He has a little of AIG’s famous former CEO Hank Greenberg in him. Check out the story.
Heidrick and Struggles, the high end executive recruiter and consulting firm, put out a press release today entitled, SEC Targets CEO Succession Plans – New Risks for Boards. According to the firm’s release,
“There is a whole new level of risk for corporate boards that could stem from the SEC’s legal bulletin this week, ushering in a sea change in how directors will view CEO succession planning,” says Stephen Miles, Vice Chairman of Heidrick & Struggles and Managing Partner of the firm’s leadership advisory services.
The release goes on to examine what companies might need to do to respond to the SEC legal notice that came out October 27th. While Heidrick and Struggles might have a point about the risks companies face with regard to the notice, the reality is companies functioning properly with regard to CEO succession have little to be concerned with. Company boards should stay on top of the SEC notice.
Tony Hayward, the CEO of oil giant BP, deserves credit for BP’s latest performance. According to breakingviews.com in the New York Times,
The worst may be over for the major oil and gas companies, if BP is any sign. The oil giant’s profit almost halved in the third quarter from 2008. But the drop was less than investors feared and income rose from the preceding quarter. Tony Hayward, the chief executive, can take as much credit as the recovering oil price for BP’s performance.
Hayward took over the CEO post at BP back in May 2007 after BP’s CEO at the time, Lord Brown, resigned after a legal injunction was lifted that had prevented publication of details about his private life.
