Heirs to the Throne: Companies with CEO Succession Concerns

Joe Goldman |

Christine DayLululemon (LULU) shares plunged 16.75 percent on Tuesday to $68.46 after CEO Christine Day announced she would step down as soon as the company finds a replacement.  She cited the decision as “personal,” and it still remains unclear why she is leaving the company.

CEO succession can be a tricky business for investors. Day’s decision came as a shock to Lululemon shareholders and served as an eye-opener for investors everywhere. A surprise resignation without a smooth transition of visionary leadership can send any stock plummeting. 

The following nine companies all have unique CEO situations.  Some have CEOs who are entirely irreplaceable, some already have successors lined up, and others need to name a successor soon to ensure a seamless transition of leadership.

Irreplaceable CEOs

Mark Benioff of Salesforce.com (CRM) : Thanks to Benioff’s tireless innovation and grand vision for the cloud, Forbes rated Salesforce.com as the world’s most innovative company on earth.

Salesforce.com is the world’s number one customer relationship management (CRM) platform and dominates the business cloud industry.  Since Benioff brought the company public in 2005, shares are up 879 percent thanks to a continuously improving user platform, aggressive acquisitions, international growth, and consistent managerial execution.

Jeff Bezos of Amazon.com (AMZN) : Amazon is only second to Salesforce.com on Forbes’ innovation list, as the company has revolutionized the retail industry thanks to Bezos’ visionary leadership.  Since Bezos took his company public in 1997, shares are up over 16,000 percent.

Amazon has been widely deemed “overvalued” thanks to forward P/E ratio of 87.  However, Amazon is spending billions every year on R&D and warehouse construction, which reduces earnings but expands Amazon’s future earnings potential.  Amazon will soon move into the grocery business, allowing customers to order groceries online and have them delivered to their front door.  Bezos without a doubt has more visionary tricks up his sleeve and is as irreplaceable as anybody in the corporate world.

Howard Schultz of Starbucks (SBUX) : Schultz took Starbucks public in 1992 and served as the CEO until his resignation in 2000.  He returned to the company in 2008 with the company in poor shape; stores were closing in hundreds and customer dissatisfaction was higher than ever.

Since his return, Schultz has resuscitated Starbucks and re-established his company as an innovator and growth leader.  Starbucks has excellent earnings performance domestically and boasts dazzling sales growth in Asia.  Schultz has also made several prudent acquisitions in Teavana, La Boulange, and Evolution Fresh, expanding Starbucks’ wide range of products. Schultz is also a pioneer in combining restaurants and technology, as Starbucks is the first major restaurant chain to accept card-less electronic payments through Square Wallet.

Heir Apparents to the Throne

Warren Buffett of Berkshire Hathaway ($BRK.A): The Oracle of Omaha is now 82 years old and has no plans to retire.  However, the greatest investor of all-time will one day have to leave Berskhire Hathaway, leaving his successor with impossibly high expectations to meet.

What’s interesting about the Buffett situation is that the company has already selected a successor, but the company’s lips are sealed.  However, the heir is apparently one of the following: insurance chief Ajit Jain, railway head Matthew Rose, MidAmerican CEO Greg Abel, and investment managers Ted Coombs and Ted Weschler.

Mark Papa of EOG Resources (EOG): Papa is widely regarded as one of the best CEO’s in the oil business. Thanks to Papa’s leadership, EOG has outstanding earnings growth, invaluable assets worldwide, and a great balance sheet.  More importantly, Papa has been able to execute for shareholders.  In the most recent quarter, EOG absolutely destroyed earnings estimates, reporting $1.82 per share compared to $1.17 estimates.  Shares are up over 1,300 percent since Papa took over as CEO.

Senior Executive VP Bill Thomas will take over when Papa retires this summer.  Thomas has big shoes to fill, but the leadership transition will be smooth.  He will gradually take over Papa’s responsibilities during the coming months and has prepared for the job the last two years.  Papa has given Thomas his grand vision for the company, and Thomas should be able to execute it.

Paul Walsh of Diageo (DEO): During Walsh’s 13-year tenure, Diageo emerged as the world’s largest liquor maker. The company produces Ketel One, Captain Morgan, Johnnie Walker, Bailey’s Irish Cream, Guiness, Jose Cuervo, Smirnoff, and many others.  Thanks in part to Walsh’s leadership, most of these brands have become worldwide best sellers in their respective drink categories.

Walsh will retire on July 1 and yield the CEO position to COO Ivan Menezes.  The company will be in good hands, as Menezes has held high positions with Whirlpool, Booz Allen & Hamilton, Nestle, and Diageo.  Walsh hopes to expand Diageo’s liquor portfolio and accelerate organic growth internationally.

Companies Without Known Successors

Alan Mulally of Ford (F) : Ford was on the brink of bankruptcy during the Great Recession, but Mulally guided the company back to profitability without taking any federal bailout money.  With the company currently on strong footing, Mulally will leave Ford in 2015.

Many believe that COO Mark Fields will succeed Mulally in 2015, but a Morgan Stanley report said, “The next Ford CEO is truly up for grabs.”  Fields has the inside track for the job, but a lot can chance in two years, especially in the cyclical auto industry.

A.G. Lafley of Proctor & Gamble (PG) : Current CEO Bob McDonald will retire from P&G on June 30 and Lafley is set to take over the reigns.  Lafley served as P&G’s CEO from 2000 to 2009, so this will mark his second stint with the company.

However, Lafley is 65 years old and has already retired once, so he surely does not plan stay with the company for too long.  According to 24/7 Wall St., P&G has “narrowed” Lafley’s potential successors to four senior executives.  The good news is that all four candidates have experience with the company.  The bad news is that they have all been around long enough to assume partial responsibility for P&G’s deep structural issues.  Without a strong, obvious successor in the cards and many ongoing organizational problems, P&G shareholders should be a little uneasy about its leadership when Lafley retires again.

Christine Day of Lululemon (LULU) : Day’s resignation could not have come at less opportune time for shareholders.  The company had just recovered from its Luon pants recall seemed to be back on a growth track. Many believe her resignation was the result of the Luon pants disaster, which seems illogical because the company has since recovered financially and maintained customer loyalty.

Day’s resignation wiped out months of huge stock gains, sending shares to pre-recall levels.  Lululemon has formed a search committee to find its next CEO, and the suitors are anyone’s guess.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AMZN Amazon.com Inc. 837.31 8.26 1.00 4,430,566
CRM Salesforce.com Inc 71.33 0.13 0.18 5,816,986
DEO Diageo plc 116.04 0.23 0.20 381,114
EML Eastern Company (The) 20.02 0.14 0.68 10,743
EOG EOG Resources Inc. 96.71 1.66 1.75 4,006,452
F Ford Motor Company 12.07 0.10 0.84 34,903,811
LULU lululemon athletica inc. 60.98 -0.01 -0.02 2,822,414
PG Procter & Gamble Company (The) 89.75 1.52 1.72 123,735,748
SBUX Starbucks Corporation 54.14 0.69 1.29 13,767,754

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