One trait of great stocks is the proper handling of CEO succession.
It’s never easy taking over as the new CEO no matter how prepared you think you are. Thankfully, for investors’ sake, most corporations carefully plan their CEO succession.
For instance, Ford (F) announced in early May that Alan Mulally would step down as CEO on July 1 to be replaced by Mark Fields, its boss for the Americas. The appointment of a new CEO had been in the works for some time.
In 2013, more than 70% of the CEO changes that took place were planned and deliberate, just like the situation at Ford.
Great stocks leave nothing to chance, and that’s why you see what you’re seeing at these three companies that have installed new CEOs in the past year who are taking care of business despite a steep learning curve.
Great Stocks, New CEO – General Motors (GM)
Barra was the first woman to lead a major automaker, but her hiring was a big deal not just for women, but the auto industry as a whole. Women have earned the right to be running major corporations like GM; her hiring was a signal to others that your new CEO doesn’t always have to be a man.
Great stocks are open-minded.
And let’s face it — GM chose well. After all, how many of us would be prepared to handle a media maelstrom like the GM recall less than one month into our new job? Barra has been to Capitol Hill so often in the past few months, I wouldn’t be surprised if she has rented an apartment there.
At some point, the government needs to accept that Barra has taken full responsibility for fixing what’s wrong at GM so this kind of thing doesn’t happen in the future.
Warren Buffett, who owns 30 million shares in the company, feels GM is one of the great stocks in this country and that Barra is the right person for the job. I couldn’t agree more.
In June, I wrote an article discussing the four best female CEOs to bet on. Barra wasn’t on this list because she is a new CEO and hasn’t been in the job long enough.
I’m very enthusiastic about her chances around the same time next year.
Great Stocks, New CEO – Microsoft (MSFT)
When Steve Ballmer announced last August that he was stepping down as Microsoft (MSFT) CEO and would leave the company within 12 months, a company that he’d worked at for 34 years, you knew the decision had to be a difficult one.
The search to find his replacement included many high-profile candidates such as Alan Mulally, who also used to run a big chunk of Boeing (BA). Ultimately, though, Microsoft hired Satya Nadella in February, its head of cloud computing division, to clean up Ballmer’s mess.
What mess, exactly?
For one, the former CEO and potential new owner of the L.A. Clippers persuaded the board to agree to acquire Nokia’s (NOK) handset business for $7.2 billion. Nadella never was on the same page as Ballmer when it came to the future of the company. He certainly wouldn’t have pulled the trigger on such an expensive deal for a company that focuses on hardware. Nadella believes the correct course of action is to make products and services that people can use whether they have an Android or iOS device.
The downside to Ballmer’s mistake is that Nadella now must fire roughly 12,500 employees that were working at Nokia as part of an 18,000-job shearing — the biggest in Microsoft history. Anyone who has ever had to fire someone knows how hard it is; it never gets easy. But in this instance it’s made a little less difficult because Nadella’s vision for the future is incompatible with Nokia’s handset business, and thus many of the employees are redundant.
Great leaders admit their mistakes. Nadella, as Microsoft’s new CEO, did just that in his open email to Microsoft employees. Although Nadella is an insider, his fresh leadership should be welcomed by shareholders and employees alike.
Great Stocks, New CEO – Burberry Group (BURBY)
It’s not easy following in the footsteps of a retail goddess, but that’s exactly what Christopher Bailey has done taking the helm as its new CEO on May 1. Bailey replaces Angela Ahrendts, who left to become the head of Apple’s (AAPL) retail operations.
Ahrendts was hired in 2006 to transform the Burberry brand, which she did with the help of the very unassuming Bailey, who has served as chief creative officer since 2009 and for eight years before that as creative director.
In his role as the new CEO of a public company, Bailey will need to put himself out there a little more … but early reports suggest he’s adjusting to his dual roles. A fashion source for the Guardian newspaper says this about Bailey:
“He worries he’s being over-hyped, which might make him a hostage to fortune. But with the competitors hat on, we rate him. He’s making the transition to chief executive very well … And I’m sorry I can’t really dish the dirt, because there ain’t any.”
While Burberry’s stock hasn’t done much since May when he took over, it’s clear the industry doesn’t see him as a pushover.
While investors might be aghast at the compensation package thrust his way, Bailey is being paid what others receive in the fashion industry. Consider that Burberry same-store sales for the three months ended June 30 increased by 12% year-over-year. Not many retailers, luxury or otherwise, are delivering these kind of numbers in the current retail environment.
The board knows Bailey is just as much of a catch as Ahrendts was, and so they either had to pay up to keep his services or lose them to a competitor. Not only would its creative compass be lost, but so too would its CEO.
Great stocks make smart business decisions. Keeping Christopher Bailey was a no-brainer at almost any cost.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.