Fidelity moves could offer clues to life after Johnson

Fidelity Investments might announce a new executive team soon following President Rodger A. Lawson’s departure last month, but Fidelity watchers will be focused on what any new lineup implies about the longer-term transition from 79-year-old Chairman and CEO Edward “Ned” Johnson’s leadership.

The big question: Will Abigail P. Johnson, the chairman’s daughter and president of Fidelity’s personal and workplace investing division, at long last garner Fidelity’s second-in-command post of president?

Some observers say they’re hoping Ms. Johnson can eventually settle into the role her father plays: letting competent managers run the show with her making final decisions on Fidelity’s strategic direction.

The test will come when Ms. Johnson is unambiguously in command, and the risk would be that she “cannot manage the company, but thinks she can,” said a corporate pension executive client of Fidelity’s, who asked not to be named.

Others say Mr. Johnson can’t be replaced, with Fidelity’s continued development requiring a broader-based leadership structure in the future.

Indeed, less than three years after Fidelity’s last top-level shakeup, some investment bankers and executive recruiters say this time the company is likely to announce a leadership committee, rather than a single executive, to head the organization.

Given the increasing diversity of its businesses, Fidelity’s hiring of Mr. Lawson in 2007 might prove to be the last time Fidelity taps a single high-profile executive to run the company, said Geoffrey Bobroff, president of money manager consultant Bobroff Consulting Inc.

A committee structure with a top layer of professional management would be in keeping with the direction Mr. Lawson was moving Fidelity, industry observers say.

One executive recruiter, who declined to be named, said Mr. Lawson tried to impose cost discipline in a private company culture where throwing resources at businesses with the goal of grabbing market share had proven a winning strategy in the past.

Fidelity spokeswoman Anne Crowley said under Mr. Lawson, Fidelity initiated a firmwide transformation program to increase efficiency and eliminate waste, helping the firm emerge relatively unscathed from the extraordinary market downturn of 2008 and early 2009.

Industry watchers praised Mr. Lawson’s goals — but faulted his execution — in making key hires. Mr. Lawson managed Fidelity through a very difficult market environment, but several of the senior people he hired fit in poorly with the firm’s culture, said another headhunter, who declined to be named.

On the investment side, his mid-2008 choice of Thomson Reuters executive Michael Wilens as Fidelity’s head of asset management proved a short-lived experiment, reflecting the difficulty outsiders have in breaking into Fidelity’s investment culture, according to one former top investment executive. Mr. Wilens was moved out of the investment side, and now is president of corporate operations.

Other high-level investment executives retired or quit. They include: Stephen P. Jonas, who retired as executive director of the firm’s investment management organization in January 2007; Dwight Churchill, who retired as head of fixed income in February 2009; and Walter Donovan, who left as president of the equity division to join rival Putnam Investments in April 2009. More recently, Eric Wetlaufer, the group chief investment officer for international equities, left to pursue other opportunities.

According to several ex-Fidelity veterans, more than three-quarters of the top executive positions in the broader Fidelity organization have turned over during the past three years.

Ms. Crowley said while people leave companies for a variety of reasons, Fidelity has “no difficulty recruiting talented individuals.”
Tolerating turnover

Investors and gatekeepers, meanwhile, have been willing to stomach the turnover as long as Mr. Johnson was at the helm, strategic consultants said.

Turnover is the unavoidable result of hiring competent, ambitious people to help run an organization they’ll never own, said the corporate pension executive who asked not to be named.

With Mr. Johnson retaining ultimate decision-making power, effectively “there has been no turnover at the top,” the executive said.

For now, institutional clients and gatekeepers say they’re not losing sleep over Fidelity’s recent turnover or talk that a new leadership team is about to be installed.

One reason could be performance. In 2009, three-quarters of Fidelity’s mutual funds on an asset-weighted basis outperformed their peers for the year, and slightly less than 70% turned in above-median results for the three- and five-year periods.

Pyramis Global Advisors, the firm’s institutional investment arm, likewise turned in solid results.

Stan Mavromates, chief investment officer of the $43.8 billion Massachusetts Pension Reserves Investment Management board, said his staff has seen no evidence that high level turnover at Fidelity is distracting the Pyramis team managing $600 million in international equities or the Fidelity Management & Research team managing $226 million in high-yield bonds for PRIM.

Fidelity is the proverbial supertanker: difficult to turn on a dime and seemingly moving in the right direction, said Steve Charlton, head of manager research for Cambridge, Mass.-based investment consultant NEPC Inc.

Not that there isn’t any choppiness ahead.

Christopher Davis, an analyst tracking Fidelity funds for Chicago-based Morningstar Inc., acknowledged that the 401(k) business remains the cornerstone of the empire — both for the steady flow of assets to Fidelity managers and the “ton of money” the company makes for record-keeping services. But he is concerned about Ms. Johnson’s recent willingness to emphasize Fidelity’s status as a “servicing company.”

Related Topics: Fidelity Investments