Management Turnover as Change Agent

Thursday, May 8, 2008

CEO Watch- Sir Stuart Rose, Marks and Spencer

Marks and Spencer MKS (LSE) the well-known United Kingdom mid-priced department store company has been embroiled in a governance/top executive controversy.  The company's highly regarded CEO, Sir Stuart Rose, recently (March 10 announcement) added the executive chairman title while remaining the firm's CEO.  Rose is expected to give up his CEO title in 2011.  The dual title promotion is a direct violation of one of the UK's governance regulations. Sir Rose was originally brought in to serve as the company's CEO back in 2004, when Marks and Spencer was expected to become a hostile takeover target of well-known British retailer/money man Philip Green. Rose out manuveured Green.   According to a BBC story,
At the time, the High Street icon was in deep trouble, losing market share to hipper and cheaper rivals and fending off a hostile takeover bid from Arcadia's owner, retail tycoon Philip Green.

In a dramatic boardroom shake-up, M&S replaced embattled chief executive Roger Holmes with Sir Stuart.

He immediately unveiled an ambitious turnaround strategy that involved buying the women's fashion brand Per Una from its creator George Davies and selling the firm's financial services division to focus on the chain's core business - women's fashion.

But the challenge was tough and analysts were sceptical.

Successful mission?

With half-year profits at M&S up 11% at £451.8m for the six months to the end of September, despite a wet summer and higher interest rates dampening consumer spending, it is generally accepted that Sir Stuart has, in three years, put M&S firmly back on the map.
Rose appears to recently have put pressure on Mark's and Spencer's board.  Either they gave him the dual role or he would leave as of 2009 as originally planned.  With no apparent successor in place and a retailing environment that appears to be getting worse, the board apparently decided they would be better off defying governance requirements and keeping Sir Rose happy.  In a March 15, 2008 Economist story entitled, A Rose by any other name; Shake-up at Marks and Spencer the story stated,
... M&S board members say they had to agree in order to keep him around beyond 2009, when his existing contract runs out. Sir Stuart is credited with engineering the dramatic improvement in the retailer's performance from 2004, and with tougher times looming his fans were loth to let him go.
Shortly after this decision was made public, a number of large investors expressed their displeasure with the decision despite a recognition of the retailing talents Sir Rose has shown throughout his executive reign at the firm and in the past.  The Economist story went on to state,
Investors, however, are furious. Legal & General, an insurer, frets that his promotion is a "potentially damaging concentration of power". The Association of British Insurers, which represents many large investors, has demanded an explanation.

Shareholder unease comes at an awkward time for the firm. After nine quarters of steadily improving sales, M&S stumbled over Christmas. In January it said that in the last quarter of 2007 sales in stores that had been in existence for at least 12 months slumped by 2.2% from a year earlier, and clothing sales by 3.2%. Same-store sales at rivals rose, however, and retail sales in general were 3.7% higher in December. M&S shares have fallen by 31% this year, compared with 20% for the retailing sector.
At first, the company seemed to be defiant but after the controversy continued the company made what might be considered small concessions to allay the concerns of major investors.  It is difficult to tell whether the changes will be sufficient and whether Sir Rose will be happy over time with them.   According to BreakingNews on April 3, 2008,
... The retail giant is said to have drafted a letter to shareholders spelling out measures to win backing for Rose's move to the post of executive chairman.  It is understood that M and S will propose that Rose stands for re-election every year, which will allow shareholders to vote on his appointment at this year's annual general meeting in July.  The group will also reportedly pledge not to give Rose a pay rise and look to appoint a senior independent director to ensure his influence is kept in check.
The real issue that remains is whether Sir Rose is too strong and as a result could impose changes that might not get sufficiently vetted in advance from a board that is outgunned and controlled by Sir Rose.  

Keep a close eye on moves and results related to Marks and Spencer for next number of months.

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