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Fidelity is mum on succession plan

There's no sign that the firm's longtime chief is set to step aside despite louder calls for change.

January 03, 2008|From the Associated Press

At age 77, Edward "Ned" Johnson III can't keep this pace up forever. But it sometimes seems the Fidelity Investments chief hopes to.

Johnson's tenure running the nation's largest mutual fund company has spanned three decades -- the only other change of leadership in 61 years at Fidelity was when Johnson took over for his father. But the job has become increasingly complex as Johnson tries to fend off rivals' gains and streamline operations while outsiders' calls for governance reform grow louder.

"He hasn't missed a beat, and a lot of people have crumbled while he's still going 100 miles per hour," said Eric Kobren, a former Fidelity employee who edits the independent money advice newsletter Fidelity Insight. He suspects Johnson "isn't going anywhere soon."

The notoriously insular company isn't publicly offering a timeline for leadership change or disclosing details of a succession plan it says it has in place, even amid some suggestions that the uncertainty could be hurting Fidelity's competitiveness.

The heir apparent -- Johnson's 46-year-old daughter, Abigail Johnson -- has not been confirmed as such, and some observers question whether she even wants the job. And a flurry of management and organizational changes this year eliminated two other successor candidates from contention.

Outsiders still regard Abigail Johnson as an odds-on favorite for the top job, by virtue not only of her bloodline but also the diversity of management positions she's held overseeing Fidelity's increasingly far-flung financial services.

But her father is still firmly in charge -- and, by all accounts, apparently healthy.

"Nothing has told me that he's anxious to pass the baton very quickly, unless something were to develop with his health, or some family issue," said Patrick McGovern, a friend who occasionally dines with Johnson and is founder and chairman of IDG Group, a Boston-based technology research and publishing firm.

Fidelity rarely makes executives available for interviews and declined requests from the Associated Press. A recent statement issued by Ned Johnson on succession planning described a continuing process to "pass the corporation on in good operating order to the next generation of executives at the appropriate time."

Whoever eventually succeeds Johnson, big changes are expected at the Boston-based company that's a huge force on Wall Street as the largest provider of Americans' workplace retirement savings plans and a manager of nearly $1.6 trillion in assets.

Observers say Johnson's successor won't have as much power as he has wielded filling the chairman and chief executive roles since 1977 -- posts that could be split between two people when his replacement is named. And the private firm will face increasing pressure to operate more like a publicly held company, with greater attention to open governance, cost cutting and short-term financial results.

Fidelity recently expanded from its core mutual fund business into areas such as individual retirement planning and employee benefit management after it saw only middling returns in recent years from key mutual funds that fueled rapid growth in the late 1980s and early '90s.

Today, 46,400 Fidelity employees provide financial services to 23 million individuals.

Meanwhile, Vanguard Group and Capital Group's American Funds, the latter based in Los Angeles, have recently enjoyed greater success attracting investor money amid rising popularity of low-cost index and exchange-traded funds. Those investments don't play off Fidelity's strength as an active manager of funds that capitalize on the hottest stocks from day to day.

Outsiders who advise Fidelity investors say the leadership change must be accompanied by a new business culture.

"I don't think you have to read too far between the lines to understand that Fidelity is going to be run on a much tighter mandate, to be more accountable for how all its businesses operate, and to run a tighter ship," said Jim Lowell, who runs the independent newsletter Fidelity Investor, a rival newsletter to Kobren's publication.

Fidelity dismisses the criticism.

"Mr. Johnson and the Fidelity board have succeeded over the years in creating one of the most successful and fast-growing financial services companies in the world," said spokeswoman Anne Crowley, who noted that Fidelity's managed assets rose 15% over the 12 months that ended in November.

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