When Succession Comes Knocking

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

On Nov. 18, Glenview, Illinois-based Illinois Tool Works (NYSE: ITW) was faced with a harsh reality. The company's chief executive, David D. Speer, passed away at the age of 61, according to a press release. He was sick, and had been placed on medical leave from his post since October of this year. Chief operating officer E. Scott Santi, who had been serving as the acting CEO on behalf of Speer, was named the new chief executive. Both are company veterans whose careers were groomed almost entirely at ITW. Robert Morrison was named non-executive chairman after serving in an acting capacity since October.

Mr. Morrison said in the press release: 

“David’s energy and enthusiasm leave an indelible mark on ITW, the Chicago business community, and the many not-for-profit organizations he served. He will be greatly missed.”

 Santi echoed that sentiment: 

“David’s remarkable leadership will have a lasting impact on our company. He leaves a very strong foundation for us to build on as we move forward."

Moving Forward

When a company loses its leader, that business is faced with unique challenges. It must forge ahead with the direction of the business in the face of inevitable change. Those companies with a succession plan in place can make the process less painful because there is some manner of order to fall back on even when the unexpected happens. That was the case in 1997, when Coca-Cola (NYSE: KO), which seemed to have an informal succession plan in place, lost its CEO.

When Roberto Goizueta, former chief executive of Coke, died in 1997, it was only months after the executive was diagnosed with cancer. He was a marketing genius, who originated the timeless phrase 'Coke Is It.' Goizueta was also extremely dedicated to the company, as well as its shareholders. Under his leadership -- from taking the helm at Coca-Cola in 1980 to his untimely death some 17 years later -- the company's stock price, in which he held $1 billion worth of shares, generated astronomical returns. He was focused, and avoided tasting products from rival Pepsico for at least a decade. This formula worked wonders for Coke. 

 

Do Successors Succeed?

Following Goizueta's untimely passing, Coca-Cola did not flourish under Ivester. He only remained the CEO for two years compared with nearly two decades of a Goizueta-led Coca-Cola company. At the time, according to CNN, Coca-Cola was suffering from a crisis of confidence, sentiment originating from the board of directors -- including Warren Buffett -- which ultimately led to an abrupt resignation by Ivester.

Incidentally, 82-year-old Warren Buffett has succession on his mind for his Berkshire Hathaway (NYSE: BRK-B). While Buffett might live to see his 120th birthday, that doesn't mean that he is going to want to run the company forever. Buffett has expressed that he has designated a successor to the top spot of Berkshire Hathaway, but has not disclosed that individual's identity except to say that the person is someone who shareholders are familiar with and who is "admired," according to the Financial Times.  Berkshire class-B shares are up about 16% over the past year.

Today, Coca-Cola is led by Muhtar A Kent, who has held the role of chief executive for only about 3 years, but can boast of a career that spans longer than 3 decades at the company. He, like Goizueta, has a strong marketing background. Coke shares are off about 18% since Kent took the helm.

Illinois Tool's Road Ahead

As for Illinois Tool, the company is only beginning its transition. These things are never easy, but perhaps it softened the blow to have a couple of months to consider the worst-case scenario. Speer's passing came just as the company was undergoing a huge restructuring, one which led to the recent divestiture of the compay's decorative surfaces division and is likely to lead to further divestitures as the company streamlines its operations and becomes more focused, all according to a recent Baird industrial conference.

Illinois Tool Works is likely to address the company's resolve and vision going forward under the new direction of Santi at an upcoming shareholder meeting next month. Meanwhile, investors are staying put and the stock is stable in the opening session following the tragedy.

 

 

 

 


GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway, Illinois Tool Works, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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