O'Hanley: Heir to Fidelity throne, or just passing through?

May 17, 2010 @ 9:05 am

By Douglas Appell, Pensions & Investments

Ronald P. O'Hanley has the temperament and business savvy needed to occupy the premier industry hot seat between Edward “Ned” Johnson, chairman and CEO of Fidelity Investments, and his daughter Abigail, industry executives say.

There's no consensus, however, on whether Mr. O'Hanley, who built BNY Mellon Asset Management into a multiboutique powerhouse, is simply warming that seat, like other high-powered Fidelity executives before him, or whether he could eventually move up and inherit Mr. Johnson's job.

Fidelity Investments' May 10 announcement that the Boston-based company would be split into two — a distribution arm led by Ms. Johnson and a money management arm run by Mr. O'Hanley — ended months of speculation following Rodger A. Lawson's retirement in January.

Mr. Lawson served fewer than three years as president and second in command to Mr. Johnson — a tumultuous period for both financial markets and Fidelity's executive lineup. His July 2007 hiring led to the abrupt departure of Ellyn A. McColgan. She had been anointed in the press a few months earlier as Abigail Johnson's main competition to succeed Mr. Johnson, following the resignation of Vice Chairman Robert L. Reynolds.

Executives at Moody's Investors Service, which took issue in a November 2007 report with Fidelity's lack of a clear succession plan, said the latest leadership announcement hasn't addressed their concerns.

“We've seen this movie before,” and the latest version still doesn't provide a clear picture of how Fidelity will be led after Mr. Johnson, Daniel Serrao, a senior vice president with Moody's global managed investments group, said in a recent interview. If anything, with Mr. Johnson now 80, the “transition risk” Moody's cited in 2007 is heightened, added Dagmar Silva, vice president and senior analyst with the group, in the same interview.

In response, Fidelity spokesman Vin Loporchio said Mr. Johnson remains “very actively involved in running the company every day, and has no immediate plans to retire.” Still, Fidelity has a succession plan in place to ensure a smooth transition if that becomes necessary, he added, declining to provide details.

Some industry watchers said they see clear signs that Abigail Johnson has emerged with the keys to the company firmly in her grasp following the latest leadership shuffle, with Mr. O'Hanley — a former McKinsey & Co. consultant — poised to play the perfect “number two” role.

A 'smart' move

Tapping the “unpretentious, unassuming and intellectual” Mr. O'Hanley is “as smart a succession planning move as I've seen,” said one executive with a private equity firm focused on the money management sector. Rather than “contentiously competing with Abby,” Mr. O'Hanley is uniquely placed to play a mentoring role, said the executive, who declined to be named.

Coming to the same conclusion from a more critical angle, Donald Putnam, San Francisco-based managing partner with Grail Partners LLC, an investment bank focused on the money management industry, said Mr. O'Hanley's pre-Mellon career as a McKinsey consultant could leave him more comfortable in the role of Johnson family adviser than his predecessors. “Family companies recruit successful executives, then geld them on arrival by turning them from generals into advisers — albeit at high pay,” he said. “This may be more congenial to an ex-consultant than it was to Rodger Lawson.”

Others, however, pointing to Mr. O'Hanley's current high-powered perch at BNY Mellon and his talents for understanding and running complicated organizations, insist he wouldn't have come to Fidelity on the basis of hopes and promises.

Given the high-level turnover at the company in recent years, it would be tough to overstate “how difficult it is to recruit somebody like (Mr. O'Hanley) to a place like Fidelity,” said one executive recruiter, who declined to be identified. A number of veteran headhunters said they were impressed that New York-based executive recruiter Goldsmith & Co. was able to lure the BNY Mellon Asset Management chief to Fidelity.

No one is certain why Mr. O'Hanley, 53 — a relatively young age for a top executive — opted to leave a leading firm he helped grow to roughly $1.1 trillion in client assets through a combination of acquisitions and organic growth, to join a family-run business where his predecessors inevitably seemed to bump up against the Johnson family ceiling.

Reached by telephone, Mr. O'Hanley declined to comment.

Some said after BNY Mellon Chief Executive Robert Kelly didn't receive an anticipated call to head Bank of America earlier this year, Mr. O'Hanley simply saw little room to advance at the firm. He's “an incredibly inquisitive guy, who really likes a challenge,” noted a second executive recruiter, who declined to be identified.

Others noted that growth at BNY Mellon Asset Management now might depend more on the difficult prospect of finding synergies among the money management firms acquired over the past decade. That, in turn, makes Fidelity — where Mr. Johnson has proven willing to amply fund business initiatives over extended time periods — a more interesting prospect for Mr. O'Hanley.

In a May 11 interview, BNY Mellon Asset Management Vice Chairman Jonathan Little — who was named interim co-head of the business, together with Mitchell Harris, chairman of the firm's fixed-income, cash and currency group — said the top management team Mr. O'Hanley led was intimately involved with all of the firm's strategic initiatives. Mr. Little predicted continuity as BNY Mellon — with the help of Korn/Ferry International — conducts an internal and external search for candidates to replace him.

No illusions

Industry veterans said Mr. O'Hanley, under no illusions about the pitfalls that led his predecessors at Fidelity to eventually seek greener pastures, apparently managed to work around them. He “would completely understand that this is a very hot seat,” but he's smart enough to know the lay of the land at Fidelity and work out a bargain he feels comfortable with there, said one Boston-based executive recruiter, who declined to be identified.

And unlike Fidelity's previous leadership shake-up in 2007, when Mr. Johnson tapped Mr. Lawson, this time around Ms. Johnson must have been at the bargaining table, observers say. Mr. Johnson is “a force of nature,” but at 80 he can no longer make a 10-year deal, said Grail Partners' Mr. Putnam. Mr. O'Hanley “had to be recruited, in large measure” by Ms. Johnson, he said.

Executive recruiters said it's likely Mr. O'Hanley will be enjoying a jump in annual compensation of 25% or more at Fidelity over the $12.9 million in total targeted compensation, including equity awards, he garnered at BNY Mellon in 2009, according to that company's March 15 proxy filing with the Securities and Exchange Commission. Moreover, considering all of the executive “road kill” at the company in recent years, Mr. O'Hanley is likely to have negotiated a multiyear guarantee or lump-sum payout if the relationship doesn't work for whatever reason, said another Boston-based recruiter, who declined to be identified.

Fidelity's Mr. Loporchio said his company doesn't discuss details of compensation arrangements.

While some believe Mr. O'Hanley is resigned to playing second fiddle to Ms. Johnson, others insist the deal must have included an ownership stake or even a commitment to succeed Mr. Johnson as CEO. “I can't imagine him just taking this as a job,” said the first executive recruiter.

Mr. Johnson didn't immediately return a call seeking comment.

Some industry veterans speculate the decision to split the company into distribution and asset management businesses could set the stage for an initial public offering of one or the other, opening up further leadership and ownership options for Mr. O'Hanley. “This absolutely opens the door for a double IPO,” said the private equity executive.

Mr. Putnam, however, warned against reading too much into any of the various Fidelity organizational changes announced in recent years, jokingly noting that organizational charts at Fidelity are “written on an Etch A Sketch.”

Taking care

After the tumult that followed Mr. Lawson's ascension in 2007, Fidelity watchers say Mr. O'Hanley is likely to tread softly when he arrives midsummer, getting a feel for the culture of the place.

There's a sense that “the culture has changed significantly because of the way things were handled recently,” and the new president will likely try to avoid being too disruptive, said the first executive recruiter, who predicted he and his colleagues in the industry won't be getting too much business following Mr. O'Hanley's transition.

Some observers, while conceding Mr. O'Hanley has a better chance than most other potential candidates at running Fidelity from a high-level organizational perspective, say they're hedging their bets on whether he'll be able to energize the firm's portfolio managers and analysts.

Mr. O'Hanley's experience running a holding company hasn't necessarily prepared him to recruit and motivate people who run money, noted Mr. Putnam.

His hiring “plays well at the Ned level, but from a leading-the-troops perspective, I don't know,” said one consultant to money managers, who declined to be identified. “He'll need a combination of both.”

Contact Douglas Appell at dappell@pionline.com

Douglas Appell is a senior reporter with Pensions & Investments, an InvestmentNews sister publication


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