story by Kim Souza
ksouza@thecitywire.com
The Wal-Mart Board of Directors meeting scheduled for later this week may include the selection and announcement of Doug McMillon or Bill Simon as the new top boss at Wal-Mart Stores.
A majority of insiders that include analysts, academics, service providers and consultants recently interviewed for this story give the nod to 46-year-old Doug
McMillon, CEO of Walmart International. If McMillon is not selected, the insiders say Bill Simon, 53, CEO of Walmart U.S., will be promoted to the top job.
“The board certainly has an unenviable task at hand if they are discussing corporate succession. They have two very strong candidates and there has not been a great deal of corporate history to draw from given Mike Duke is just the fourth CEO in the company’s 51-years,” said Alan Ellstrand, University of Arkansas professor and expert on corporate governance and top management teams.
Ellstrand said retail is a complex business especially given the scale at which Wal-Mart operates around the world.
“It would be a real surprise if Wal-Mart were to look outside the firm for their next CEO, I just don’t see that happening given the rich corporate culture that the CEO is expected to pass down,” he said.
Leon Nicholas, senior vice president of retail insights for Kantar Retail, agreed that McMillon and Simon are the likely candidates, though he doesn’t entirely rule out the slight possibility for an outsider, “that would be a game-changer, perhaps someone from the tech-world.”
Two other consultants, who spoke on condition of anonymity, said after the failed Ron Johnson experiment by J.C. Penney, there is no way Wal-Mart will chose a CEO from outside its own team. Johnson, a former Apple and Target executive, was hired by J.C. Penney in a bold gamble to renovate the company’s format. Johnson was fired in early April by the J.C. Penney Board of Directors.
DUKE DEPARTURE
Rumors have swirled for months that the 63-year-old Duke would step down as CEO before the end of the year and his 64th birthday on Dec. 7.
Duke has not publicly acknowledged the speculation. He was recently asked by CNBC anchor Maria Bartiromo about future retirement plans. Duke smiled, somewhat blushed, and declined comment.
Consultants said the timing is ripe, if indeed Duke does decide to step down as CEO. If Duke walks away from his post early next year, his would be the shortest stint of a Wal-Mart CEO at five years, but certainly one of the most fruitful for investors. Wal-Mart has flourished under Duke’s leadership approaching a half trillion dollars in total annual revenue, a record stock price set earlier this year growing market cap by $70 billion since he took the helm in February 2009.
Most believe Duke will serve out fiscal 2014 which ends Jan. 31, with McMillon or perhaps Simon taking the helm to start fiscal 2015. Duke’s predecessor Lee Scott announced his retirement in November 2008 effective Feb. 1, 2009.
Scott’s predecessor, David Glass, resigned as Wal-Mart CEO effective January 2000 after 12 years in that role. Founder Sam Walton held the position until relinquishing it to Glass in January 1988.
Wal-Mart also holds its annual investor meeting in Bentonville next month, which would be an opportune time for the incoming CEO to meet with the investment world on Wal-Mart’s home turf.
If McMillon, 46, succeeds Duke he is set up for a long run, said Ellstrand. Simon at age 53 is also seven years younger than Duke when he assumed the role, he added.
THE FCPACOMPLICATION
The looming investigation into violations by Wal-Mart officials of the Foreign Corrupt Practices Act could also be a factor in the timing. Wal-Mart has repeatedly said it has no control over the length of that investigation into bribery and other alleged illegal actions in the company’s Mexican business unit.
This investigation is approaching the two-year mark, something Nicholas said is one of the factors likely to lead to management changes this year.
The investigation was expanded to include China, Brazil and India and is expected to cost Wal-Mart $310 million this year. Roughly half of that money goes to lawyers working on the FCPA matter and the other half is being spent on the retailer’s internal compliance protocol.
Duke has spent 19 years with Wal-Mart, overseeing the international division from 2005 to 2009. Much of that period is under scrutiny by the ongoing investigation.
The April 2012 New York Times article that broke the story alleged that CEO Mike Duke and former CEO Lee Scott knew of the bribery issues within its Mexican business as far back as 2006 and did not self report or investigate until the media was in the midst of researching the story.
Analysts with Raymond James & Associates and Goldman Sachs said at that time new senior management would likely come as a result of these investigations, which typically take between two and three years to complete. Wal-Mart Board Chairman Rob Walton vowed to shareholders in June 2012 to deal swiftly with any personnel connected to improprieties should they be uncovered in the investigation.
Also in the line of fire if the allegations ring true is Eduardo Castro-Wright, who retired from the company in July 2012. Castro-Wright was credited for an amazing run in expanding the company’s Mexican business segment during the period under investigation.
Earlier this year Tom Mars, former general counsel and chief administrative officer resigned abruptly from his post at the retail giant. He oversaw real estate, financial services in the U.S. and labor relations. The company gave no explanation for his exit.
Then in June, some seven months after Wal-Mart suspended some executives within its Bharti joint venture, the head of the Indian operations resigned. Wal-Mart confirmed then that Raj Jain, CEO of Bharti Walmart, was no longer with the company. Jain spent six years at that post with seven total years at the retailer.
Frank Vogl, one the nation’s top experts in corporate ethics, said Wal-Mart faced heightened media scrutiny over this investigation because of it’s own “proud ethics code.” He said whomever is the next CEO must walk the talk with respect to corporate ethics.
Consultants and analysts agree the next CEO at Wal-Mart must have no connection to these costly and potentially criminal allegations.
INTERNATIONAL EXPERTISE
Given the scope and magnitude of these FCPA investigations, consultants believe the next CEO of Wal-Mart will be one who is well-versed in the retailer’s global business interests.
McMillon has run the international division for more than three years, the last 18 months dealing head-on with these investigations and rolling out better internal controls against corruption in the future.
“That experience is huge for McMillon and he also has been schooled in the corporate culture having worked his way through the ranks and previously serving as CEO of Sam’s Club,” Ellstrand said.
During McMillon’s oversight, Walmart International has grown annual sales by 38.8% between fiscal years 2010 and 2013. Through half of fiscal 2014 annual sales rose 2.9% from the same period last year.
Simon does not have direct experience with Walmart International but he did serve a short stint as president of Global Business Development for Brinker International before joining the retail giant in 2006.
Duke and Scott had each run Walmart International before they were named CEO of Wal-Mart Stores Inc.
CULTURAL FIT
Retailers have a harder time than other companies in selecting CEOs that “stick,” according to a 2011 study by Russell Reynolds Associates. The average timespan for retail CEOs is five years, according to the study.
The study also found the main reason new outside CEO hires do not pan out is because of a “poor cultural fit.”
“There is no other job quite like CEO. But one pattern Wal-Mart has followed is promoting someone from within who speaks the culture,” Ellstrand said.
McMillon and Simon pass the culture muster given they have risen to the rank of CEO for Walmart International and Walmart U.S., respectively. The question for Wal-Mart’s board and its chairman Rob Walton is which candidate best personifies the corporate culture developed by Sam Walton and kept alive through the eyes of Glass, Scott and Duke.
Analysts said if McMillon is the next CEO, they like David Cheesewright as his logical successor over the international division. Duncan Mac Naughton is favored to assume CEO of Walmart U.S. should Simon move up.