Fred Smith has taken FedEx from an idea in a college essay to the worlds biggest cargo airline over the past four decades.
Now the company has to figure out how to plan for the founders eventual departure.
Smith, who holds the titles of president, CEO and chairman, has built FedEx to more than $39 billion in annual revenue and $27 billion in market value. Its the largest company in the Standard & Poors 500 Index led by its founder, based on data compiled by Bloomberg.
Yet at 67, Smith hasnt said who will succeed him or when hell cede the top post. After once saying he might leave as soon as 2013, Smith now says he isnt going anywhere soon. That has left former executives and industry consultants questioning how the board is preparing for the post-Smith era.
Im extremely concerned, said Ron Wickens, FedExs former vice president for strategic projects and a shareholder. Who is that replacement? And does he have the vision that Fred Smith has?
Smiths eventual successor at FedEx will face the burden of following a pioneering CEO, said John Haber, executive vice president of the transportation division at Atlanta-based NPI, which helps clients manage supply-chain costs. That means he or she will have to figure out what to change to build on the companys success.
FedEx, based in Memphis, Tenn., has good bench strength, but their bench strength, theyre not visionaries like Fred Smith, said Haber, who previously worked at competitor United Parcel Service. What is at risk is, What is the next great idea?
Restructuring is under way at FedExs domestic Express unit, its largest, as U.S. volumes slump. It announced the retirement of 24 jet freighters this month and last week reported fourth fiscal quarter earnings of $550 million, or $1.73 per share, compared with $558 million, or $1.75 per share, a year earlier.
Revenue rose to $11 billion from $10.55 billion a year ago. Without the charge to retire planes, FedEx earned $1.99 per share, 4 cents better than Wall Street estimates.
Smith says talk of succession, which is part of annual planning at FedEx, is premature.
After saying in September 2010 he almost certainly would leave within five years, and maybe three, he said in April that the timeline was only to start deciding on his future.
Im not planning on going any place, Smith said then. The 2010 statement was a year ago September, and I said Im not even going to think about it until then.
FedEx has no mandatory CEO retirement age. The limit for the chairman role is 72.
Smith is still fully engaged at FedEx and is focusing on strategic issues, corporate development and external affairs including policy matters, said Bill Margaritis, a spokesman.
We have a very deep bench of highly qualified leaders who are capable of stepping into his role if need be, Margaritis said.
Possible candidates as CEO include Alan Graf, chief financial officer, and Mike Glenn, executive vice president of market development and corporate communications, according to Ross and Satish Jindel, president of SJ Consulting Group Inc. in Sewickley, Pa.
They also point to Dave Rebholz, the head of FedEx Ground, and Dave Bronczek, who leads Express.
Jindel cited Director James Barksdale as a chairman candidate. Barksdale previously worked for FedEx Express and later was CEO of Netscape Communications.
When youre making long-term investments, which is definitely what Fred does, the short-term consequences can leave a lot of people on Wall Street upset, said Brandon Oglenski, a New York-based analyst with Barclays Oglenski. Over the long run, you can be proven right.
He cited FedExs decision to branch into surface transportation with its 1998 purchase of Caliber System, which later became FedEx Ground, now the companys highest-margin business.
A founders exit creates leadership-transition questions unique to young companies, said Clarke Murphy, CEO of executive search firm Russell Reynolds Associates. Not only must the board pick a new leader, directors must assess whether their historic direction still works.
Often, even after a successful reign of an iconic CEO, the future of the company needs to change, said Murphy, who has advised on director or CEO searches at Wells Fargo & Co., UnitedHealth Group and MasterCard.
Smith first described his concept for a reliable express air-freight service in a paper at Yale and developed it while in the Marines during the Vietnam War. The company began as Federal Express Corp.
He was an early proponent of expanding into South America, said Aaron Gellman, professor of transportation at Northwestern Universitys Kellogg School of Management, who knows Smith and owns the stock.
And it was Smith who foresaw the value of building a network in Asia, said Wickens, who worked closely with him before leaving in 2009.
FedEx requires directors on the nominating committee to report annually on management succession planning and the entire board to work with the committee and CEO to evaluate potential successors.
In 2010, a shareholder proposal to require a written and detailed succession policy and annual reports on it to investors got more than 20 percent of the votes. A similar proposal in 2011 didnt go to a vote after FedEx modified its succession-planning language, said Jennifer ODell, assistant director for corporate affairs with Laborers International Union of North America, which advises benefit funds that own the stock.
Stakeholders just want to make sure that the company is planning, ODell said.
When the leadership shift does come, it wont be risky, said Andrew Meister, an Appleton, Wis.-based analyst with Thrivent Financial for Lutherans, which holds FedEx shares. FedEx doesnt need a turnaround CEO or visionary, super- talented person to fix past mistakes, he said.