The only thing traded more often than predictions and analysis about who might take the reins at the world’s largest retailer when 63-year-old Mike Duke steps down as president and CEO are Wal-Mart shares.
The focus on executive succession at Wal-Mart is understandable given the job is one of the most high profile positions in corporate America – if not on the global corporate stage. Some insiders tell The City Wire they would not be surprised if a CEO shift is announced prior to the June 7 Wal-Mart shareholder’s meeting.
Duke assumed the role of CEO in February 2009, at the age of 60, replacing Lee Scott who stepped down at age 60 after nine years in the role. If Duke does opt to retire this year, as a growing number of Wal-Mart watchers predict, his tenure as CEO will be shortest in company history. However, his time at the helm will be one of the most fruitful for shareholders since the company’s growth explosion in the 1980s.
During Duke’s watch, Wal-Mart shares broke out of a 10-year lull to set historic highs. Wal-Mart’s market cap has risen more than $73 billion since he assumed the CEO role in February 2009.
Duke’s pocketbook has also benefitted. His total pay was $18.13 million in fiscal 2012, but the vast majority of that came in the form of company stock. The CEO salary was $1.26 million, with more than $2 million in performance-based cash bonuses, according to the most recent Proxy filing with federal regulators. (Fiscal 2013 salary information will be found in the upcoming annual Proxy filing which is expected to be released in the next week to 10 days.)
Leon Nicholas, senior vice president of retail insights for Kantar Retail, said Wal-Mart is like much of corporate America today – Baby Boomer heavy in the top two tiers of management with an emerging junior class challenging them.
“There are a couple of candidates that come to mind if and when Mike Duke announces his retirement. Speculation is that will happen sometime this year, perhaps hastened by the ongoing investigations in the company’s international division,” Nicholas said.
Analysts agree Wal-Mart will not likely recruit outside its own ranks for the next CEO given its corporate history of promoting from within. (In addition to Nicholas, The City Wire spoke with two other sources with deep knowledge of Wal-Mart. Those sources spoke on condition of anonymity.)
The most likely choices for the next CEO are Bill Simon, 52, CEO of Walmart U.S., and Doug McMillon, 44, CEO of Walmart International. Other possibilities include Rollin Ford, 48, chief information officer, and Charles Holley, 54, chief financial officer.
All four of the executives report directly to Duke and have international management experience, which is key given Wal-Mart’s global presence and ongoing probes into possible corrupt practices regarding expansion in India, Mexico, China and Brazil.
Wal-Mart is cooperating with the investigations and has spent in excess of $157 million related to the probes. Nicholas said those costs could hit as much as $500 million when the dust clears, not including fines that may be assessed.
He and other analysts say it is important that whoever is chosen as the next CEO have clean hands with regards to the Foreign Corrupt Practices allegations, which date back to 2001.
POSSIBLE SUCCESSOR PROFILES
In 2001, Bill Simon was an executive with Diageo serving as president, North American Ready-To-Drink, where he led the successful launch of Smirnoff Ice. He joined Wal-Mart in 2006 at age 46, after a stint as senior vice president of global business development for Brinker International.
Doug McMillon, a Gen X candidate, was still working his way up the management chain in Walmart U.S., around 2001. He assumed the role of Sam’s Club CEO in February 2006. Since 2009, McMillon has overseen the company’s international division.
Charles Holley worked in the company’s international division between 1994 and 2002 and is credited with helping to pioneer Wal-Mart’s international expansion efforts, which included leading Walmart International’s merger and acquisition activities, according to his profile on the corporate website.
Rollin Ford, also from Generation X, was working his way up through Wal-Mart’s logistics division between 1993 to 2006. Ford’s international experience includes leading Wal-Mart’s global sourcing, global business processes, global shared services, corporate transformation, information systems division and global customer insights since February 2012.
THE CEO LINEAGE
Duke is only the fourth CEO to lead Wal-Mart in the company’s more than 50 years. He is an industrial engineer who spent 23 years with Federated and Mays Department Stores before joining Wal-Mart logistics in 1995.
He later joined the company's international business division leading Wal-Mart's expansion into mature and emerging markets.
“Mike built an international management team that delivered strong operational results in a complex global environment,” noted Duke’s profile on the company website.
He also ran the U.S. stores division. Duke also serves on the Wal-Mart Board of Directors.
Duke’s predecessor Lee Scott, also came up through the company’s logistics division and, like Duke, led the U.S. store divisions before his nine-year tenure as CEO. Scott has a bachelor’s degree in business and spent nearly 30 years at Wal-Mart. Scott also serves on the Wal-Mart Board of Directors.
David Glass, assumed the CEO role from founder Sam Walton in 1988, after working side-by-side with the retail legend for 12 years during the greatest transformation period in the company’s history. He is credited with establishing the company's first distribution center outside of Bentonville. He was also instrumental in the creation of Sam's Club, and pioneered development of the first supercenter. It was under Glass’ tenure that Wal-Mart became the nation's largest retail company and made its first foray into international markets with an acquisition in Mexico.
Walton held the role of CEO for his retail company for roughly 40 years before passing the torch to Glass.
The Walton family remains deeply connected to the company, and holds a substantial number of Wal-Mart shares (NYSE: WMT). The percentage of shares held by insiders and individuals holding at least 5% floats around 50%. Rob and Jim Walton, sons of Helen and Sam Walton, serve on the Wal-Mart Board of Directors, with Rob considered an active player in company affairs through his role as board chairman.
The four possible CEO candidates each have accomplishments and backgrounds that would make them a reasonable choice for the top slot.
Simon, like Glass, Duke and Walton, brought prior experience in retail and other business operations to the table when he joined Wal-Mart.
He is also credited with the $4 generic prescription which was deemed a game changer in the drug industry. During his role as CEO of Walmart U.S., the division returned to positive same-store sales comparison, reversing a negative trend spanning nearly two years.
Simon also earned a master’s degree in business administration and has prior work experience in government relations as well as consumer product companies. This could give him a slight advantage over the other candidates. However, Simon is the only possible successor who has not worked in Wal-Mart’s international division, although he has some global management experience with Brinker.
McMillon, like Scott, has been a student of Wal-Mart and worked his way up the management chain. He holds a master’s degree in business administration and has senior management merchandising experience in Wal-Mart and Sam’s. McMillon, who assumed the International CEO post in 2009, would be the second youngest CEO in company history – after Sam Walton.
Unlike the rise of Duke, Scott and Glass, McMillon has not yet served as CEO of Wal-Mart U.S., the largest division within the company in terms of sales and people. Like Glass and Walton, McMillon is a popular choice among insiders and Wal-Mart watchers because of his charismatic persona and willingness to speak candidly in public forums.
Holley, like Glass, was hired with an expertise in finance. He has yet to serve as CEO of Wal-Mart International or CEO of Wal-Mart U.S., which has traditionally been the route to the top executive position.
He has held the chief financial officer role since December 2010. And like Glass, Duke and Walton, Holley brought other business experience to Wal-Mart when he joined the company.
Glass is the only prior chief executive to serve as chief financial officer, but before he assumed the role of CEO. Glass also spent several years as chief operating officer, overseeing the day-to-day management of U.S. stores. Holley’s experience has included strategic planning for the international division, but not day-to-day operational managemen.
Ford, like Scott, cut his teeth in the logistics division. Like Glass, he also oversees the company’s major information systems in addition to global sourcing. Ford has a bachelor’s degree in business administration and systems analysis. He has been in the chief administrative officer role for one year, taking that position at the same time Rosalind Brewer assumed the CEO role for Sam’s Club.
While Brewer is seen as a future leader by analysts, her brief tenure at Sam’s and lack of international day-to-day operational experience put her a seat or two back at this time, according to analyst consensus. But she is definitely one to watch in the next couple of years, Nicholas said.
None of the mentioned candidates served as the CEO of Walmart U.S., and the CEO of international, something Duke did prior to his appointment in 2009.
THE EXECUTIVE DOMINO
If Simon should assume the CEO role, analysts say Duncan Mac Naughton, executive vice president and chief merchandising and marketing officer for Walmart U.S., would be favored to move up as well.
If McMillon gets the call to move up, analysts say David Cheesewright, president and CEO of Wal-Mart EMEA (Europe, Middle East, and Africa), may take a larger role in the international division.
Analysts say if Ford is the chosen, his vacated position could be split between two of the executive vice presidents who now report to Ford – Karenann Terrell and Cindy Davis.
Jeff Davis, executive vice president-treasurer, or Catherine Smith, executive vice president-strategy and chief financial officer for Wal-Mart International, would be the most likely replacements for Holley if he were to be the next CEO for Wal-Mart Stores Inc.