Three turnaround plays and the hapless CEOs facing the sack

At the start of every football season, there is usually lots of betting on which manager will be the first to get the chop. Whichever hapless individual is in charge of Aston Villa is usually a good choice. They seldom make it through to November. In the same spirit, heading into 2016 it is worth thinking about which FTSE CEOs will be out of work by next Christmas, if only because those companies might be worth investing in once they have better leaders. So who is likely to be spending a bit more time with their family next year?

1. Dave Lewis at Tesco

When he was appointed from Unilever, Lewis was pitched as the outsider who would come in and give the retailer the fresh thinking it so badly needed. At the end of 2015, there is not much sign of it. The share price has started hitting 15-year lows – at the start of this week, it was down at 143p, compared to 165p back in January 2000, even though there was no very obvious bad news to drive the price down. Why? The City is starting to realise that Lewis doesn’t really have a strategy. He has made stuff in Tesco a bit cheaper, but not as cheap as Aldi or Lidl. And he has made it a bit better, but not as good as Waitrose or even Sainsbury’s. That is a slight improvement, but hardly a dramatic one. Tinkering around the edges was not what Tesco needed. It needed radical reinvention.

Such as? Lewis could have cut the amount of floor space dramatically and concentrated on online shopping and lots of local stores. Alternatively, he could have turned his tanks on the discounters and blown them away with massive price cuts, even if that meant a few years of losses, and even taking on more debt. Muddling through was not the answer, it was the easy way out – and sooner or later he will pay the price for it.

2. John Fallon at Pearson

After taking over from Marjorie Scardino, Fallon made a big bet on theconglomerate’s future. He has pulled
out of media, selling the Financial Times newspaper and its half share in The Economist, and its stake in the publisher Penguin Random House looks to be on the block as well, while investing heavily in education. But hold on. Soon after those sales, the Business Insider website was sold for a small fortune, while education started running into trouble. The reality is that media has been through a process of digital disruption and, while it may be too soon to call the bottom, the turning point cannot be very far away.

Meanwhile, education is just starting that journey. With massively inflated prices for textbooks and lots of inefficient classrooms, it looks like a business ripe for the kind of whirlwind of disruption that the internet specialises in. Right now, Fallon’s wager looks like a strategic blunder of the first order. Already the market has started to notice – Pearson’s shares are down from £15 earlier this year to less than £7 now. Fallon deserves to take the rap for it. If he got that call so dramatically wrong, it will be hard for shareholders to have faith in his ability to get anything right.

3. Sir Andrew Witty at GlaxoSmithKline

When he was appointed as CEO way back in May 2008, he promised big changes in the way the pharmaceuticals giant was run. Eight years down the line, Witty is still trying to turn around its fortunes. He has switched the focus from cancer drugs to vaccines, consumer health care and research and development, but has yet to show any real results. Remarkably, the shares are worth a lot less than they were back in 2000: Glaxo was above £20 at the start of the last decade, but is below £13 now. It is hard to see them getting back above £20 before this decade is out.

True, it has been a tough time for all the big pharma giants. Their business model of creating new blockbuster drugs at vast cost is no longer working: the huge costs are still there, but there are not many blockbusters to pay for it all. Even so, Witty has shown little sign that he has any clue how to fix that. Glaxo’s American rival Pfizer has already made one approach to buy the business and been rebuffed, but if Glaxo is to maintain its independence it needs to show it can start growing again. Mergers and cost cutting are not very inspiring, but at least they get results, which is more than Witty and his team have managed by themselves. It would hardly be surprising if Witty decided to resign before the year is out. If he doesn’t, he may well be quietly pushed.

Other contenders

Of course, there may well be others. This could be the year when a decade of miserable investment catches up with WH Smith and costs Steve Clarke his job. Ross McEwan has survived a couple of years running RBS, but there is usually a disaster somewhere to catch the CEO of that company out. It has been a while since M&S has been through an existential crisis – but with the high street still in steep decline, the next one can’t be that far away. It’s rare that a whole year passes without at least six or seven FTSE bosses losing their jobs. Still, my three tips look the leading candidates for the axe. By next autumn, expect all three to have different men or women at the helm – and to be in better shape for it.

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