What to make of Medtronic (NYSE:MDT) CEO Bill Hawkins’ decision to postpone his retirement?
A spokesman for the Fridley, Minnesota-based company declined to answer any questions about the search for a new CEO. But one thing is clear: something transpired between Feb. 22, when Hawkins told analysts it would be the last time he would lead an earnings call, and May 2 when he informed employees of his decision to stay on until a successor is named sometime in early fiscal 2012. (Medtronic’s fiscal year begins in May.)
Hawkins noted that the “board is making is excellent progress; however, this process takes time….”
But executive recruiters say that typically when a senior executive like Hawkins makes an announcement about retiring, a search for a replacement is already underway. In other words, the search for Medtronic’s CEO has likely extended for more than four months.
So let’s indulge in a bit of speculation about what’s going on.
On Feb. 25, three days after Hawkins hosted the earnings call, Wells Fargo analyst Larry Biegelsen wrote a note to investors saying that Medtronic may choose current board member James Lenehan, a 28-year veteran of Johnson and Johnson who retired in 2004, as its new face. A source in the local medtech industry told me Tuesday that the story around town involved Lenehan, but that rumor seems to be dying.
Could Lenehan – or someone else – have turned an offer down? That could be one reason for the delay in naming a new CEO, say several executive recruiters (none of them have inside knowledge of Medtronic’s search).
A Deep-dive Into Specialty Pharma
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“It’s entirely possible that they were closing in on a deal with someone and it fell apart,” said Mike Travis, principal of Travis & Co, an executive search firm focused on medical device & diagnostic, biotechnology and instrumentation companies, in a phone interview. Travis was named to BusinessWeek’s Most Influential HeadHunters List in October 2008.
Certainly, the new CEO will need to prove himself to Wall Street given that some analysts felt that Hawkins’ departure was necessary. In a research note following Hawkins’ original December announcement to retire, David Lewis, a Morgan Stanley analyst wrote: “Today’s news from Medtronic is surprising … in terms of timing, but thematically in line with our expectations and an encouraging signal of the Board’s desire for accelerated value generation.”
And given such pressures, a local executive recruiter is not surprised that the search is taking longer than expected.
” They are looking for a catheter in a haystack,” said Isaac Cheifetz, founder of Open Technologies Consulting based in Minneapolis. “Consider all the complicating factors: they are seeking a star CEO to return Medtronic to its glory years as a darling of Wall Street investors.
“But medical technology companies emphasize experience in their own industry when hiring and Medtronic is the world’s largest medical (device) firm,” Cheifetz said. “The pool of candidates who have the track record of accomplishment for this role, both operationally and on Wall Street, is quite limited.”
Travis said that the fact that the search is taking longer could be an indication that the Board is proceeding with caution, especially if they are looking outside the company for a new CEO.
That begs the question: Why not groom candidates internally for the role? Weyerhauser said companies in general are spending less money and less time on developing people.
“Why should I spend the time and money to train people when they can be recruited away by another company?” Weyerhauser said of prevalent company attitudes, adding that internal focus began to shift as communication infrastructure developed in the last four decades thereby allowing easy access to talented people around the country. “I don’t think (that attitude) is good. A balanced approach to recruiting is essential.”
One former, longtime Medtronic employee told me the company has changed its focus from internal to external hiring. The company has essentially given up developing through the ranks, he said. Instead they hire someone from the outside and “groom them for a couple of years before moving them into a top position.”
He didn’t want to comment on whether Hawkins fits that description. Hawkins joined Medtronic in 2002 before being named CEO in 2007. His predecessor Arthur Collins joined Medtronic in 1992 and became the chief executive in 2001.
While the Board continues the search, Hawkins may have elevated his standing by postponing his retirement date, especially if the decision to retire was prompted by the Board’s desire for change. Hawkins, after all, was only CEO for a little over three and a half years before he announced he was leaving.
“It reflects well upon him that he agreed to stay on,” Travis said.
