Friday, June 8, 2018

The Logic of Hans Vestburg's CEO Sucession at Verizon (with an update)

Verizon announced that current CEO Lowell McAdam will be stepping down effective August 1, 2018 (a Wednesday). Hans Vestburg, former Ericsson CEO, who joined the company in April 2017 as CTO, will become CEO and work with McAdam in the transition.

A couple of points when I read the news:
  • Surprise - In 18 months, the rapidity of elevating an outsider to the CEO spot seems to be unprecedented at a company that usually promotes from within. I was going to go with John Stratton as he was the logical choice, assuming the internal elevation approach.  Yet this is a new world in which the stakes are high for Verizon to execute on its 5G vision along with its big dollar bet on Oath.  Broader multi-company knowledge and experience is now expected. 
  • CEO chops -  Vestburg has global CEO credentials, over 6 years worth at Ericsson.  The Verizon bench also has their pick of former CEOs that have their own narrow expertise - Ronan Dunne (ex-O2 CEO for 9 years and its CFO for 3 years) and Tim Armstrong (ex-AOL CEO for 6 years until Verizon acquire it in 2015).   The graphic below, extracted from Verizon's 2017 10K filing, shows likely candidate pool that the Board of Directors may have been considering.  The officers with outside background have already been integrated into the officer fold.  As an aside, Vestburg's elevation makes sense for Marni Walden's October 2017 departure along with the rumors that she wasn't going to succeed McAdam. 

  • Age - Age is likely a consideration criteria in sucession planning as Vestburg is 52.  McAdam took the CEO reins in 2011 at age 57 but had CEO responsibility for the wireless business unit since 2006 at 52 years old.  The point here is that he can hang around for at least 5-8 more years.  
  • Technical Background - It's taken for granted that every CEO should have deep business background and experience, but as the telecom and ad company moves into 5G, it should have leadership that understands how the new technology can leverage into successful growth. Vestburg doesn't have McAdam's engineering background yet the lengthy tenure at Ericsson enabled him to slot into the CTO position despite a business degree. 

Vestburg's Challenges
  • Understanding Operations - In the video,  Vestburg admits that he needs to delve into the operations and commercial side, the bread and butter wireless and wireline service provider things that bring in over $126B annual revenue. Of course there are the cadre of business unit heads that know their areas who will continue to work their areas.  
  • Vision Delivery - 5G is the hot topic that at times is overhyped but yet mutually agreed across the industry as the future innovation and revenue driver. Vestburg, in the old Ericsson role, pushed that vision across the service provider segment.  Now he'll be the focal point to execute and bring in the moolah (technical term) and prove McAdam and the Board of Directors made the right choice.  Oath's potential has been talked up a lot along with its global ambitions. In 1Q18, its revenues were $1.9B, compared to $21.9B in wireless and $7.6B in wireless.
  • Ericsson Baggage - Vestburg departed Ericsson with declining revenue trends.  Some of my infrastructure analyst colleagues have already noted with surprised that with such a bad tenure, he'd be able to guide Verizon's future growth.
  • Turnover - As with every company's transitioning to a new CEO, there may be turnover in the executive pool.  Marni Walden left. Will there be others.  Moreover, there has been precedence that new executives would elevate or bring in their own people from previous positions.  Will that happen and to what extent?  Now that the CTO and Stratton slot will be vacant, who will slide into those positions?
  • UPDATE - No sooner than the digital 'paint' on the Vestberg CEO announcement dry did Verizon announce John Stratton's retirement by the end of the year.  With over 25 years with the company, he's sure to get more than a belt buckle or television (inside Bell System joke). The link for the press announcement (hosted on the Investor Relations site) has the obligatory outgoing exec quote.