With four of Maryland's largest companies undergoing major changes at the top, the time is ripe to review the state's competitive environment, a business leader says.
Last week, Bethesda military and aerospace giant Lockheed Martin, the largest business in Maryland with $46.5 billion in revenues last year, announced that CEO Robert Stevens will retire in January. Bethesda hotel giant Marriott International, the third-biggest company in the state with revenues of $12.3 billion last year, saw longtime CEO J.W. Marriott Jr. step down about a month ago.
Meanwhile, Baltimore's Constellation Energy Group, the state's second-largest business with $13.8 billion in revenues, completed its sale to Chicago power giant Exelon in March. And Rockville pharmacy benefits manager Catalyst Health Solutions, the fifth-largest with $5.3 billion in revenues, is in the process of being acquired by another Illinois company, SXC Health Solutions.
Although these big changes represent a “coincidence of timing,” Maryland has been on a trend of losing Fortune 500 companies since the 1990s, said Kathleen T. Snyder, president and CEO of the Maryland Chamber of Commerce. Constellation was in the Fortune 500 last year, while Catalyst was in the top 700 and could make this year's 500 list, which is based on last year's revenues.
“Now is the time for our elected officials to take stock of our competitiveness regionally, nationally and globally,” Snyder said. “The Maryland chamber will be working to achieve that in the months ahead.”
Planning is keyIn major corporate changes, prudent planning is a key factor for making the transition for remaining employees and others as smooth as possible, said Jim Finkelstein, a business consultant and author of the recently released book “Fuse: Making Sense of the New Cogenerational Workplace.”
“If there is good planning, it is generally a seamless transition,” said Finkelstein, president and CEO of San Rafael, Calif., management advisory and consulting firm FutureSense.
But if a company is forcing a CEO to retire because board members are not happy with his performance, it can be more of a shock factor for those remaining, especially if the new CEO implements employee layoffs and changes the company's direction, Finkelstein said.
Tenure had a lot to do with the changes at Marriott and Lockheed, Snyder noted. Marriott, who had been CEO since 1972 and with the company that his father founded for six decades, has remained as chairman. Arne Sorenson, who has been with Marriott International since 1996, is only the third CEO in the company's 85-year history.
Stevens, 60, has been with Lockheed for 25 years and will remain as chairman through January 2014. President and COO Christopher Kubasik, 51, will succeed Stevens as CEO in January.
“Those are very stable organizations,” Finkelstein said.
Lockheed's April 26 announcement followed a board meeting the previous evening at which Stevens disclosed his plans to retire and presented a succession plan, said Christopher Williams, a company spokesman.
“Given the current environment and the long-term impacts it will have on our business, Bob and the board of directors believe now is the right time to transition the CEO responsibilities in a very structured, disciplined and deliberate way,” Williams said.
The schedule of having Stevens remain as CEO for almost another year and as chairman for a year beyond that allows for a smooth transition for customers, shareholders, business partners and employees, he said.
“Eliminating uncertainty or suspense from the succession process should also enable us to maintain a sharp focus on operational excellence, and on meeting commitments to customers and shareholders,” Williams said.
Lockheed's stock price did not drop with the announcement. In fact, it climbed from $90.98 the day before to $91.70 by the end of the day. The stock was at $89.47 Thursday.
Marriott's stock did not change much on the day in December the company announced the change. The price dipped from $29.57 the day before to $28.76 that day. It was at $40.09 Thursday.
The stock of Rockville biotech Emergent BioSolutions went from $16.81 the day before the company announced that Fuad El-Hibri would retire as CEO to $17.01 by the end of the day. It was down to $13.83 Thursday. El-Hibri retired last month, but has stayed on as executive chairman.
Impacts of acquisitions vary
In acquisitions, the impact on the company being purchased depends on the nature of the deal, Finkelstein said. There tend not to be many changes in strictly financial acquisitions, while there usually are more changes in strategic acquisitions, he said.
“They may fold the business into their own company. There may be cuts in the work force,” Finkelstein said. “If it's a fire sale, then it's ‘Katy, bar the door.'”
In Constellation's case, Snyder expects much of the decision-making and corporate philanthropy to remain locally based. Executives have said utility subsidiary Baltimore Gas & Electric will continue to be locally managed, the generation commitment in Maryland will be expanded, and the energy marketing, renewable energy, retail and wholesale businesses will be based in Baltimore.
The environment at a company in the health care field such as Catalyst is compounded by fast-coming political changes in that industry, Finkelstein said.
“The health care arena is in a perpetual state of change and transition right now,” he said.
SXC executives have said that the combined company will have its headquarters in Illinois, although it will maintain an office in Rockville. Catalyst has about 175 employees in the Washington, D.C., region and some 1,500 total, a spokesman said.
The stock price of Catalyst rose to $85.23 on the day of the purchase's announcement April 18 from $63.54 the day before. It was at $86.91 Thursday.