* Search is down to four candidates-sources
* Employees believe Sullivan is the frontrunner-sources
By Jessica Toonkel
NEW YORK, Jan 28 (Reuters) - Legg Mason's board of directors is expected to meet Tuesday to discuss - and possibly decide - who will be its next chief executive officer, according to two people familiar with the situation.
The Baltimore-based mutual fund company has whittled its list of candidates to four, said one of the people and another person familiar with the situation. These people declined to be identified because they are not allowed to speak publicly about the matter. It is unclear when the board might announce its decision.
Among senior Legg Mason employees, the feeling is that Joseph Sullivan, the firm's sales chief and interim CEO, is the favorite for the job, said two other people who asked to be anonymous because they are not allowed to speak to the press. Sullivan has served as interim CEO since Mark Fetting stepped down last October.
Mary Athridge, a Legg Mason spokeswoman, declined to comment.
Legg Mason hired recruiting firm Korn Ferry International in September to find a replacement for Fetting after he announced his departure. Fetting joined Legg in 2004 and was promoted to CEO for in 2008.
The job description Legg Mason's board worked up stated it was looking for an executive "who can align the affiliates toward the common goal of growth," a person familiar with the search process, told Reuters in November [ID: nL1E8LOMN4].
Going with an internal candidate like Sullivan would help Legg work out some of the issues it has been having with its affiliates, three of the sources familiar with the search process said.
Legg Mason has been built over the years through a patchwork of deals, resulting in eight main independent asset management units, each having separate revenue sharing agreements. . A pending merger between Legg Mason's two equity-focused units ClearBridge Investments and Legg Mason Capital Management, will soon reduce that figure to seven.
Tensions have emerged in a number of areas, such as gripes from some affiliates that they should get more help from the parent with selling and marketing their funds given how much of their revenues they turn over to the firm, these people said.
"(Sullivan) has been really focused on the affiliates," said one of the sources familiar with the situation. "You haven't seen noise from the affiliates over distribution for the last few months."
In December, Legg Mason said it was acquiring Fauchier Partners, a fund-of-hedge-funds firm with $6 billion in assets, from BNP Paribas Investment Partners, and merging it with its own $17 billion funds-of-funds firm, Permal.
As part of that deal, Legg Mason said it had revised its employment deals and revenue sharing agreements with Permal, which could become a model for additional changes aimed at resolving tensions among its affiliated investment units .
While several senior leaders inside the company believe Sullivan is the frontrunner, the board could still decide to go with one of the three other candidates, all of whom are external, the source said.