By Ross Kerber and Jessica Toonkel
BOSTON Feb 13 Newly named Legg Mason Inc
Chief Executive Joseph Sullivan on Wednesday vowed to
reinvigorate the Baltimore-based asset manager and stanch the
outflow of investor money from its funds.
Sullivan, in a telephone interview shortly after he was
officially named CEO, said he remains committed to Legg Mason's
traditional structure of semi-autonomous investment units and is
in talks with executives at the units about offering them
equity. He did something similar for its Permal unit in December
where executives now may receive equity in their own firm, as
they could not previously.
Giving managers their own equity "gives them real
ownership," Sullivan said. Similar deals for other affiliates
could help them recruit and retain executives, he said, and
could make Legg Mason more like its more successful rival
Affiliated Managers Group.
Among Legg Mason's eight main affiliates are the Western
Asset Management bond shop and its Royce & Associates division
that invests in smaller companies.
Relations between some affiliates and the parent have been
strained over finances and marketing issues, problems that came
amid nearly five years of outflows of investor cash stemming
from mixed fund performance. Many funds are recovering now, and
Sullivan said the improvements will bring back investors -
"We are proof of the fact that this doesn't happen
overnight," Sullivan said.
Sullivan had been the company's sales chief and interim CEO.
Legg Mason had been seeking a new CEO since Mark Fetting stepped
down under pressure last fall. Sullivan was also named president
and a board member on Wednesday. Reuters first reported
Sullivan's appointment late Tuesday.
In addition, Legg Mason on Wednesday named a new board
member, Dennis Kass, the retired CEO of Prudential Financial
Inc's Jennison Associates money management unit.
SIGNALING FEWER CHANGES
Choosing Sullivan signals that Legg Mason's board is less
inclined to make the sweeping changes that an outside candidate
might have begun, analysts said.
"Instead of disrupting the apple cart too much, they went
with the guy that they knew, but brought in an outsider to the
board," fund industry consultant Roland Meerdter said.
Legg Mason board chair Allen Reed said Sullivan has the
right management skills for the CEO job, and good relations with
other company leaders. Affiliate chiefs backed Reed up in
interviews including Western's James Hirschmann and Terrence
Murphy, head of Legg Mason's ClearBridge equity unit.
Although Murphy acknowledged tensions among the units, he
said Sullivan "is definitely the right guy to solve them"
because he is well-respected by division leaders.
One challenge, Murphy said, is that the units want more help
from the parent in selling their funds, like food suppliers
looking for more display at a supermarket. "It's not a perfect
model because everyone is always looking for more shelf space,"
Sullivan, 55, has worked at Legg Mason for most of the last
19 years, with a break between 2005 and 2008 after Legg Mason
sold the broker-dealer subsidiary where he worked to Stifel
"I viewed it as being exiled. I finally paid my dues and
they let me come back," Sullivan said.
The decision follows a five-month search by recruiting firm
Michael Castine, chair of Korn/Ferry's asset management
practice, said it interviewed over 30 candidates. "There was
clearly a great deal of interest" in the CEO job, he said.
Sullivan's appointment removes an overhang on the shares and
allows the company to focus on improving flow trends, Sandler
O'Neill analyst Michael Kim wrote in a note to investors.
Kim wrote that the decision also lessens the likelihood of a
private-equity buyout of the company, which some affiliates had
Given ongoing declines in assets and uneven performance
track records, "we see more limited upside for the shares," said
Kim, who kept his "hold" rating on the stock.
Legg Mason shares fell 2 percent to $27.28 in trading
Wednesday after the news was announced.
With $654 billion under management at the end of January,
Legg Mason is one of the largest publicly traded U.S. asset
managers. Sullivan's predecessor Fetting took over Legg Mason
from founder Raymond "Chip" Mason in early 2008.
Fetting restructured Legg Mason and slashed its workforce to
cut costs. Both moves were in keeping with the usual agenda of
activist shareholder Nelson Peltz, who joined Legg Mason's board
in 2009 and holds about 10 percent of its shares.
A spokesman for Peltz's investment firm said in a statement
that the firm is "enthusiastic" about Sullivan's appointment.