Joseph A. Sullivan, who has served as interim leader of Legg Mason Inc. for more than four months, has been named CEO and president of the Baltimore-based money manager, the company announced this morning.
Sullivan, 55, rejoined Legg in 2008 and prior to his interim appointment served as the head of global distribution.
He faces some stiff challenges, including boosting the company's languishing stock price and stemming an outflow of money from its mutual funds.
"The other side of challenges are opportunities," Sullivan said in an interview Wednesday morning, noting that Legg has products across many asset classes and worldwide distribution. "We have a foundation that is very, very strong, and I would say, enviable. We need to make it all work better than we have."
Sullivan said he plans work with the board and Legg's affiliates to "craft a vision of what needs to happen for Legg Mason to win in the future."
He added that this doesn't mean a 180-degree turnabout at Legg.
One of Sullivan's goals is to fill gaps in Legg's investment line-up. That includes addinig international or emerging market equity management or alternative strategies, such as real estate and natural resources, Sullivan said.
The new CEO said Legg may fill those vacancies through a new stand-alone affiliate or by buying another asset manager and folding that into an existing Legg subsidiary.
Sullivan replaces former chairman and chief executive Mark R. Fetting, who stepped down Oct. 1 after less than five years at the helm. His departure, analysts said, was advocated internally by Legg director and activist shareholder Nelson Peltz, whose company is Legg's second largest shareholder.
Legg hired executive recruiter Korn/Ferry International to aid in its search for a new CEO.
Legg Chairman W. Allen Reed, who led the board's search for a permanent CEO, said Wednesday that Korn/Ferry conducted a global search for candidates with the specific traits sought in a new leader. The board's search committee wanted an industry veteran who had the management skills to collaborate with Legg's various affiliates and help them grow.
Korn/Ferry came up with a "very long list" of prospects, that the board's search committee reviewed and culled, Reed said.
But as months went by with no permanent CEO, analysts and industry experts speculated that no outsider wanted the job of leading Legg, which has an unusual structure. Legg has affiliates in other states that operate independently of the parent company. According to some published reports, the affiliates have been unhappy with the marketing and other support they have received from headquarters.
It's not difficult to manage the affiliates but "it's different to manage," Reed said. "That does reduce the number of candidates that really have the experience to do the job."
The affiliates had input into the selection of the new CEO, Reed said. He added that no one turned Legg down for the job, but ultimately the board chose Sullivan who did an "excellent job as interim CEO."
During the past four months, Sullivan oversaw the acquisition of a European money manager, Fauchier Partners, as well as the move to merge the Baltimore-based Legg Mason Capital Management unit into a Legg affiliate in New York. He also restructured the revenue-sharing agreement with affiliate Permal Group, and introduced an equity incentive program at Permal that would allow managers to invest and share in the growth of the organization.
As time went on and Sullivan made changes at Legg, analysts began to conclude that he had the inside track.
"It's not a big surprise," said Jeffrey Hopson, a senior analyst with Stifel, Nicolaus & Co. in St. Louis.
Hopson said there are pros and cons to naming an insider as CEO.
"Some outside observers would have thought that this company, given its challenges, might have needed a fresh set of eyes to reassess and potentially make significant changes," Hopson said.
On the positive side, he said, "the company has been through a period of uncertainty," and an insider provides some immediate stability. This way, he said, Legg employees can "continue on without these major uncertainties hanging over them."
Hopson added that Sullivan has been an active interim CEO.
"He has been working hard, suggesting to the organization that while he has been a Legg Mason employee, the status quo is not acceptable," Hopson said.
Michael Kim, an analyst with Sandler O'Neill & Partners in New York, said the widely anticipated appointment of Sullivan removes an "overhang" on the stock.
"Now that there has been some resolution on the position of the CEO role, the board and senior management can now really fully focus on the task at hand, which is obviously to shift into more of a growth mode," Kim said.
That includes boosting the inflow of money into Legg's funds as well as possible acquisitions, he said.
Brian Rogers, chairman and chief investment officer of Baltimore-based T. Rowe Price, issued a statement supporting Sullivan's appointment.
"Joe Sullivan is a seasoned executive who knows his way around the Legg Mason organization and can work well with its investment groups," Rogers said. "We are confident that he will continue to stay focused on taking actions to build shareholder value."
T. Rowe Price, through its funds and other portfolios, is Legg's largest shareholder with a 10.4 percent stake in the company as of the end of last year.
Peltz's Trian Fund Management LLP, which is the next largest shareholder with 9.78 percent of Legg as of September, said in a statement, "Trian is enthusiastic about the appointment of Joe Sullivan as Legg Mason's new president and CEO. We believe Joe brings the leadership skills required to strengthen and expand the capabilities of Legg Mason to create long term value for Legg Mason shareholders."
Legg continues to see money flow out of its funds and its stock price has languished, down nearly 80 percent since the company's heyday in 2006.
At the end of January, Legg had $654.1 billion assets under management, compared with more than $1 trillion six years ago.
Legg also recently reported a third-quarter loss of $454 million -- the largest in five years -- following a writedown of assets at one of its affiliates.
After Fetting's departure last fall, speculation mounted over whether the company would remain intact or if Legg would sell off some of its eight affiliates, which largely operate independent of the parent company. A break-up would be bad for Baltimore, where Legg employs around 400 people at its Harbor East headquarters. Several years ago, Legg had about 1,000 workers in the Baltimore area.
In today's announcement, Sullivan reiterated that the company is committed to Legg's affiliate business model.
Analysts said Sullivan's appointment also signaled that Legg will continue in its current form.
"I don't think you will see any sort of a break up of the franchise," Sandler O'Neill's Kim said. "You could see them continue to add or subtract around the edges. The recent Fauchier acquisition is an example of that. Folding Legg Mason Capital Management into ClearBridge is another example."
Also this morning, Legg announced that Dennis M. Kass, who retired as CEO last year from asset manager Jennison Associates, will join the Legg board in April.
Legg's stock was down 49 cents to $27.10 per share in early afternoon trading.
Joseph A. Sullivan
Education: Bachelors of Arts degree in economics from St. John's University; graduate of the Securities Industry Institute at the Wharton School of Business, University of Pennsylvania
Employment: Worked at Legg Mason from 1994 to 2005, then joined Stifel Nicolaus, serving as executive vice president and head of fixed income capital markets. Rejoined Legg in 2008 as senior executive vice president and chief administrative officer; served as head of global distribution before being named as interim CEO in October.
Outside memberships: Current trustee and former chair of the Securities Industry Institute; former chair of the fixed income committee of the National Association of Securities Dealers; board member of the Bond Market Association. Served as a trustee for Catholic Charities, St. Ignatius Loyola Academy; chair of the board of trustees for Loyola Blakefield School, and president of the Baltimore Youth Hockey Association.
Source: Legg Mason Inc.
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