Disingenuous Wall Street Journal Story on Fidelity

A story highlighted on the first page of the Wall Street Journal and slotted to appear on page A3, “Fidelity Succession Plan Weighs Splitting Chairman, CEO Posts,” has the earmarks of being a PR plant by the Boston-based company. And the Journal appears to have featured it as served up in return for getting the scoop.

The story discusses, in considerable yet not all that interesting detail, the possible futures for Fidelity, Key points: no timetable for 77 year old Edward Johnson’s departure; daughter Abigail might not become CEO, particularly since daddy isn’t certain she is ready; Abigail will nevertheless be chairman; the company is considering goofy options like having no CEO (operating units will report to the board).

But the proximate cause for the PR effort is mentioned only in passing:

On Tuesday, Moody’s Corp. issued a report maintaining a high credit rating for Fidelity’s debt but saying that the lack of clarity about succession could harm Fidelity’s ability to recruit and retain top talent. Moody’s said the uncertainty could hamper the firm’s ability “to defend its position in an increasingly dynamic and complex industry.”

If you read other accounts of the Moody’s report, they present much stronger reservations about Fidelity’s governance. The succession plan, while on the rating agency’s list of concerns, was not the top issue. Most of all, Moody’s did not like the Johnson’s family’s continued control, an issue not even acknowledged in the Journal story. And while the Journal said that Moody’s reaffirmed Fidelity’s rating, it neglected to mention that it also assigned the company a negative outlook.

Contrast the Journal’s piece with this article in yesterday’s CFO.com, “Moody’s Frets over Fidelity’s Governance“:

FMR Corp.’s conversion in October from a corporation to a limited liability company has spurred Moody’s Investors Service to release a report describing its ongoing concerns about the investment company’s governance….

Many other big companies that are, like FMR, privately held and family controlled, have adopted some of the governance best practices required of publicly listed companies, Moody’s noted in its report. But FMR, a holding company that owns Fidelity Investments, “has chosen not to do so,” the rating service lamented.

Moody’s warns that FMR’s board consists solely of current and former FMR executives and Johnson family members, rather than including some independent directors “whose presence would create some confidence that there is some check” on chairman and CEO Edward C. Johnson 3d.

Family members together hold 49 percent of FMR’s voting common stock, with the rest held by a limited number of executive-level managers.

The family’s high degree of control over both strategy and day-to-day operations “heightens leadership transition risk within FMR,” Moody’s said, especially since Johnson is 77.

Moody’s also noted that there’s significant market speculation about whether Johnson will deem his daughter, Abigail Johnson, an executive level manager who has run several major segments of FMR’s business, as best fit to become CEO. Such chatter coincides with some recent changes in the company’s senior management, including both departures and arrivals. Yet the company isn’t providing much clarity about the reasons for the changes or about succession, creating significant uncertainty, according to Moody’s….

Thus, despite FMR’s continuing high credit rating, Moody’s has assigned the company a negative outlook. The company’s performance and management strategies “have not adequately defended FMR’s formerly dominant market position in the mutual fund business,” Moody’s opined in its report.

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