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Aged in oak

7 May 2013 By Robert Cole

An overweening executive ego might like to see the stock of “their” company dive on news of a retirement – or dread the thought that investors might celebrate by marking the share price up. Diageo’s stock did nothing on May 7 as Paul Walsh, the chief executive, said he was retiring after 13 years at the helm of the Johnnie Walker drinks company.

The neutral reaction is a sign of respect. It suggests that the Diageo succession was well planned and well understood by the investment community. Ivan Menezes, currently chief operating officer, will take the reins in a couple of months. Walsh, having stuck around for a year or so just in case he is needed, will leave the team to manage the next phase.

On Walsh’s watch, Diageo’s market value has all but tripled, to nearly 50 billion pounds. It has also paid 12 billion in dividends. The total returns from London’s FTSE 100 – of which Diageo is a member – have grown only 60 percent. Some of the extra value was added, recently, because non-cyclical stocks like Diageo have found fans in hard times. But investors have also rewarded the firm for earnings they think are better in quality as well as quantity.

The true scale of Paul Walsh’s achievement will only become clear if his departure goes virtually unnoticed in the medium to long term. James Crosby left the CEO slot at HBOS with plaudits ringing in his ears, but following the UK bank’s enforced takeover, his tenure looks considerably less impressive. In a quite different way, time also tarnished the reputation of Terry Leahy. Actually, the former chief executive of Tesco left the UK-based retailer with prodigious strengths, but the commendations Leahy earned have had to be adjusted in the wake of post-retirement profit warnings and share price weakness.

Walsh’s achievements may mark him out as one of the finest CEOs of his generation. We won’t be sure, however, until we are some way into the era of his successor. If Walsh is forgotten about, he may well deserve to be laurelled as a truly exceptional boss.


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