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LONDON -- "What we need is what there ain't no substitute for.... There is nothing like a dame!"
Investors in FTSE 100 media group Pearson (LSE: PSON.L ) will be hoping they don't share those ungrammatical and politically incorrect sentiments from Rodgers and Hammerstein's 1949 musical South Pacific, when Dame Marjorie Scardino steps down as chief executive next year after 16 years.
Because Dame Marjorie, the first woman to run a FTSE 100 company, transformed the group from a sprawling conglomerate into an education and media powerhouse and is a tough act to follow. She is one of several bosses soon to leave iconic British companies and who will be sorely missed.
Also elevated to the knightage for services to his industry, Sir Frank Chapman plans to retire as chief exec of BG Group (LSE: BG.L ) next year. He is credited with turning BG into a focused natural gas company after taking the helm in 2000, when it was spun off from the U.K.'s integrated gas utility. The downstream business became Centrica.
Then last week, Kate Swann, leader of FTSE 250 stationery retailer WH Smith (LSE: SMWH.L ) , announced plans to step down next year after nine years. Her corporate transformation story is one of defying gravity. Changes in the product mix, a shift in emphasis to airport and railway station concessions, the sale of the newspaper distribution business, and ruthless cost-cutting have turned around what was seen as a likely high-street casualty.
What happens at a company when a highly-respected chief executive leaves? The precedents suggest that it is not always good news for shareholders.
Sir Terry Leahy transformed Tesco (LSE: TSCO.L ) over a period of 14 years at the top. During his leadership, the number of stores quadrupled, and he took the group into out-of-town hypermarkets, non-food retail, financial services, and overseas markets.
Yet Tesco issued its first profit warning for 20 years within 10 months of his departure. Few blame current chief Philip Clarke. Rather, the seeds of Tesco's troubles were sown in the latter years of Sir Terry's reign. Overambitious expansion and diversification distracted attention from the group's core UK. food market. Cynics might suspect that his departure was well timed.
But succeeding long-serving and highly regarded leaders need not be a poisoned chalice. Sir John Rose led Rolls-Royce (LSE: RR.L ) for 15 years before retiring in 2010, turning the company into one of the world's leading aerospace firms. Two years on from his departure, his successor John Rishton continues to manage a successful business.
What of the prospects for those three companies with upcoming management changes?
Dame Marjorie is leaving a good legacy at Pearson. The company is focused on education and media markets. But the growth of the education business amplifies the questions over the group's continued ownership of the Financial Times and Penguin books.
With Dame Marjorie's successor elevated from the ranks of its education division, the questions have been growing louder. Indeed, Dame Marjorie hinted that those big strategic choices partially drove the timing of her departure. The new CEO will need to determine just how focused a business it is.
BG Group has possibly become a victim of its own success. Its exploration finds in Brazil's Santos Basin have shifted its business mix and concentrated risk. A new boss will have to decide whether to heed the calls of some analysts for BG to look at a merger or break-up. But Sir Frank will leave behind a business with substantial value.
Of the three, I'm most doubtful about the timing of Kate Swann's departure. WH Smith's recession-defying performance has been magnificent, but perhaps there is a limit to how much you can achieve with a bricks-and-mortar retail stationery chain, however good the management.
Warren Buffett, the Sage of Omaha, is known to look for impressive management teams in his stock-picking. But he also quoted the adage that you should try to invest in a business that is so good an idiot could run it, as sooner or later one will. That's what comes from a holding period of forever, I suppose.
The change of management at Tesco certainly didn't put off Buffett from the supermarket. You can learn more about why the blue chip is his only U.K. investment in this free report from the Motley Fool: "The One UK Share Warren Buffett Loves." You can download it to your inbox by clicking here.
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