Fidelity's secret future

The nation's largest mutual fund company is still private, led by a man who started there in 1957.

Associated Press
Published January 4, 2008


At age 77, Edward "Ned" Johnson III can't keep this pace up forever. But it sometimes seems the Fidelity Investments chief hopes to.

Johnson's tenure running the nation's largest mutual fund company has spanned three decades - the only other change of leadership in 61 years at Fidelity was when Johnson took over for his father. But the job has become increasingly complex as Johnson tries to fend off rivals' gains and streamline operations, while outsiders' calls for governance reform grow louder.

"He hasn't missed a beat, and a lot of people have crumbled while he's still going 100 miles per hour," says Eric Kobren, a former Fidelity employee who edits the independent money advice newsletter Fidelity Insight. He suspects Johnson "isn't going anywhere soon."

The notoriously insular company isn't publicly offering a timeline for leadership change, or disclosing details of a succession plan.

The heir apparent - Johnson's 46-year-old daughter, Abigail Johnson - has not been confirmed as such, and some observers question whether she even wants the job. And a flurry of management and organizational changes this year eliminated two successor candidates from contention.

Outsiders regard Abigail Johnson as an odds-on favorite for the top job, by virtue not only of her bloodline, but the diversity of positions she's held overseeing Fidelity's increasingly far-flung services.

But her father is still firmly in charge - and by all accounts, apparently healthy.

Whoever eventually succeeds Johnson, big changes are expected at the company that's a huge force on Wall Street, as the largest provider of Americans' workplace retirement savings plans and a manager of nearly $1.6-trillion in assets.

Observers say Johnson's successor won't have as much power as he has wielded filling the chairman and CEO roles since 1977 - posts that could be split between two people. And the private firm will face increasing pressure to operate more like a public company, with greater attention to open governance, cost-cutting and short-term financial results.

"Whoever follows Ned Johnson can't run it the way he has. The old model doesn't work anymore," said Bruce Raynor, co-chairman of the Council of Institutional Investors, representing public, labor, and corporate pension funds, and general president of Unite Here, a union of hospitality and textile workers.

At Fidelity, Johnson family members hold 49 percent of Fidelity's voting stock - key managers control the rest - and the company's board consists solely of current or former company executives and Johnson family members.

The structure has come under criticism not only from activists like Raynor, but from Moody's Investors Service.

Fidelity dismisses the criticism.

"Mr. Johnson and the Fidelity board have succeeded over the years in creating one of the most successful and fast-growing financial services companies in the world," said spokeswoman Anne Crowley.

She noted that Fidelity's managed assets rose 15 percent over the 12 months that ended in November.

Fast facts

A look at Fidelity Investments:

History: Founded in Boston in 1946 by Edward C. Johnson II to act as investment adviser to the Fidelity Fund. Started business with $13-million in assets under management.

Top executive: Chairman and CEO Edward C. "Ned" Johnson III, age 77. Johnson started at Fidelity as a research analyst in 1957.

Other key executives: Johnson's daughter, Abigail P. Johnson, 46, heads Fidelity's personal and workplace investing unit, after holding several other posts, including leading Fidelity's core mutual fund business; Rodger Lawson, 61, named in July as president of the holding company for Fidelity's businesses. From 1985 to 1991, Lawson headed Fidelity's retail operations before leaving for executive posts with other firms.

Employees: 46,400.

Business operations: Customer assets total nearly $3.4-trillion, includingmanaged assets of nearly $1.6-trillion and $1.8-trillion for which Fidelity performs record keeping and other administrative services. Fidelity manages 431 mutual funds, and is the nation's biggest mutual fund firm, and largest provider of 401(k) retirement savings plans.

Ownership: Private; 49 percent of company voting stock is owned by members of the Johnson family, the rest by key employees.

Web site: www.fidelity.com

Source: Fidelity