Climbing Fidelity's ladder? Wear a helmet
Succession has roiled many a family business, even if that family business is the world’s largest mutual fund company.
Fidelity Investments stands atop Corporate Boston, built over six decades by the Johnson family, first the father and then the son. Over the years, many have auditioned as the successor for Fidelity chairman Ned Johnson — including his daughter, Abby — but so far none has measured up.
Sam Bodman, Jack O’Brien, and Bob Pozen, to name three, were among some of Boston’s best and brightest who bailed out when they hit the glass ceiling at Fidelity, where the top spot is reserved for those whose name is Johnson. Yesterday, Bob Reynolds, Johnson’s latest number two, also chose a similar career path — that is, somewhere besides Fidelity.
Reynolds’ retirement, at age 55, is hardly shocking. Less than a year ago he put his hand up for the job as commissioner of the National Football League. It was a bizarre move, even for a complete football nut like Reynolds, unless he knew he had hit the ceiling that so many others had before him. He knew.
Abby Johnson was supposed to succeed her father, but that remains far from certain today, given her mixed record. Her father put up big numbers as a money manager, and still holds the record for the best one-year record at Magellan, the fund later made famous by the great one, Peter Lynch. It was always hard to judge Abby’s performance when she was running money because Fidelity carefully moved her around so often to make such judgments impossible.
Two years ago, Fidelity transferred her from the high-profile job of overseeing the company’s core investment business, which had several years of mediocre performance under her. She now runs the fast-growing, but lower-profile, unit that does administrative work for corporate retirement plans. She goes to work every day in Marlborough, wherever that is, not at 82 Devonshire St. downtown.
‘‘Abby has never looked and felt comfortable on the stage,’’ says Jim Lowell, publisher of Fidelity Investor, a newsletter.
It would be a mistake to rule out Abby Johnson, 45, as eventually running the place. Her name remains Johnson, and the family continues to own about 49 percent of the voting stock. But her competition is now named Ellyn A. McColgan, 53, who has been running Fidelity’s huge brokerage business and yesterday was named president of distribution and operations. ‘‘In Ellyn and Abby, we have two strong leaders,’’ Ned Johnson said in a statement. We Kremlin watchers couldn’t help but note the order, Ellyn and Abby.
Like Boston itself, Fidelity used to be a lot more special than it is today. It was a place of great funds and great money managers. Now it is simply good, which isn’t always good enough in a business as competitive as money management.
Last year, only 44 percent of Fidelity’s actively managed diversified equity funds ranked in the top half of their categories, according to Morningstar. Over three, five, and 10 years, Fidelity funds beat their peers 55 percent, 56 percent, and 52 percent, respectively, Morningstar said. The result: Fidelity was a laggard in attracting new money, left far behind by Capital Research’s American Funds and Vanguard. It has been years since Fidelity was the leader in attracting investors’ money.
To be fair, Fidelity’s bottom line depends on the core money management business less than at any time in its history. Brokerage and retirement planning administration are huge, growing, profitable businesses. But the old-fashioned beating the investment averages is still central.
‘‘Investment management is the heart of the organization,’’ Reynolds told Barron’s earlier this month. And that mediocre performance explains, in part, why Abby was shifted and why Stephen Jonas, who succeeded her, and Bob Reynolds are now retired.
There is much to be done at Fidelity. One of Johnson’s most important tasks is finding a successor, one of the most important jobs of any leader. If Ned Johnson, who at 76 is fully engaged every day at Fidelity, has a succession plan, he has done a marvelous job of keeping it to himself. Right now there are two women to watch at Fidelity, and only one of them is named Johnson.
‘‘I believe in the blood-is-thicker-than-water theme; I still feel Abby is odds-on favorite to succeed her father,’’ said John Bonnanzio, group editor at Fidelity Insight, another newsletter.
McColgan, by all accounts a hungry, passionate believer in the Fidelity Way, will get her chance. If history is any measure, though, she should wear a helmet.
Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com or at 617-929-2902. 