Does PepsiCo Need A CEO Succession Plan?

Recently, PepsiCo (NYSE:PEP)  announced that Tom Geco, CEO of its Frito-Lay North America (FLNA) division, will be leaving the company to pursue other interests.  Al Carey will be promoted as CEO- North America to oversee FLNA, along with the North America Beverages (NAB) and Quaker Foods North America (QFNA) divisions. The company believes that bringing its three North American businesses under a single leader will enable PepsiCo to further leverage its complementary brand portfolio across snacks, beverages and nutrition, so as to unlock future growth opportunities.  While the company clearly mentioned that Carey will work under the company’s CEO Indira Nooyi, speculation was rife that this might be an indication that Carey is being groomed to be Nooyi’s successor. However, given that Carey (64) is older than Nooyi (60), his promotion does not appear to be part of a succession plan, but more of a strategic decision. While Indira Nooyi has been managing PepsiCo extremely efficiently for the past decade, the announcement of an official succession plan, in our view,  can help the company to put speculation at rest and keep shareholders’ concerns at bay.

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 Succession Plan Can Keep Shareholder Concerns At Bay

Indira Nooyi has been the CEO of PepsiCo for nearly a decade and the company has been very effectively management under her leadership.  Still, there is no clear CEO- in waiting to succeed her. With the departure of Tom Geco, shareholders might be concerned about the company’s leadership in the absence of Nooyi for any unfortunate reason. PepsiCo has seen several senior level departures in the last few years, making it difficult to identify a successor for the current CEO. Zein Abdulla, the company’s European operations CEO, retired in December 2014. Brain Cornell, who was hired from Sam’s Club in March 2012, left the company in August 2014 to become the CEO of Target.  With current changes in the company’s management, speculations were rife that Carey could be the next CEO candidate, but his age does not make him eligible for this post, after Indira Nooyi.

PepsiCo has been working on several initiatives in the recent past which have reflected positively on the company. It has increased the focus on health drinks and organic beverages to counter the falling demand for soda. Its digital innovations, such as Pepsi Spire and a smart bottle for Gatorade, are aimed towards the younger generation.  The company’s stock price increased by more than 50% in the last five years and it usurped Coca Cola to gain the top spot as the most loyal regular soda brand at Brand Keys 21^st Annual Customer Loyalty Engagement Index. These positive developments are a reflection of a strong management team led by its current CEO Indira Nooyi.  The company’s Board believes that it has a deep bench of seasoned leaders running its various businesses, who could be groomed for the top post when necessary. While this makes communication of a specific hier apparent CEO unnecessary at this stage, given Nooyi’s long tenure, a clear succession plan if communicated can help keep shareholder concerns at bay.

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