Moody’s Investors Service issued a warning that recent strategic decisions by executives at Fidelity Investments, including Chairman Edward Johnson, have failed to put it in a strong position with regards to competitors and that many of Fidelity’s divisions have low profit margins. Moody’s also stressed that the future of the company is in question as 77-year-old Johnson hasn’t issued a leadership succession plan.
Although Moody’s still rates the company as investment grade, it said it might downgrade it.
Johnson and other family members control 49% of Fidelity’s voting stock, the rest owned by key managers. The Johnsons and other key executives sit on the board. Other family-owned companies have include independent trustees on their boards, in line with publicly traded companies, Moody’s said.
The ownership structure of Fidelity, Moody’s wrote, “is a concern because several strategic courses set by senior management, including Mr. Johnson, have not adequately defended FMR’s formerly dominant market position in the mutual fund business. In the current circumstances, we believe that the firm will continue to be challenged in responding more rapidly to the increasingly competitive environment and under-performance.”
Moody’s said there should be some independent trustees to “create some confidence that there is some check on Mr. Johnson.”
The lack of a transition plan for Johnson could “hamper FMR’s ability to defend its position in an increasingly dynamic and complex industry,” Moody’s said.
Fidelity spokeswoman Ann Crowley took issue with these conclusions, telling the Canadian Post, “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. He has been a leader and a visionary and is widely recognized for that. The company he has built is enormously successful.”