The corporate makeover at Janus Capital continued last week as CEO Mark Whiston, 42, quit and was replaced by board chairman Steve Scheid, 50.
Whiston, a 14-year Janus veteran, and the last high-profile face from the old-regime at the Denver fund shop, will also relinquish his seat on the Janus board of directors. He will, however, stay on with the firm through the end of the year to help with the management transition and to assist with client relations, the firm said.
Earlier reports indicated some regulators were calling for Whiston's head, but Shelley Peterson, a spokeswoman for Janus, said the change was not in response to requests or pressures from regulators and not a prerequisite of any settlement the firm is negotiating. Janus has created a $31.5 million restoration fund to repay shareholders that might have been hurt by the timing activity, but as of press time, no settlement was announced.
"I think Mr. Whiston and the Janus organization reached the joint conclusion that having Mark stay on could be a serious P.R. issue for them," said Jeff Keil, vice president of Lipper's Global Fiduciary Review. "Whiston's guilt or innocence didn't likely play into the decision one way or the other; it was based on the belief that there was a perception in the marketplace that he should be let go."
Dan McNeela, a Morningstar fund analyst covering Janus, said the questions surrounding what Whiston knew and when he knew it were just not going away. McNeela said investors needed to be shown that Whiston wasn't involved in order to regain trust, and the lack of clarity on the subject was too much for shareholders to swallow.
Scheid said in a statement that Whiston and the board concluded it would be in the best interest of Janus fund shareholders, stockholders and employees for new leaders to shape Janus in the months and years ahead.
"I don't care what his background was, what his history was, what his beliefs about market timing were. In a job like that, actions count, and he either failed to take action or just forgot to take action, and the results are the same," said Roy Weitz, industry critic and publisher of FundAlarm.com. "He screwed up, and by the standards of this scandal, he clearly deserved to go. And a lot of people would like to go with his type of package."
That package includes $5.8 million in cash and $7.9 million in a deferred compensation retirement arrangement, the firm said. However, the deal is still less than what Whiston might have grabbed at the end of last year, when he could have gotten severance of between $20 million and $23 million had he resigned when he lost the chairmanship of the board. The firm said it will take a $17 million charge, or 4 cents a share, in the second quarter, due to Whiston's resignation.
Scheid took over the chairman's role at the beginning of this year. He joined the Janus board as an independent director in 2002, but is largely unknown to many in the fund industry.
He comes in at a crucial time as the firm is in the process of hammering out settlements with multiple regulators and is desperately trying to rebuild investor confidence. Janus recently embarked on a major advertising campaign to restore its image (see MME 4/12/04), tarnished by abysmal fund performance the last few years as well as its high-profile involvement in the scandal unveiled by New York Attorney General Eliot Spitzer.
Who could forget the e-mail sent by Janus International CEO Richard Garland approving a market-timing deal that was displayed on huge poster boards by Spitzer at his Fundgate inaugural press conference? Garland later resigned, and the management carousel has been in full swing since, Gary Black, the CIO of Goldman Sachs Asset Management's global equity business, was named investment chief of Janus last month. (see MME 3/22/04). Black is to join the firm on April 26th. Executive Vice President Lars Soderberg was placed on leave earlier this month, and Janus is now examining his future with the firm.
As for Scheid, he previously served as the vice chairman of Charles Schwab Corp. and as president of the firm's retail group for two years beginning in 2000. He was also Schwab's CFO from 1996 to 1999 and CEO of Charles Schwab Investment Management from 1998 until 2000.
Not Widely Known
The knock and the upside on Scheid is that he is not widely known in the industry. "He came from Schwab, where he had very different responsibilities, and he has never been the head of a whole publicly traded firm before, so that's a new role for him," said Rachel Barnard, a Morningstar equities analyst who covers Janus. "He's a bit untested in this type of role, and for that [reason], he's a bit of a wildcard. I think his best attribute is that he's an outsider, which gives him a lot of credibility. But it's hard to know exactly where he's going to take Janus.
"When I look long-term down the road, I can't envision Janus as the super hotshot powerhouse that it used to be," Barnard continued. "Hopefully these new executives will recognize that pretty quickly and try to make the right decisions to get Janus into the big leagues with the other grown up-mutual fund firms."
Lipper's Keil said that Scheid's credentials seem reasonable and appear to be applicable to the job, but at the same time, his track record at Janus remains to be proven. "His first agenda item has to be focusing on Mr. Black's performance as new CIO," Keil said. "Janus can put an enormous amount of effort into rebuilding its image and into P.R., but if Black's portfolio managers don't put up some above-average performance figures, at the very least, they risk more outflows."
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