UPS's Davis Nears Typical CEO Tenure as Kuehn Seen Next

Mary Jane Credeur
Bloomberg News
March 28, 2013

Since founder Jim Casey left United Parcel Service Inc. (UPS) after more than five decades in charge, the company's chief executive officers have served for an average of 5 1/2 years. Scott Davis reaches that milestone in June.

That means a leadership change is probably approaching at the world's largest package-delivery operator, according to Kevin Sterling of BB&T Capital Markets and other analysts. A new CEO almost certainly will come from within, as have all the previous chiefs, Sterling said.

Transitions since Casey's 1962 exit have earned UPS a reputation for stability in a situation yet to be faced by FedEx Corp. (FDX), which Fred Smith has led since starting the carrier in 1971. UPS promoted Davis, 61, from chief financial officer and current CFO Kurt Kuehn is the likeliest to succeed him, said Sterling and David Campbell of Thompson Davis & Co.

"They're always looking at candidates and everyone is cross-trained and they can do each other's jobs," said Jeff Sonnenfeld, a senior associate dean at the Yale University School of Management who has known every CEO at UPS since the 1970s. "This succession process started even before Scott was named CEO. And the same for the next CEO."

Davis has led Atlanta-based UPS to a return of 21 percent since taking charge, compared with 9.5 percent at FedEx and 6.4 percent for the Standard & Poor's 500 Index. UPS has climbed 16 percent this year to $85.43 in New York.

Crisis Element

"At so many companies these days, succession has an element of crisis, but it never has at UPS and probably never will," said Sonnenfeld, who's based in New Haven, Connecticut.

Among the signals that the CEO is considering retirement is his inclusion on the past two earnings conference calls of executives whom analysts have identified as potential successors, such as Alan Gershenhorn, the sales chief, and U.S. President Myron Gray.

Every other earnings call since Davis became CEO in January 2008 was limited to him, CFO Kuehn and the head of investor relations.

"You can almost read it like it's an audition," said BB&T Capital Markets' Sterling, who's based in Richmond, Virginia, and recommends buying the shares.

Davis has navigated the global financial crisis and the 5.16 billion-euro ($6.59 billion) bid for TNT Express NV (TNTE) that collapsed in January. Mapping a growth strategy in the deal's aftermath is among the challenges his successor will inherit.

Identified Early

UPS declined to make its executives available to comment for this article.

"UPS is disciplined and deliberate in its succession planning and the development of its leadership, including when and how senior leadership changes are made," said Malcolm Berkley, a spokesman.

It's premature to presume when succession will happen, or that there's a targeted length of service UPS tries to achieve, he said. The board routinely reviews succession plans to ensure candidates are identified early and given the opportunity to demonstrate their skills, Berkley said.

Casey headed UPS for 55 years after its founding in Seattle in 1907 as American Messenger Co. The average tenure for the eight former CEOs since he stepped down in 1962 has been five years and six months, according to data provided by UPS and compiled by Bloomberg.

Average Tenure

James Kelly, who was CEO when the company went public in 1999, served exactly five years before leaving in December 2001. His successor, Michael Eskew, held the post for six years, leaving in December 2007. Before that, the longest-serving CEO after Casey was George Smith, who held the job for almost 10 years and stepped down in February 1972.

At FedEx, Smith said in September 2010 that he "almost certainly" would leave within five years. In 2012, the 68-year- old founder, chairman, CEO and president said he's "not planning on going anyplace" imminently.

UPS's Kuehn, 58, started as a driver 3 1/2 decades ago and was senior vice president of global sales and marketing before being elevated to CFO.

That promotion allowed Gershenhorn to take Kuehn's old job. Gershenhorn, 54, and Gray, 55, also began their careers with UPS in the late 1970s as part-time package handlers.

Wall Street

Wall Street has known Kuehn for about 15 years, since he was UPS's first vice president of investor relations, a role he was holding when the company went public in 1999.

Kuehn, pronounced KEW-in, attended Yale, received a master's in business administration from the University of Miami and is a graduate of the Advanced Management Program of the Wharton School of Business at the University of Pennsylvania, according to a biography on UPS's website.

He sits on the boards of NCR Corp. (NCR), the Metro Atlanta Chamber of Commerce, the Woodruff Arts Center and the Foundation for Independent Higher Education.

If UPS follows its historical pattern, a new successor will be named within 12 months.

Kuehn has had "years of experience, and he's probably the next guy to move up," said Campbell, who recommends buying the stock.

Davis will probably remain CEO until a new contract with the Teamsters union is completed, Sterling said. The current contract expires in July, and Davis said in January he hopes for an early conclusion to negotiations.

First Outsider

The departure of Eskew, Davis's predecessor, was announced just two weeks after the completion of a Teamsters' contract in 2007 -- 10 months before the existing agreement expired. Davis was considered UPS's first outsider when he was promoted, although he had worked at the company for 20 years at the time. Before that, he was CEO of an Oregon-based technology company called II Morrow that UPS bought in 1986.

"By the end of this year is probably the time" for a new CEO, said Campbell.

Indeed, the three CEOs before Davis all left at the end of calendar years, and their successors took over on New Year's Day.

UPS is so consistent and reliable with succession planning that most executives look "shockingly young" when they retire, often around age 60, said Yale's Sonnenfeld.

"They start so early and retire relatively early and there's this unusual quality in these guys when they retire, a Dorian Gray thing," Sonnenfeld said, referring to the Oscar Wilde character who doesn't age.

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