Pressure to Build in 2014 on Some CEOs; Turnarounds Often Aren’t Fast Enough for More-Demanding Investors

Pressure to Build in 2014 on Some CEOs

Turnarounds Often Aren’t Fast Enough for More-Demanding Investors

JOANN S. LUBLIN and SARA MURRAY

Jan. 1, 2014 9:17 p.m. ET

In some corner offices, the high-stakes job of CEO comes with even more pressure during the new year.Shareholders and boards have become less tolerant of slow turnarounds. So, investors likely will turn up the heat on certain U.S. CEOs, demanding improved results.

“The leash has been getting shorter every year for CEOs, and for new CEOs in particular,” said Paul Winum, who runs the CEO succession practice at RHR International, a leadership advisory firm.

Several top bosses hitting their second anniversary on the job in 2014 may feel squeezed by impatient investors. Among them are Avon Products Inc. AVP -0.62% ‘s Sheri McCoy,Yahoo Inc. YHOO -0.32% ‘s Marissa Mayer and Don Thompson at McDonald’s Corp. Other chiefs, such as Michael Jeffries, head of Abercrombie & Fitch Co. ANF +0.61%since 1992, have had longer to prove their prowess.

Here is a look at six CEOs facing challenges this year:

AVON

The latest top Avon lady is calling on her turnaround skills.

Ms. McCoy has tried to bolster operations, halt a decline in sales, and resolve a long-running bribery probe since the door-to-door beauty company recruited her in April 2012. Avon’s shares plunged 22% in a single day last fall after it disclosed U.S. regulators were seeking larger-than-expected penalties related to that probe and reported a third-quarter loss. In December, Avon pulled the plug on a $125 million overhaul of sales software that was in the works for four years.

“There is always tension around the pace of change in a turnaround,” Ms. McCoy said during an Oct. 31 earnings call. But “parts of our business are stabilizing, and we are making progress toward our three-year financial goals,” she added.

An Avon spokeswoman declined further comment.

Directors still support Ms. McCoy because “she is doing all the right stuff,” said a person familiar with the company. Yet without strong signs of a turnaround, especially in its crucial U.S. market, investors and key board members may make their displeasure known this year, another informed individual predicted.

ABERCROMBIE

Mr. Jeffries’s vision for Abercrombie & Fitch—the brand designed for “cool kids”—isn’t wearing well.

The clothing retailer’s share price tumbled in 2013 as it struggled to keep pace with “fast fashion” rivals such as Forever 21. And Mr. Jeffries’s comments about tailoring the brand to attractive people angered some shoppers. Still, the board renewed his contract for at least a year, spurning activist shareholder Engaged Capital LLC’s demand that Abercrombie & Fitch replace its veteran leader.

This time, though, his contract comes with succession planning: new leadership slots to manage the Abercrombie & Fitch, Abercrombie Kids and Hollister brands. Analysts think Mr. Jeffries could boost same-store sales—and the stock price—if he cedes some control, lets strong managers diversify important brands and revamps marketing.

Otherwise, the company could become the next retail attraction for private-equity firms. “I wouldn’t be surprised if we all wake up one day and someone does have a large stake in the company,” said Susan Anderson, an FBR & Co. retail analyst.

“Mike and his team have developed a long-term plan that builds upon past successes, while targeting the specific challenges that the company faces today,” commented Craig Stapleton, the board’s lead independent director, when the board renewed Mr. Jeffries’ contract.

A company spokeswoman declined further comment.

YAHOO

Ms. Mayer is Yahoo’s sixth CEO in five years, including two interim leaders, and has been attempting what many believe is an impossible turnaround.

Since she joined the Web company in July 2012, she has done 29 acquisitions, receiving kudos for some of them. She has reinvigorated staff morale. But Ms. Mayer hasn’t yet delivered meaningful financial growth in its core advertising business. Yahoo’s third-quarter profit dropped 13%. The Internet company lowered the full year revenue and profit outlook—after slashing those expectations three months before.

Yahoo’s increased share price in 2013 mostly came from the perceived value of its equity stake in Alibaba Group Holdings Ltd., the China-based e-commerce giant that plans to go public in 2014, as well as its own stock buybacks.

Ms. Mayer “will be on the hot seat with investors over the next year,” said Richard Clayton, research director of CtW Investment Group, an arm of labor federation Change to Win. Its union members’ pension funds own about two million Yahoo shares, or less than 1% of the shares outstanding.

A Yahoo spokeswoman declined to comment.

MCDONALD’S

It was the year of Fish McBites, Mighty Wings and sluggish sales at McDonald’s.

For a while, investors and analysts mostly blamed that slowdown on the economy. Now, they are taking a closer look at management, according to analysts. Under Mr. Thompson’s command since July 2012, the fast-food giant unveiled a spate of new products from Mighty Wings to Egg White Delight McMuffins that not only failed to excite customers, they slowed down service.

The new year is likely to bring demands from Wall Street that Mr. Thompson jump-start sales and introduce hot new products. Intensified competition for breakfast customers could also pose a threat to one of McDonald’s strongholds.

Wall Street is pushing for better results, but McDonald’s values loyalty and Mr. Thompson’s job is unlikely to be in jeopardy, industry analysts said.

“Don is the right leader—with the right leadership team of talented men and women—to drive McDonald’s business,” said a company spokeswoman.

MONDELEZ

Some big stockholders at Mondelez International Inc., MDLZ -0.26% maker of Oreos, Cadbury chocolates and Ritz crackers, are eager for improved performance from Chief Executive Irene Rosenfeld.

Mondelez was created after the 2012 breakup of Kraft Foods Inc., which she previously ran. Despite a sizable gain in third-quarter earnings, Mondelez tempered expectations for organic revenue growth for the full year. (Organic revenue growth strips out acquisitions, divestitures and foreign-currency effects.)

Relational Investors LLC, which owns 17.1 million shares, is disappointed with Ms. Rosenfeld due to Mondelez’s low operating profit margin and other issues, according to someone familiar with the activist investment firm’s viewpoint. Relational “is expected to increase its (Mondelez) pressure in 2014,” this person said. “If [the CEO] does not hit her numbers during 2014, there will highly likely be calls for management and board changes.”

Activist investor Nelson Peltz in late October accused Mondelez of doing too little to cut costs and said it should be able to boost its operating income margin. His hedge fund, Trian Fund Management LP, began amassing a billion-dollar stake in Mondelez in 2013.

Citing efforts to expand margins and reduce costs, a Mondelez spokesman said, “We’re well positioned to create superior shareholder value.”

SEARS

Edward Lampert‘s big shareholding gives him control of Sears Holdings Corp.SHLD -0.78% , but that doesn’t mean his moves as CEO of the struggling retailer aren’t drawing scrutiny.

Mr. Lampert, a hedge-fund billionaire with scant retail background, formed the company by merging Sears and Kmart in 2005. Having been chairman for years, he became CEO in February. But Sears continues to suffer from falling sales and cash-flow concerns. Sears has already sold off prime stores to raise cash and will spin off its Lands’ End unit.

Mr. Lampert, who controls 48% of Sears, hasn’t shown much interest in handing over the reins, even as his hedge fund reduced some of its Sears holdings in 2013. For analysts, that leaves little room for optimism.

“I just don’t see a place for Sears or Kmart in the future of retailing,” said Brian Sozzi, chief executive of Belus Capital Advisors, who has been particularly vocal in his criticism of the CEO.

A Sears spokesman declined to comment.