Diageo chairman to step down

Drinks giant Diageo has confirmed its chairman is stepping down, sparking speculation of an imminent shake-up of the company’s board.

Dr Franz Humer is also currently chairman of pharma giant Roche (Photo: Roche)

The £48 billion company confirmed over the weekend that it is seeking a successor to Dr Franz Humer, the Swiss-Austrian businessman who moved into the chairman’s suite in 2010.

“As a matter of good governance process, the board has clearly started to think about succession and a process is under way. At the appropriate time we will announce our plans for succession,” the company told The Sunday Times.

Humer, who became a Diageo non-executive director in 2005 following a career at Roche, the Swiss pharmaceuticals giant, will be 70 on July 1 and is thought to be ready to announce his retirement at the end of that month to coincide with Diageo revealing its 2015/16 full-year results.

He would then formally step down at the subsequent annual meeting in the autumn.

When Humer joined in 2005, Diageo was expanding rapidly under former chief executive Paul Walsh, a process that was to continue until Walsh himself stepped down in 2013, at what, in retrospect, may look like the peak of the company’s golden era.

Since then the financial crisis, the austerity crackdown in China, a series of hiccups (especially in vodka) in Diageo’s most profitable region, North America, and the on-going tribulations with the takeover of India’s United Spirits have given Walsh’s successor, Ivan Menezes, a hard time.

None of the problems have been of Menezes’ making and he has worked hard to tackle them. A £200m-a year-cost savings programme is almost complete, the China market is stabilising, former finance director Dierdre Mahlan has been despatched to the US to sort out that division and the flambouyant VJ Mallya has been ousted from the boardroom in Bangalore as USL’s profitability improves.

After three years in the doldrums, Diageo’s share price is beginning to move northwards and most analysts have the shares marked as a “buy”. The results in July are widely expected to show worthwhile improvement.

Humer and Walsh were internal appointments, as was Menezes. All had been groomed for their roles within the company. Speculation has already begun that the favoured internal candidate is Lord Davies of Abersoch, Diageo’s senior independent director. As Mervyn Davies, he is the former chief executive of Standard Chartered Bank and a business minister under former British Prime Minister Gordon Brown.

But some large investors will take the opportunity of Humer standing down to take a broad look at Diageo, its strategy and its top management. Some will ask whether a “fresh pair of eyes” from outside the company is required in the boardroom to move the company to its next era.

An outside appointment would lead to speculation of further changes in the boardroom once the new chairman has got to grips with the world’s leading premium beverage alcohol group.

Any new chairman will have to satisfy investors that not only has he or she confidence in the boardroom team but also whether the company has the best long-term strategic aim.

In that comes the riddle of whether Guinness and the African beer interests truly fit into the portfolio. Menezes is clear that beer is a core interest, but while Guinness itself is highly profitable and beer is being used to leverage premium spirits south of the Sahara, the beer division would be very attractive the global giants of the industry. Many analysts have calculated that Diageo would be more dynamic and attractive as a stand-alone spirits empire.

Interestingly, one external candidate being speculated by analysts to succeed Humer is former SAB Miller and Rio Tinto chairman Jan du Plessis. That could be wishful thinking by those who would like to see Guinness sold or hived off. But Du Plessis is renowned for being hard nosed.