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The Wisdom (?) of Very Young Officers Heading Multinationals

Posted by on August 25, 2014

So Burger King has a 32 year old CEO, Daniel Schwartz, who has no previous industry experience. Fresh from his grueling undergrad education, Schwartz went to Wall Street as an M&A analyst, made a couple of other stops before joining 3G (Burger King’s private equity owner) as an analyst in 2005.

A few years later, he’s running a $2 billion dollar a year multinational corporation with more than 13,000 outlets in more than 85 countries.

Not only is the CEO “young,” but he has surrounded himself with similarly aged and relatively inexperienced senior execs, including a 28 year old CFO, a 36 year old president of North American operations, and a 29 year old head of investor relations.

He is the 21st CEO in the company’s history, working under the 6th owner. 3G, the present owner, was founded in 2004, and acquired Burger King in 2010 for $3.8 billion. In February of 2013 they agreed to purchase HJ Heinz, (with Berkshire Hathaway) for $28 or $23 billion, depending on which report you read.

Young execs are a rarity outside of tech and internet start-ups. According to the non-profit Conference Board, a research organization, the average age of an incoming CEO in the S&P 500 is around 53 years old.

The corporation’s revenue has been on a steady decline for the past five years, and that has continued under Schwartz, however, net income has risen slightly. But that’s the goal of any private equity deal, isn’t it? To return value to the shareholders? Despite being publicly traded, 3G is holding 70% of BK shares.

Accomplishments under Schwartz include a corporate commitment to getting out of the corporate owned store business, dropping the less than one year old “Satisfries” product, and this week, an announcement of the intended purchase of Tim Horton’s, Canada’s largest fast food operator. Horton’s has 4,000 locations, with a few in the US and overseas. They account for over 20% of Canadian fast food revenues, and hold 62% of the Canadian coffee market, compared to Starbucks, number two, at 7%. Horton’s was previously held by Wendy’s for a period, but was spun off into a new public entity with an IPO in 2006.

Along with the proposed acquisition, BK would move headquarters from Miami to Canada, the latest US company to  take advantage of lower corporate tax rates outside of the U.S.

Schwartz’s plan to sell off company stores to new or existing franchisees seems counter-productive. The company loses touch with its core customers and becomes nothing more than an intellectual property management company. With most of their revenue coming from franchisee fees, how does a corporation who can’t relate to franchisee operating problems do a good job of serving them? How do they roll out or test new products, other than at the possible expense of franchisees?

I have two problems with people Mr. Schwartz’s age running corporations, regardless of their IQ, academic credentials, or family bloodlines.

It’s not a position to be held by someone for “on the job training.” Having spent the bulk of his career studying spreadsheets for a living, Schwartz (and others his age) have simply not made enough career MISTAKES in order to plan and execute corporate triumphs.

Millenials, having grown up in the technology era, have proven themselves time and time again (as a generation) to be both poor communicators, and self-centered beyond reasonableness.

Like many people his age, Schwartz fails to realize that the number one rule for successful corporations is “if you take care of your people first, they will take care of the business.”  And I believe not operating actual BK outlets is contrary to that philosophy. When the company becomes solely the manager of intellectual property, they lose hands-on contact with their ‘real’ customers.

This is not to say, that in a world driven by private equity, Schwartz isn’t the perfect CEO to do that one thing private equity is supposed to do – put more money in the shareholder’s hands, although generally, individual shareholder’s make up the bulk of a public company’s ownership, unlike BK where the public only holds a 16 % stake.
Am I being an “ageist” with these notions? Nah, more likely an “experience-ist.”

Am I envious? Sure, but I base my opinions on having been hired over and over again during  the past twenty years by private equity and venture capital companies to sit in rapid growth companies as “counsel” to young execs.

For I have made all the mistakes they haven’t.

Do I have a proposal for how old a CEO should be? Not really, and there certainly are exceptions to the norm.

Burger King’s performance has been so dismal over the past years, perhaps 3G’s logic in boosting Schwartz to the top position was “he can’t be any worse than the last 10 guys?”

There are many ways to cut costs and boost profits, and I am sure Schwartz will find them and return a buck or a billion to 3G’s shareholders. Buying cash flow ( like the Tim Horton’s deal) is certainly one way to do that, albeit a no-brainer.

I hope he realizes that one way to boost profits is to dramatically increase revenue, and in order to do that, he’ll have to pay attention to Burger King’s number one problem, in that, like most fast food companies, the product is pretty awful.

Their customer’s tastes in foods and awareness of ingredients and prep methods has, and is, changing rapidly. Until BK’s products reflect these changes, sales will continue to be flat, no matter who is at the helm.

There are certainly other fast food companies succeeding that BK could take some hints from.

 

 

 

 

 

 

 

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