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What McDonald's Newest Cook Faces

By Michael Arndt If anybody in Corporate America doesn't see the need for having an up-to-date succession plan, take a look at McDonald's Corp. (MCD). The burger chain has adeptly handled the sudden loss of a chief executive -- twice.

Just seven months after installing a new boss, McDonald's has had to do it again. Vice-Chairman James A. Skinner, a 33-year veteran and effectively the fast-food giant's chief operating officer, was moved up to CEO late Nov. 22, when his seriously ill predecessor, Charles H. Bell, resigned.

MAINTAINING MOMENTUM. Bell, 44, was diagnosed with colon cancer shortly after he became CEO last April, when his predecessor, James R. Cantalupo, died unexpectedly of a heart attack after only 16 months at the helm. Cantalupo had been grooming Bell as his eventual replacement, and he appeared hale and hearty at McDonald's annual meeting last May. The exec even joked about how he hoped to keep his head of thick hair despite chemotherapy.

But over the last few months, Bell had largely dropped out of sight as he underwent followup surgery and more chemotherapy. He skipped McDonald's third-quarter conference call with equity analysts and investors in October and was unable to fly to Australia -- his homeland and where he started with the outfit at age 15 -- for a management confab in mid-November.

Skinner's challenges are twofold: First, he must maintain Big Mac's momentum. The Oak Brook (Ill.)-based company has now logged 18 consecutive months of comparable-store sales gains, thanks to a back-to-the-basics plan that Cantalupo introduced after he was summoned from retirement to reinvigorate the chain.

BEHIND-THE-SCENES SUPPORT. Sustaining that streak will only get harder, however, since the base month's numbers keep getting higher. McDonald's also will need new products to succeed its latest hits -- the McGriddle breakfast sandwiches and its line of premium salads -- and improve its still-spotty service to keep diners from drifting to other eateries.

Second, Skinner must buck up the morale of McDonald's stunned employees and franchisees. Though he's clearly part of the status quo, Skinner is the fourth CEO at McDonald's since Jack M. Greenberg was forced out in December, 2002, after a prolonged sales slump. Each of the transitions, moreover, was abrupt. As Skinner acknowledged in a Nov. 23 message to employees and franchisees: "Change is always challenging." Also, the new chief can seem wooden and even dour, in sharp contrast to Bell, who was a nonstop cheerleader for Mickey D.

Still, he should be able to pull it off. Skinner, 60, who started with McDonald's in 1971 as a trainee restaurant manager, was promoted to vice-chairman by Cantalupo in January, 2003, and had direct oversight of McDonald's operations in Asia, the Middle East and Africa. But from behind the scenes, Skinner had been running the company on a day-to-day basis lately as Bell's health deteriorated.

"In the course of his 33-year career at McDonald's, Jim has led every restaurant geography of the company, and, like Charlie before him, his McDonald's roots are in the details and discipline of restaurant operations and customer service," McDonald's Chairman Andrew J. McKenna said in a statement.

OTHER PROMOTIONS. Following the change in command, analysts Andrew M. Barish of Banc of America Securities and David S. Palmer of UBS Securities rushed out reports to reiterate "buy" recommendations of McDonald's stock. Their reasoning: Skinner and the other McDonald veterans in his inner circle will stay the course. "McDonald's is in the middle of a multiyear recovery," writes Palmer, "and current initiatives should have enough momentum to be self-supporting in the near term."

Barish figures McDonald's shares should hit $34 apiece within the year, while Palmer predicts the stock should go as high as $35. The shares, which set a 52-week high of $31 on Nov. 8, closed Nov. 23 at $30.10, up 72 cents or 2.5%.

Meantime, the $18.7 billion outfit isn't leaving anything to chance. As they anointed Skinner, McDonald's directors also promoted Michael J. Roberts, chief of McDonald's U.S. operations, to president and COO. Skinner and Roberts also were added to the McDonald's board. Roberts, 54, is now expected to succeed Skinner within a few years when the new CEO retires. But as McDonald's management knows, his ascension could come sooner than expected. Arndt is a senior correspondent with BusinessWeek's Chicago bureau

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