Ned Johnson's 20 Years Of Innovation

Ned Johnson doesn't fit the stereotype of an aggressive, dynamic chief executive. Soft-spoken and reclusive, he rarely gives speeches. His senior staff often find him aloof, mysterious, and hard to decipher. His interests include Far Eastern philosophy and Chinese art.

But despite his unconventional style, Edward C. Johnson 3d has increased Fidelity Investment's assets under management by 21% a year for the 20 years he has headed the company. He delights in flouting popular business wisdom, and many observers attribute his success to his ability to come up with original ideas, such as check-writing on money-market funds and individual-sector funds. "He's a brilliant person and often the innovation leader in the industry," says Fidelity-watcher A. Michael Lipper of Lipper Analytical Securities Corp. Johnson encourages innovation among subordinates, to whom he cedes considerable autonomy.

Johnson backs good ideas with long-term investments. He stuck with Fidelity's discount-brokerage company even though it lost money for most of its first nine years. Now, it's the nation's third-largest discount broker.

CLOSED SHOP. One reason Johnson can do things his way is that he owns the company. He has 48% of Fidelity's privately held stock, worth more than $1 billion, and voting control of over 78%. Employees hold the rest of the shares.

Johnson, 62, began at Fidelity as a portfolio manager, and he runs the company in much the same way he ran those early portfolios. His operations consist of 41 separate companies reflecting his varied interests, including an art gallery, a limousine service, and Worth, a new investment magazine whose launch cost close to $25 million.

"I look at things product by product, market by market, fund by fund, service by service," says Johnson. He was influenced by his father, a legendary mutual-fund manager. The elder Johnson, who started the company in 1943, was a student of Eastern philosophies, such as Zen Buddhism. His son has built Fidelity with Japanese-style vertical integration. Instead of farming out chores such as printing account statements, Fidelity handles them in-house.

Johnson's absolute control has a downside: Fidelity has a long history of losing top people, including many heirs apparent, such as then-investment guru Gerald Tsai and former Managing Director John F. O'Brien. O'Brien left in 1989 to become chief executive of insurer State Mutual Cos.

`TRADITION.' Johnson says he hopes that either his daughter Abby, 30, who manages Fidelity's Select Telecommunications fund, or his son Edward, 27, a college student, will "carry on a family tradition" and succeed him one day. And he has a succession plan on the table until they're ready: In the event of his demise, a special committee of family members, outsiders, and top executives would elect a new chairman from among four or five top Fidelity executives, whom he won't name. "Fidelity will remain intact, and it won't be run by committee," he says.

Johnson should be around for a while, though. He's in excellent health and is an avid tennis player and skier. Johnson's father didn't retire until he was 74. His son shows every sign of sticking around for at least that long.

Before it's here, it's on the Bloomberg Terminal.