A Tall Order for McDonald's New Chief

Following CEO James Cantalupo's sudden death, Charlie Bell will have to move fast to reassure investors and complete the comeback

By Michael Arndt

Only a couple of years ago, few people inside McDonald's (MCD ) Oak Brook (Ill.), headquarters had ever heard of Charles Bell. Little wonder. Though he has been with the hamburger giant since 1976, when he hired on as a part-timer at a restaurant in Sydney, Bell had spent his career running operations outside the U.S. -- in his native Australia and Europe.

They'll know him now. On Apr. 19, his fellow directors at McDonald's named him chief executive officer. Bell, who had been president and chief operating officer since Jan. 1, 2003, succeeds Chairman and CEO James Cantalupo, who died unexpectedly hours earlier, at age 60, apparently of a heart attack. Cantalupo had been brought out of retirement just 16 months ago.

Is Bell up to the job? In promoting him to president and COO, Cantalupo signaled he was prepping Bell to take his place when he went back into retirement. But Cantalupo had envisioned staying on for at least three years, giving the 43-year-old Bell more time to get used to his upcoming role -- and the company more time to get back on track. And Bell needed rounding. Until Cantalupo promoted him, Bell had spent his career entirely outside the U.S. And he has no job experience except for Mickey D.


  Beyond that, McDonald's hasn't yet recovered outside the U.S. In Europe, same-store sales rose just 3.5% in the first quarter and actually fell 2.9% in March. In Asia/Pacific, the quarterly growth rate was a little better, at 5%, but that's still barely a third of the pace in the U.S.

Bell's quick succession did little to mollify investors. McDonald's share price, which slipped 2.9% after it disappointed analysts with its poor overseas results, dropped a further 2.6% on Apr. 19, to close at $26.75. That's its lowest price since mid-February, though still double what the stock fetched in March, 2003, when it hit an all-time low of less than $12.50.

And Bell will have no time to adjust to his new responsibilities. Cantalupo died on the eve of McDonald's biennial convention of franchisees and suppliers in Orlando, Fla. Bell will now take his place. And he'll be emceeing McDonald's annual meeting in May. In between, he'll be on a conference call again with analysts, giving his take on McDonald's first-quarter numbers at the end of April.


  Charlie Bell, a brash go-getter, is the first counterman to head McDonald's since Fred Turner, who retired in 1987. He began working at 15 and steadily rose in the organization, becoming CEO of McDonald's Australian operations in 1993. Seven years later, Bell was put in charge of all the company's restaurants in Asia/Pacific, the Middle East, and Africa. And in 2001, he took over as head of McDonald's nearly 6,000 restaurants in Europe.

As McDonald's veterans have said fondly of previous chiefs, Bell has ketchup in his veins. Indeed, he recalled a line from McDonald's founder Ray Kroc while talking with industry analysts about McDonald's fourth-quarter results in January. Asked about troubles at Burger King, Bell remarked that like Kroc, he would like to ram a fire hose down any competitor's throat if he sees him drowning.

As Cantalupo's deputy, Bell helped oversee a surprisingly swift turnaround of McDonald's operations in the U.S. The company reported Apr. 13 that sales at outlets open at least 13 months jumped 14.2% in the first quarter from a year earlier. Its string of same-store sales increases now goes back 11 months, reversing a two-year slide that contributed to Cantalupo's successor, Jack Greenberg, leaving his job.


  Cantalupo's strategy was simple: He zeroed in on such basics as improving the menu and service at McDonald's, wagering the company would do better if it could draw more diners to existing outlets rather than building more and more restaurants. Though service admittedly still lags behind many of its competitors, McDonald's scored big hits with its McGriddle breakfast sandwiches and with its premium-price entree salads.

Cantalupo also halted Greenberg's attempt to boost sales by venturing into other chains, such as Donatos Pizza or Pret A Manger, a cold-sandwich outfit. And he dialed down earnings and sales expectations, acknowledging that McDonald's was no longer a growth stock.

Though Cantalupo got credit for the upturn, industry analysts say Bell deserves plaudits, too. It was Bell, after all, who often implemented Cantalupo's plans, they note. And as a former store manager -- at 19, he was the youngest person ever to run a McDonald's in Australia -- Bell could relate to McDonald's franchisees and get them aligned with the company's new direction.


  If Bell had been elevated to CEO a year ago, says Andrew Barish, an analyst with Banc of America Securities, he would have been worried -- the comeback plan had just been put together. But today, he says, "Charlie will carry the torch very well. I don't see a lot of change." Also helping Bell, says Barish: Veteran Director Andrew McKenna was named nonexecutive chairman to ease the transition.

Likewise, analyst Mark Kalinowski of Citigroup Smith Barney maintains his buy recommendation on McDonald's stock, calling Bell a strong replacement. He predicts 2004 profits will rise 16% and says McDonald's shares could go up to $32 apiece within the next 12 months.

On Apr. 19, the McDonald's board convened in Orlando at 6:45 a.m., patching in directors who hadn't arrived yet on a conference call. They quickly endorsed the outfit's succession plan, elevating Bell, and leaving the rest of the top management intact. Cantalupo had been scheduled to give the keynote speech to McDonald's owner/operators at 9:30 a.m. Instead, Bell spoke at the convention at the end of the day, receiving a standing ovation.

Smart moves, says Edward J. Zajac, a professor of management and organizations at Northwestern University's Kellogg School of Management. The company avoided protracted uncertainty and told its constituents that under Bell, McDonald's would stay on its new track. A little-known exec not that long ago, Bell's the boss now.

Arndt is a correspondent in BusinessWeek's Chicago bureau

Edited by Beth Belton

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