Bangalore: The world’s largest spirits company Diageo Plc expectedly named operations chief Ivan Menezes as its new chief executive officer (CEO) on Tuesday. Menezes will replace long-time CEO Paul Walsh when he retires in July.
Diageo, the maker of Smirnoff, Guinness and Baileys, eased Menezes into the top job, after appointing him chief operating officer (COO) in March last year and then to its board of directors a few months later.
“This has been a well-managed and well-flagged transition. When Menezes was named COO, Paul Walsh was reasonably candid that he would be in the frame to be CEO,” said Martin Deboo, analyst at UK-based Investec Bank. “There was a general feeling that Walsh would leave next year, but (Menezes’ appointment) was not a surprise at all,” he said.
“When Ivan was appointed to the board, it was obvious that they were giving him the opportunity to prove to the other directors that he was the right person for the (CEO) job,” said an analyst at a London-based brokerage who declined to be named.
India-born Menezes, a graduate of the Indian Institute of Management at Ahmedabad and of Northwestern University’s Kellogg School of Management, hails from a family of high-fliers. His elder brother Victor Menezes is the former senior vice-chairman of banking giant Citigroup and was tipped to take over the financial services conglomerate till Sandy Weill got the job. Menezes’ other sibling Michael Menezes is a vice-president at Canada’s Bank of Montreal while their father is a former chairman of India’s Railways Board.
Menezes joins the ranks of India-born executives who have made it to the top echelons of multinational companies. PepsiCo’s CEO Indra Nooyi, Unilever’s COO Harish Manwani and Reckitt Benckiser’s CEO Rakesh Kapoor are other prominent examples.
“It’s a phenomenal achievement for Ivan—for a European company to appoint an Indian CEO... Diageo is not like a Unilever where they have an active pipeline of leaders going abroad from India. And even Unilever hasn’t had an Indian CEO,” said Santosh Kanekar, ex-marketing chief at Diageo’s Indian unit.
Menezes began his career with Swiss consumer goods maker Nestle in the early 1980s, and also held positions with Whirlpool Corp. and consultancy Booz Allen Hamilton. He joined Diageo in 1997, when the company was formed through a merger of the legendary brewery Guinness and Grand Metropolitan, a conglomerate.
Menezes, along with Paul Walsh, was part of the team in charge of integrating the businesses. In the early 2000s, Menezes was named chief executive of Diageo’s North American operations, a post he held for eight years. “Ivan did a good job at North America, which is Diageo’s most important market in terms of profit. He guided them through the recession which was very tough,” said UK-based analyst Dirk Van Vlaanderen at Jefferies.
“He built a lot of credibility by consistently growing the business there and he left in a very strong position,” Vlaanderen said.
People who have worked with him say that apart from being a smart strategic thinker and capable operations head, Menezes is a well-liked executive.
“He’s a soft-spoken guy and he’s got great people skills. For an IIM grad, he’s not very aggressive. He has a collaborative approach to management but he gets his way,” said Kanekar, the ex-Diageo executive. “He understands the entire process very well—manufacturing to the logistics to the point-of-consumption. It’s rare to find people in the industry who have a comprehensive understanding of the business,” Kanekar said.
In October 2008, Menezes was also made chairman of Diageo’s Asia Pacific business, a post which will help him drive the company’s current push to increase sales in emerging markets.
As growth in its core Western markets dries up, Diageo has been acquiring companies in countries such as China and Mexico and wants emerging markets to contribute 50% of business by 2015 from over 40% currently.
As part of that strategy, Diageo announced in November that it would pay $2.1 billion for a 53.4% stake in Vijay Mallya’s United Spirits Ltd, India’s largest distiller. The deal is expected to be completed in the quarter to June, even though Diageo will end up owning roughly 30% or lesser.
One criticism of Menezes and the Diageo executive team is that they have moved too slowly in India, where global rival Pernod Ricard is the most profitable distiller. Diageo had decided to exit the liquor business in India in the early 2000s, a move that has since looked less than smart given Pernod’s success and the consistent double-digit growth in the market for most of the past decade.
Diageo tried to buy a stake in United Spirits around the time Menezes was named chairman of the Asia Pacific business, but a deal didn’t materialize then because of differences over valuation.
“He was instrumental in getting the (United Spirits) deal this time. He wanted a stronger presence in India and had been chasing the deal for a while. He was obviously eager to close it this time,” said a person involved in the negotiations and who spoke on condition of anonymity.
Menezes steps into a role that has been held by one of the most respected executives in the liquor business. When Walsh was appointed CEO at Diageo in 2000, it was a diverse company with interests in alcoholic drinks, food and restaurants. He identified the strong potential of alcohol and quickly sold non-core assets such as Burger King and Pillsbury. The company’s stock has more than tripled under his management, according to Bloomberg.
“Paul is an outstanding chief executive. He has served our business, its shareholders, employees and partners with enormous imagination and dedication over the past 13 years,” Diageo chairman Franz Humer said in a statement.
Walsh, who will step down from Diageo’s board of directors in September, will remain with the company for a year to help with the transition.
“They’re certainly big shoes to fill. Diageo’s been a great story over the 13 years that Paul Walsh has been in charge. But I don’t think there’ll be a big change in strategy. The company is in good shape globally, and Ivan would obviously have been heavily involved in developing the strategy to get them there,” Jefferies’ Vlaanderen said.