Reed Elsevier's CEO Ian Smith has resigned just 8 months after taking up the reins of the Anglo-Dutch media giant. The company said that the departure was "by mutual agreement," but it did not divulge further details of the split. Smith will be replaced by Erik Engstrom, CEO of Elsevier, effective immediately. Engstrom had previously been ruled out of the running for the position following the departure of Crispin Davis.
Smith was considered a controversial choice for the role. He had previously run construction company Taylor Woodrow and private hospital provider General Healthcare, but he had no experience of the media and information business. Commenting on the departure and choice of Smith, Reed Elsevier chairman Anthony Habgood said that Smith "had the difficult task of leading Reed Elsevier during unprecedentedly turbulent economic times."
It seems that the company's internal politics were equally troubled. Habgood himself only stepped into the chairman's role on June 1, 2009, after previous incumbent Jan Hommen was called in by the Dutch government to help rescue struggling bank ING. Habgood apparently did not hit it off with Smith. According to the London Times, Smith did not get along with Reed's divisional heads either. And he did not impress shareholders when he unexpectedly went to the market earlier this year to raise more than £800 million (about $1.35 billion) to pay down debt following last year's purchase of ChoicePoint.
Whatever the intricacies of the boardroom manoeuvring, what does the announcement signify for the media and information sector and for Reed Elsevier's customers? As the world's second largest listed professional media company (second only to Thomson Reuters), and with brands as diverse as Variety and medical journal The Lancet, as well as Elsevier Science, LexisNexis, and a large events business, the company is something of a media bellwether; it had an annual revenue in 2008 of £5.3 billion (about $8.3 billion) and more than £1 billion profit (about $1.57 billion) before tax, and it employs 33,000 people worldwide.
In a trading statement last week, the company cautioned that the major professional markets, which account for the majority of the company's business, are "more resilient than most but not immune" to economic conditions and that "business trends seen in the second half are expected to continue for the rest of the year and into 2010." Advertising and exhibition revenues have been particularly badly hit and pretax profits slumped in the first 6 months of 2009. After failing to sell the troubled business-to-business publishing division Reed Business Information (RBI) last year, selected magazine titles are now up for sale once again. And all the while the economic water torture continues. Last week, RBI announced the closure of 130-year old Contract Journal, a weekly publication for the construction industry.
It's worth pointing out that a portfolio in which titles such as Farmers Weekly sit alongside New Scientist reflects in many ways the typical mixed bag of holdings of the modern media conglomerate. What sets the successful media company apart from its competitors is its ability to innovate its business models and technology in order to better leverage its content. When Davis joined Reed Elsevier in 1999, its problems were such that Fortune magazine famously asked: "Is this the first company to be destroyed by the internet?" As things turned out, far from it. In 2008, the company generated annual revenues of £2.7 billion (about $4.2 billion) from online services. Much is rightly made of the workflow solutions offered by both Elsevier and LexisNexis. Significantly, these two divisions contributed 68% of the company's overall revenue in 2008.
The company has been fortunate in its strong customer bases in the STM and legal sectors, both of which are less prone to the information commoditization plaguing more generalist providers. But as last week's trading update makes plain, even these traditionally more robust sectors are suffering in the current climate.
So a clear vision and a steady hand on the tiller are needed to negotiate the turbulent waters ahead. Is Engstrom the man for the job? According to Habgood, the 46-year-old Swede "is a proven international executive with over 15 years' management experience in the media sector in the U.S. and Europe, including 5 highly successful years developing our worldwide Elsevier business as its CEO." Those inclined to parse boardroom statements for coded messages may detect in this statement a dig at the expense of Smith. It is certainly the case, however, that Engstrom has a decent track record, having served as president and chief operating officer of book publisher Random House, Inc. and then leading the media and consumer investment at private equity firm General Atlantic Partners. Engstrom is reported to be good operationally and is likely to be perceived as a safe pair of hands.
There are underlying challenges in the business that Engstrom will need to consider. The travails of business-to-business publishers battling falling advertising revenues and chasing possibly mythical online revenues are not going away any time soon. LexisNexis faces stiff competition and even Elsevier, undeniably the strongest card in the conglomerate's hand, is faced with its own problems as academic and corporate library budgets are slashed.
Despite his short tenure, Smith had started to implement a strategy to deal with some, if not all, of these challenges. Commenting on the new man at the helm, Citigroup analysts noted that the move "leaves a hiatus in terms of strategy for Reed Elsevier." Previously, the company "had half a strategy ... now we have none."
Engstrom is his own man, but he will need to move quickly to calm the markets and to work out a way to balance the development of the Elsevier crown jewels with damage limitation for the more troubled parts of the group.