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Legg's succession plans in disarray

The Baltimore Sun

Legg Mason Inc., one of Baltimore's marquee companies, is without a successor to longtime CEO Raymond A. "Chip" Mason after James W. Hirschmann stepped down yesterday as president, saying he didn't want to disrupt his family life by moving to Baltimore.

As the heir apparent to Mason, who built the investment company that bears his name, Hirschmann had been splitting his time between Legg Mason's Baltimore headquarters and California, where his wife and two children live. Hirschmann said in a statement yesterday that the arrangement was untenable, both for the company and his family. He will return to his job as CEO of Legg Mason's largest subsidiary, Western Asset Management in Pasadena, Calif.

Wall Street analysts and industry observers said they were surprised by Hirschmann's decision so soon after taking over as president and chief operating officer in May. The lack of a clear successor complicates the changes that have been happening at the company since it undertook a $3.7 billion deal with Citigroup Inc.

The deal remade Legg Mason into one of the world's largest money managers, doubling the assets it manages on behalf of clients to more than $900 billion through a swap of its brokerage business for Citigroup's asset management unit. Mason agreed to stay on when the deal was announced in 2005, and the company said yesterday that the 70-year-old chairman and CEO would remain for at least two more years and reassume the role of president.

"I now fully appreciate that the job requires someone who will devote his or her full time and energy in Baltimore," Hirschmann said in a statement. "I have come to the very difficult decision that it is not in my children's best interest to uproot them from their close friends and family members in California, where we have made our home."

"I am deeply grateful to Chip and the board for their understanding," he added.

In the same statement, Mason said he respects that Hirschmann, 46, has a "close-knit family." Neither was available to comment further yesterday, as both were traveling, spokeswoman Mary Athridge said. Mason was flying to London, where Legg Mason will hold a conference for international investors, and Hirschmann was on his way back to Pasadena.

When Hirschmann was promoted, he was not a well-known figure within the company, but board members said they chose him from a pool of Legg Mason executives because of his success in helping to grow Western and his overseas experience. In the late 1990s, Hirschmann helped lead Western's international efforts from London. He moved his family there during that time.

Analysts said the setback in the succession process is an unwelcome distraction and could set up a horse race among top executives, many of whom were rumored to be in the running before Hirschmann was tapped.

"Whenever you start the process of grooming someone to take over the job, there's an opportunity cost of time and they can't get that back," said Eric L. Veiel, an analyst at T. Rowe Price. "People invested themselves in teaching Jim parts of the business, and he invested his time in learning, and now that's all for naught. To some extent, I'm sure it's frustrating for all those involved."

As far as relations between Mason and Hirschmann, few suspect that they had soured. In fact, the two executives are often compared for their self-effacing style.

"I'd be very surprised if there were something negative going on behind the scenes, given how long they have known each other and worked together," said Franklin Morton, senior vice president and financial company analyst at Ariel Capital Management.

Athridge said that while the successor search has not yet begun, it would include candidates inside and outside the company. She said that many of the business dealings that involved Hirschmann in recent months also involved Mason, so officials expect a smooth transition.

Legg Mason has struggled to execute the complicated Citigroup transaction. Legg Mason's earnings fell below Wall Street estimates several quarters in a row, and the stock sagged from a high of about $140 a share early last year.

Company shares fell $1.82, or 2 percent, to $97.30 on the New York Stock Exchange yesterday.

While much of the back-office conversions necessitated by the Legg-Citi deal are complete, analysts said that Legg Mason still has progress to make in terms of maximizing the company's potential.

In particular, part of the agreement allowed Legg Mason investment products to be sold through Citigroup's Smith Barney brokers, and that potential hasn't been fully realized, Veiel said. Last month, Legg Mason launched its first U.S. branding effort aimed at familiarizing financial advisers with its products.

Legg Mason, which allows its far-flung investment subsidiaries to operate almost autonomously, put to rest this year any speculation about a move away from Baltimore. The company announced in February that when the lease on its Light Street skyscraper expires in 2009, it would move 1,000 Baltimore-area employees to a complex in the city's Harbor East.

Burton J. Greenwald, a consultant to the mutual fund industry, said Hirschmann's departure is unlikely to affect client relationships, and Legg Mason investors are comfortable with Mason at the helm. "I don't think they will lose any momentum," he said.

At Western, D. Daniel Fleet will remain president, a title he took on when Hirschmann became president of Legg Mason, and Hirschmann will return to his duties as CEO, a title he never officially relinquished.

In Pasadena, Hirschmann has built a reputation as part of the new guard of civic leaders. He is a member of the board of Southern California Public Radio, and a member of the advisory board of the Los Angeles Sports and Entertainment Commission. His children are both in high school, and his son plays on the varsity basketball team.

"Commuting back and forth like that, it's not easy," said Eric Fitzwater, analyst at SNL Financial, a financial services data provider. "It was a great opportunity. Anybody would certainly be happy to run a company like Legg Mason, but he put his family first."


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