Cantalupo – A Model CEO

The Motley Fool thinks McDonald's Jim Cantalupo is the CEO of the year.

Longtime McDonald's (NYSE: MCD) executive Jim Cantalupo came out of retirement last December to try to turn around a sagging business that appeared to be — and in many ways was — but a shadow of its glorious former self. By engineering a remarkable turnaround in an extremely short period of time, Cantalupo gets my vote for CEO of the year.

With McDonald's currently doing very well — last week, it reported that total systemwide sales increased 11.1% in September (6.0% in constant currencies) and U.S. same-store comps were up a fabulous 10.0% — it's easy to forget how bad the company's results were, and the contempt hurled its way by investors and the media.

I'll admit I am impressed. I usually steer clear of restaurant stocks because the industry is so competitive, but I have followed McDonald's over the years because at times it has been a darling stock on Wall Street. That status may be returning. Here are the problems McDonald's faced.

like many long-standing, high-growth companies, McDonald's began to saturate its core markets yet failed to recognize this and slow its growth. Consequently, new restaurants performed poorly and cannibalized established ones, margins and returns on capital fell, and the stock followed. McDonald's compounded this mistake by engaging in an insane price war with Burger King and failing to take care of the basics that made the company great: tasty food, clean restaurants, quick service, and consistency across the chain. In addition, it pursued new restaurant concepts that proved to be little more than expensive distractions.

Cantalupo deserves credit for recognizing the problems and taking appropriate actions: scaling back growth and slashing capital expenditures, winding down the price war, putting non-core concepts on the block, reemphasizing the basics, etc. But I'm not hailing Cantalupo as CEO of the Year for adopting the right strategy — the basics were obvious to nearly everyone. The real challenge was actually carrying out the strategy.

Tough stuff, to be sure. How did Cantalupo turn McDonald's around?

How many times have you seen a CEO announce a new strategy that appears to be exactly right for turning around a declining business, but then nothing happens and the company continues to fade?

I see it happen all the time, generally for three reasons: The company's problems are so intractable that even the best-laid plans can't save it; the CEO is just telling the investment community what it wants to hear but isn't really committed to change; and/or the culture is so ingrained and the bureaucracy so entrenched that the company successfully resists the CEO's attempts to change it.

The key was execution. Cantalupo was able to do what he said he was going to do – unlike many CEOs who lack this critical leadership skill. Pretty impressive.

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On a related note, I've mentioned this before, but since I have picked up some new readers recently I will say it again. Execution: The Discipline of Getting Things Done by Larry Bossidy is the best business book I have ever read. Check it out.