Business your connection to The Boston Globe

Question of succession looms large for Fidelity

Fidelity Investments chairman and chief executive Edward C. "Ned" Johnson III is known for a rare attention to detail within his sprawling family enterprise. Example: Displeased with the style of sinks at a fitness center in the Fidelity-owned Seaport Hotel , he ordered them torn out and replaced. A faulty alarm at the South Boston hotel also prompted action: He stripped hotel managers of their responsibility for security.

Episodes such as these have established Johnson's reputation for tight, even obsessive control of the nation's largest mutual fund company. But now there are signs that the billionaire Johnson, 77, has reached a crossroads.

An exodus this year of high-ranking executives has produced a power vacuum at the top, and how the chairman responds will signal whether he is clearing a path for his daugh ter, Fidelity executive and vice chairman Abigail P. Johnson, 45, to succeed him, or if he plans to retain his legendary grip with a new set of nonfamily executives reporting to him.

The question of succession has big implications for Massachusetts and for the millions of investors nationwide who count on Fidelity to manage their nest eggs and retirement money.

The company employs 43,000 people, including 13,000 in Massachusetts, and had revenue last year of $12.9 billion. It manages 395 mutual funds with investments of $1.3 trillion. But the performance of its funds has lagged in recent years, leading to some of the turnover at the top and giving Fidelity's competitors room to grow.

Succession issues are common at family-owned companies, and are normally handled out of the public eye. But few family firms are as large or as visible as Fidelity. As long as Fidelity declines to address the issue, the more difficult it will become for the company to recruit and retain top outside talent and the greater the potential for eroding public confidence, given Johnson's advanced age, said Mauro F. Guillen, a professor at the University of Pennsylvania's Wharton School who specializes in issues facing family businesses.

"It's in the best interest of the company to settle things," Guillen said. "Who knows if Abigail Johnson will be better than someone else taking it over? But what really hurts the company is the uncertainty, especially as Mr. Johnson gets older."

Abigail Johnson is steeped in Fidelity's culture and would appear to have prepared her entire career for the lead role, to a much greater degree than her two siblings. She even lives in the Milton house that belonged to her grandfather, Fidelity founder Edward C. Johnson II . With an MBA from Harvard, Abigail Johnson rose through Fidelity's ranks as financial analyst, mutual fund manager, and president of the core mutual fund division. But after mutual fund performance slipped under her supervision, her father assigned her in 2005 to lead Fidelity's retirement benefits division, which is seen as crucial to the company's growth.

For more than a decade, the company and the Johnsons have steadfastly refused to discuss whether Abigail is in line to take over. All the company has said is that her father has no intention of giving up power.

"He's energetic. He doesn't have any plans to relinquish the role," Fidelity spokeswoman Anne Crowley said last week of Ned Johnson, who is universally known throughout the Fidelity empire as "The Chairman."

"There is a clear succession plan in place and like a vast majority of corporations, we do not publicly discuss it," Crowley said. "It is constantly maintained and updated. The company has been and continues to be prepared for a smooth transition should it be required."

The recent departure of executives, Crowley added, creates opportunity. She referred to Johnson's belief that the Japanese principle of "kaizen" -- which emphasizes constant, continuous change and improvement -- is "a critical component of our culture and success."

Voids in the upper ranks were created by back-to-back departures this year of two high-powered executives, Stephen P. Jonas and Robert L. Reynolds . Their resignations prompted Ned Johnson to bring two trusted Fidelity board members and former high-level executives -- vice chairman James Curvey , 72, and John J. Remondi, 70 -- up from lesser roles to help him run the company, Curvey as a trustee of the mutual funds and Remondi as an acting chief administrative officer. Ned Johnson is overseeing managers of the company's 395 mutual funds. Former Fidelity executives theorize that the current structure -- with three septuagenarians (including Ned Johnson) holding key positions -- is temporary.

"Those are placeholders, not solutions," said a former executive who asked not to be identified because he is not authorized to speak about the company.

The churn in the executive suite coincides with other recent Fidelity news: The Johnsons have been on a campaign to buy back equity shares from employees of the privately held firm, and they have increased family representation on the seven-member board of directors.

The media-averse Johnson family rarely discusses management issues. Family members almost never grant interviews. Requests by the Globe in recent weeks for interviews with Ned Johnson or Abigail Johnson were denied.

Ned's father, Edward C. Johnson II, founded Fidelity in the 1940s. The concept of mutual funds sprang from a tradition of Boston investment trusts that were managed on behalf of New England's Brahmin aristocracy. In that tradition, even though Fidelity now manages trillions of dollars from investors worldwide, the Johnsons attempt to maintain a trustee's discreet silence. Talking about money and business in pedigreed circles, explained the former executive, is just not done.

"They don't talk about themselves. They are very proper Bostonians in that sense," said the executive .

But the family's penchant for secrecy in all aspects of its affairs makes it difficult to discern precisely how Fidelity is managed and what course the Johnsons are plotting for the future.

"It always reminds me of Kremlinology," said Dan Lefkovitz , an analyst at Morningstar who closely follows Fidelity's mutual funds and writes a newsletter about the company. "There's a lot of opacity to the organization. It's very hard to read what is going on there."

Crowley disputed the characterization. She said the firm frequently communicates information to the public even though "Fidelity is a private company and, as such, is not required to disclose details about our inner workings and strategic management decisions."

Once a key innovator among mutual fund companies, Fidelity today faces a number of big challenges, especially mixed fund performance and erosion of market share in stock and bond mutual funds, down to 11.2 percent in May from 11.6 percent a year earlier. It also is awaiting the outcome of settlement negotiations with the Securities and Exchange Commission over allegations that its traders accepted lavish entertainment, travel, and gifts from a brokerage firm seeking Fidelity's business.

The company's growth made the Johnsons rich. Forbes magazine listed Ned Johnson last year as the 35th - wealthiest person in America, with a personal fortune estimated at $7.5 billion. Abigail ranked 16th, with $13 billion. (Fidelity calls both Forbes estimates "speculative at best.") Ned Johnson is a patron of the arts, and the family contributes generously to Boston's cultural institutions, museums, and schools.

Family members enjoy the trappings of the super-wealthy, with their multimillion-dollar summer homes on Nantucket Harbor, overlooking Nantucket Sound in Osterville on Cape Cod, and on Mount Desert Island in Maine. Yet friends and former executives said the family does not flaunt its extraordinary resources.

"Abby can go get a cup of coffee anytime she wants, and the likelihood of anyone tapping her on the shoulder, and saying, 'Aren't you Abby Johnson?' is nil," said Jim Lowell , editor of the Fidelity Investor newsletter. She is married to Christopher McKown , the president of a healthcare consulting firm called Health Dialog , and she has two daughters.

Former executives and analysts who follow Fidelity say Ned Johnson's other two children -- Elizabeth L. Johnson, 44, and Edward C. Johnson IV , 42 -- are not positioned to rival Abigail Johnson for the top job. Nor have they publicly expressed interest, although both have important ties to the company.

Elizabeth Johnson , who lives in Louisburg Square on Beacon Hill, is an equestrian who nurtures her passion for horses with show-jumping stables in West Palm Beach, Fla. Her husband, Robert C. Ketterson , is an executive in Fidelity Ventures, part of a division that manages Fidelity holdings in real estate, building supplies, telecommunications, a limousine service, even a Maine greenhouse that grows tomatoes.

Edward C. Johnson IV was named last year to the Fidelity board of trustees and is vice president at Pembroke Real Estate , its real estate investment arm. Pembroke has developed the waterfront area of South Boston, restored an office building on the Boston waterfront near the New England Aquarium , and has developed and purchased real estate from London to Japan. He is an accomplished extreme skier and avid sailor and majored in recreation and leisure studies at Northeastern University.

The Pembroke website says Edward Johnson IV oversees developments including a residential condominium complex in Melrose. But even on the Melrose residential complex, Ned Johnson was the Fidelity executive who made an impression on city officials, overshadowing whatever role his son played.

The elder Johnson "was very, very much involved in every decision on this project," said Denise Gaffey , Melrose city planner. "All the major design changes would have to be approved by Ned. This was like a pet project for him."

Christopher Rowland can be reached at

Pop-up GLOBE GRAPHIC: Fidelity's dynasty