AECOM announced this morning that chairman and CEO Michael S. Burke has notified the company's board of directors that he plans to retire. He will continue in the role until a successor is identified or until the firm's 2020 annual meeting, expected to be held in March. Following the appointment of a new CEO, the roles of chairman and CEO will be separated.
Burke, 54, joined the Los Angeles-based firm in 2005 and has served as CEO and a member of the board since 2014. In 2015, Burke was appointed chairman of the board.
The company also announced today a governance agreement with shareholder Starboard Value LP that provides for the appointment of three new independent directors recommended by Starboard, including Starboard Managing Member, Peter A. Feld, to the AECOM board of directors.
During his tenure at AECOM, Burke was at the helm during a period of transition including the pending sale of its Management Services division for $2.4 billion, the move away from a strategy that included bidding on risky construction projects and a shift in focus to profitability. It reported FY 2019 revenue of $20 billion, a 13% increase in adjusted EBITDA, and $27.5 billion in wins that contributed to $60 billion in total backlog.
In the wake of this progress, AECOM’s stock is trading near its all-time high, the company said.
Andrew J. Wittmann, senior research analyst with Baird Equity Research's Industrial Services division, said that the timing for Burke to step down is right.
"Mike Burke's last couple years have set the company on a much better path forward, and has been the driver of our favorable view toward the stock," Wittmann said. "The halting of M&A, returning of capital to equity holders, exit or pending exit from risky construction, and the focus on profitability were all spot-on actions, well aligned with long-term value creation."
With the Management Services sale pending, "the company is at a point of major change ... and the timing seems appropriate," he added.
This isn't the first time that Starboard has made news with its relationship with AECOM. Just after AECOM announced that it was going to spin off its Management Services unit, Starboard, a hedge fund that owns about 3.5% of AECOM's stock, took the opportunity to suggest other changes.
Starboard called on the board of directors to consider selling its Construction Services unit, according to a letter Feld penned to Burke. It said that AECOM's Construction Services unit has experienced earnings volatility that subjected it to the risks of cost overruns and schedule delays. The company responded by saying that it values shareholder input and would review Starboard's letter, but did not put the Construction Services unit up for sale.
"The company is at a point of major change ... and the timing seems appropriate."
Andrew J. Wittmann
Senior research analyst, Baird Equity Research
Under the new governance agreement, the size of AECOM’s Board will expand to 11 members initially. Board changes include:
- Feld will join the board immediately.
- Robert G. Card, president of executive advisory services company The Card Group, will join the board immediately. Card served as the president and CEO of SNC-Lavalin Group Inc., a global engineering and construction company, from October 2012 to October 2015.
- Jacqueline C. Hinman will join by Dec. 16. Hinman is the former chairman, president and CEO of CH2M Hill Cos., an engineering and consulting firm focused on delivering infrastructure, energy, environmental and industrial solutions for clients and communities around the world.
- Director James H. Fordyce, who has served on the board since 2006, has retired.
- Linda M. Griego, who has served on the board since 2005, has retired.
- Additionally, one current director will not stand for re-election at the company’s 2020 annual meeting, ultimately reducing the size of the board to 10 members. That person has not been named yet.
AECOM's path forward as an engineering and project management-focused professional services firm will likely benefit from the appointment of the two new directors with direct industry experience, Wittmann said.
"The two industry executives have excellent industry reputations and experience which we believe will be welcomed by investors," he said.
Wittmann told Construction Dive that he believes it's possible or even likely that one of the new board members will step in as CEO.
"Either Jacque Hinman or Bob Card are likely candidates for the CEO position after the board conducts its internal and external search," he said. "Long-time engineering professionals who were actual engineers also tend to be well received by the employee base, which we believe is a critical aspect to drive higher employee engagement — key to a high-performing professional services company."
In a statement, Burke said he is proud of the company's track record and looks forward to assisting in the upcoming succession process. Board members were quick to praise Burke.
“Through Mike’s stewardship, we have created substantial value for the company and our shareholders over the past year, and we are well-positioned to continue those value creation initiatives as we move into this next phase for AECOM following the completion of the sale of our Management Services business," director Steven A. Kandarian said in a press statement.