3M (MMM) is a name that has been kept in the disappointment file for some time under the "dead money" category and it is on the verge of going into the "companies that need new leadership" file.  Usually we like to let the dust settle after there is a big change like this to determine if Wall Street has been to kind or too harsh, but this is one that needs to go on watch.

George Buckley could very well find himself either gone or demoted.  Gone means fired and demoted would be where he remains Chairman instead of Chairman AND President/CEO.  Part of the problem may be the pay.  According to a couple of filings his pay is not even $400,000.00, although it may be safe to assume that the number has changed.  Of course he has Much more in restricted stock options valued around $20 million if they were able to be fully exercised and if they got into profitable levels.  Those numbers may be off, but it doesn’t matter because it is too low by major standards.  But the paychecks are fairly small for being the boss at such a large and powerful MNC such as 3M.  This would make for a short tenure, but if this continues it won’t go without a call for a change at the top.

Dear Mr. Buckley:  If you thought that deciding to stop issuing guidance was a good thing, you couldn’t be more wrong.  3M is a massive conglomerate second perhaps only to GE, and not giving any guidance for the individual components is going to potentially create much more volatility around your earnings in the future.  You should learn from the recent mistakes of Home Depot, Gap, Bristol-Myers, and others.  Dropping guidance projections may make your life easier inside departments but it really turns "setting expectations" into a bit of a dart game instead of a sniper contest.  Also when you announce that guidance will be non-existent you have sent the message that is being interpreted as "If it was good, they’d sure offer it."

There is a reason that Cramer added this stock to the ‘permanent’ SELL BLOCK last night (even though permanent on wall St. means ‘until I say differently’) while on CNBC’s MAD MONEY.  Since he has had a short tenure and since certain issues truly are out of his control it may be too soon to ask for Buckley to leave.  So he’s Not Yet being added to "CEO’s that need to go," but he’s surely on watch.  He may be the nicest man in the world, he may not.  The problem with being a CEO is that some of the shortcomings in the entire operation may not be their fault in reality, but it’s their problem and they are the ones that investors blame.

Over the last 5-days the shares fell and have drifted a tad lower. The stock closed out last week at$78.69 and closed at $78.96 on Monday right before earnings.  The stock closed at $74.70 after the dismal report with guidance (and promise of no more guidance)  and shares are now down under $74.00.  The 52-week range is $67.05 to $88.35.  This stock looked on track earlier last year to get out of a rough $70 to $90 band but that didn’t happen.  If this stock falls down too much and starts putting in lower lows then he is going to be called on to make drastic changes. He can also go out and get aggressive on more corporate change to build for the long-haul.  But doing nothing and slowing the flow of information isn’t the right path. 

He is still young (59-ish) for a CEO of such a large company and he had to fill in for the interim-CEO after McNerney left for Boeing (BA) at the end of 2005.  He was given much credit for the growth and performance at Brunswick (BC), but it has not turned out to be a great year and some change.  Once again, there probably isn’t a call for him to go yet.  But some investors sure might be scratching their heads.

Jon C. Ogg
February 2, 2007

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