Diageo’s CEO Debra Crew steps down with immediate effect

United Kingdom | It does not happen often that the CEO of a major listed company resigns three weeks ahead of posting annual results. The departure of Diageo’s CEO Debra Crew on 16 July must have been so sudden – albeit by mutual agreement – that Diageo’s Chief Financial Officer Nik Jhangiani is taking over in the interim as the board searches for a successor.

Ms Crew’s time at the helm of Diageo, the Guinness-to-Johnny Walker drinks group, was just two years. But cynical (or brutally honest) commentators say that her departure has felt possible for at least half that period. Her first problem was that she followed in the footsteps of the late Sir Ivan Menezes, whose strategy of “premiumisation” had reliably hiked profit margins year after year. “Any successor would have found it hard to match his record,” the UK newspaper The Guardian writes.

Her second problem was that she started with a profit warning in November 2023, which came as a shock to shareholders. Worse, she explained it badly. “The cause for the profit warning was overstocking in Latin America in the post-Covid period and it was never entirely clear how Diageo could have been so badly informed about the mismatch between stocks held by local distributors and how much tequila and whisky was actually being consumed on the ground. As the former chief operating officer, Ms Crew could hardly blame others,” The Guardian added.

She also waited too long to revise financial guidance, inherited from Mr Menezes, which was out of date. After Covid’s sales spike, the spirits market became harder to read as consumers turned more cautious. While she clung on to medium-term sales growth of 5 percent to 7 percent, although de facto sales growth was far less, many wondered about her vision.

“Even when Diageo came up with a cost-cutting plan in May, pledging USD 500 million of savings, it was the new finance director, Nik Jhangiani, who got the credit in the eyes of City. The incomer sounded more attuned to the reality that Diageo was living in a harsher operating climate. Only the ever-reliable Guinness brand has proved immune,” The Guardian points out.

What must have hastened her demise is Diageo’s share price performance. Ms Crew had overseen a 40 percent fall in the share price. Therefore, Ms Crew’s immediate exit does not come as a shock to seasoned investors.

Many commentators concur that Diageo could do more to improve its performance in the current business climate. From an annual sales base of USD 20 billion, USD 500 million of cost savings seem modest and the time frame – until 2028 – to get the debt ratios within the desired range looks leisurely.

Mr Jhangiani may well end up as Ms Crew’s successor because he is popular in the City. But, whoever it is, will need to have a clearer plan of what Diageo can do to overcome its problems than Ms Crew.