041160 McDonald's Ill CEO Raises Investor Worries

Chicago, IL - This month, Charlie Bell's battle with colorectal cancer kept the 44- year-old chief executive officer of McDonald's Corp. from attending a meeting of 3,500 top managers in Australia, his home country. This came on top of his last-minute decision last month to drop out of an earnings conference call with Wall Street restaurant-industry analysts -- again because of his illness. In August, Bell didn't attend the McDonald's- sponsored Olympic Games in Athens.

Bell's recent invisibility is raising questions among some investors and analysts about who is making decisions at the world's largest restaurant company. Heightening this uncertainty is the lack of any second in command to Bell, who became CEO last April following the death of 60-year-old Jim Cantalupo.

"It's an issue for us, something we're monitoring very carefully," says David Kolpak, managing director at Cleveland-based Victory Capital Management Inc., which owns about four million shares of McDonald's. "If you have turmoil or confusion within the management ranks about just who is running the show, it could result in execution problems."

So far, the turnaround that began two years ago under Cantalupo has continued under Bell, whose cancer was diagnosed only days after he became chief executive. Sales and profits remain strong.

Some observers contend that management is so deep and systems so well- established at McDonald's that Bell's availability isn't an issue. "The company's on auto- pilot. Things are going well," says John Glass, restaurant-industry analyst for CIBC World Markets, in Boston.

Some analysts express concern -- but not about Bell. Lackluster results in Europe, the company's second-largest market behind the United States, have prompted some analysts to downgrade McDonald's stock in recent months. Glass, for instance, cut his rating on McDonald's stock in April to "perform" from "outperform," largely because of concerns about the company's European sales. But this is far from a consensus. In fact, some analysts are rating the stock a "buy."

Yet the argument that the top job isn't so important at a company as deeply structured as McDonald's doesn't jibe with recent history. It was only two years ago that McDonald's was deeply troubled, its sales sputtering, its profits fizzling. In 2002, under Chief Executive Jack Greenberg, McDonald's posted its first quarterly loss as a public company. But after he gave way in January 2003 to Cantalupo, a company veteran who years earlier had lost the race for the top job to Greenberg, sales and profits revived. Sixteen months later, Cantalupo was preparing to deliver a triumphant address to a meeting of McDonald's franchisees when he died suddenly, apparently of a heart attack.

Within hours, the McDonald's board promoted Cantalupo's undisputed heir apparent, Bell, to the top job. Charismatic and young, Bell had been a rising star ever since he had started flipping burgers at an Australian McDonald's as a teenager. Before becoming CEO, he turned around depressed operations in Asia as well as Europe.

The official McDonald's line about who is running the company has changed with the ups and downs of his condition. The company has said that Bell remains firmly in charge, and that he has delegated none of his responsibilities to others. Yet it has also said that he is relying on senior executives, some of whom in July received promotions in what some restaurant-industry observers viewed as a possible prelude to a post-Bell leadership team.

Industry analysts are hesitant to publicly comment about Bell's health, not wanting to appear crude. Privately, however, some expressed concern that instability in McDonald's front office could imperil the third year of the company's turnaround. What's more, they fear that any top-management shifts could lead to conflicts in strategy, and in particular slowed menu development -- problems that have plunged rival Burger King into financial disarray.

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