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Brooke Sutherland

Honeywell’s New CEO Needs to Pick a Lane

What kind of company does Honeywell International Inc. want to be? Its leadership shake-up offers few hints. 

The $128 billion maker of airplane parts, air conditioners and automation equipment announced on Tuesday that Darius Adamczyk will step down as chief executive officer in June and hand oversight of the company to Vimal Kapur, who was named chief operating officer last July. Adamczyk will likely remain executive chairman “at least through April of next year,” he said at a JPMorgan Chase & Co. conference Tuesday, but the exact timeline for when he might cede that role as well is “for the board to really decide.” The transition follows the same script as Adamczyk’s ascension to the CEO post; Adamczyk became COO in April 2016 and officially took on the CEO job in March 2017. He succeeded longtime Honeywell leader Dave Cote, who continued to serve as executive chairman until 2018. Indeed, this latest CEO succession would have been fairly orderly and unremarkable if Adamczyk hadn’t taken pains in July to emphasize that this wasn’t what was happening. 

The appointment of a COO was meant to free up Adamczyk to focus more on acquisitions and customer outreach — areas where he hadn’t spent as much time as he would have liked because he was so wrapped up in the day-to-day details of running Honeywell’s myriad businesses and managing the macroeconomic challenges of the past few years. “Many of you will recall that I served as COO once upon a time as well — this announcement today is not a repeat of that playbook,” Adamczyk said in July. But in announcing Kapur’s appointment as CEO on Tuesday, the board’s lead director, former United Parcel Service Inc. CEO Scott Davis, had this to say: “We have been extremely pleased with the thoughtful leadership transition planning and execution undertaken by our board in the past. We deployed a similar playbook to ensure rigorous planning and development for this important transition."

So is this a succession planning playbook or isn’t it? Is this about doing more acquisitions or something else? Honeywell hasn’t announced any deals of significance since Adamczyk ceded some operating responsibilities to Kapur, despite highlighting $25 billion in firepower at its investor day last year. In fact, Honeywell has completed only one deal larger than $1 billion during Adamczyk’s CEO tenure: the $1.3 billion takeover of life-sciences software company Sparta Systems in 2021. “I wish there were more bolt-on acquisitions that were sensibly priced that we could do,” Adamczyk said Tuesday at the JPMorgan conference. His responsibilities as executive chairman will include business development and “shaping the portfolio,” so theoretically there is still an opportunity for him to find this perfect bargain he’s been talking about for the better part of the past six years or to break the company up.

Adamczyk fended off a suggestion by Dan Loeb’s Third Point LLC in 2017 to shed the company’s aerospace division, choosing instead to spin off the Resideo Technologies Inc. thermostat, air filter and residential security system business and the Garrett Motion Inc. turbochargers unit that went bankrupt in 2020. Even as industrial giants including General Electric Co. and Emerson Electric Co. have announced plans to refocus on one primary business, Honeywell has clung to a diversified structure. Analysts have long speculated about the possibility of a combination of Honeywell’s aerospace division with GE’s aviation arm, but that scenario likely remains a pipe dream as long as the GE business is still saddled with long-term care insurance liabilities. 

Honeywell’s stock has slumped in 2023 amid a rotation into more cyclical assets, and that means the company has basically performed in line with the S&P 500 Index during Adamczyk’s time as CEO, but its overall returns have been respectable, and this isn’t a company where shareholders are clamoring for significant changes. Adamczyk’s tenure is short by large industrial company standards; Cote, for example, was CEO of Honeywell for about 15 years. Adamczyk is 57 years old — the same age as his successor, Kapur. “I’m not getting pushed out by the board. I didn’t do anything improper because sometimes there is that story. I am not sick,” Adamczyk said Tuesday at the JPMorgan conference. “It was just the right time.” Generally speaking, it’s not great if the outgoing CEO feels a need to say these things. The reality may simply be that the past three years have been particularly challenging for any CEO to navigate, between the pandemic, the supply-chain crunch, the return of inflation and now rising interest rates. “Frankly, it’s an all consuming job,” Adamczyk said. “At some point, you’ve got to find balance in your life.”

But Honeywell’s mixed messages on the leadership transition point to a larger challenge for the company. As one of the few remaining industrial conglomerates, at any given time, it’s trying to tell multiple narratives at once. Even the press release on the CEO announcement and the subsequent JPMorgan conference presentation had a sense of whiplash. Honeywell is an industrial software company but also a sustainability company. It’s a growth and innovation story but also a margin improvement story. It wants to do deals but is fiercely disciplined and has no plans to adjust its return hurdles as some other more active acquirers, including Danaher Corp., have done.

There’s a valid foundation for all of these narratives. “There’s lot of goodness in Honeywell,” Kapur said at the JPMorgan conference. “We are adding on more goodness to that.” However, there is such a thing as too much goodness, particularly in the eyes of investors who may struggle to put Honeywell shares into one neat category. At some point, Honeywell might need to pick a lane and stick to it. 

More From Bloomberg Opinion:

  • Picking Up Where I Left Off on Manufacturing: Brooke Sutherland
  • Honeywell CEO Should Tap Into His Inner Dealmaker: Thomas Black
  • Female CEOs Become Less Rare in Industrials: Brooke Sutherland

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. A former M&A reporter for Bloomberg News, she writes the Industrial Strength newsletter.

©2023 Bloomberg L.P.

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