Medtronic CEO Announces his Retirement

William A. Hawkins is ending his reign as leader of the world’s largest medical technology company.

The 56-year-old chairman and CEO announced his retirement Monday from Medtronic Inc. after a rocky three-year tenure defined by disappointing stock prices and controversial business decisions. Hawkins officially will step down at the end of the company’s current fiscal year on April 29, 2011.

Medtronic’s board of directors has already started looking for his replacement, though Hawkins has agreed to remain with the firm until a successor is found.

“I am proud of what we have accomplished during my tenure at Medtronic and am confident that we made the right investments in talent, quality and innovation to position the company for long-term growth and future success,” Hawkins said in a news release. “I will work closely with the board to ensure that the transition to my successor is smooth and effective.”

Although analysts were surprised by the CEO’s announcement, they agreed it was not inconceivable. For starters, the company’s stock has performed poorly during Hawkins’ tenure (Medtronic stock through Dec. 17 had declined about 30 percent since Hawkins was named CEO in August 2007, according to published reports). Some of that weakness can be attributed to the abysmal economy over the last two years, but part of it also can be traced to questionable decisions Hawkins has made during his reign, including the $3.9 billion acquisition of spinal product manufacturer Kyphon Inc. Medtronic bought the Sunnyvale, Calif.-based spinal device manufacturer in the summer of 2007 to boost its flailing spinal product business and help more patients relieve their chronic back pain. But the potential rewards of the deal—one of the largest in Medtronic history—have yet to be fully realized. In a February 2009 conference call with analysts, Hawkins himself expressed his dismay at the corporate marriage, saying “Kyphon, very candidly, has been a bit of a disappointment for us.”

So has Medtronic, at least to some investors. “Certainly, people have been disappointed with [Medtronic] stock’s performance now for quite some time,” Jefferies & Co. analyst Raj Denhoy said. “I know there are some investors who have questioned his decision-making and leadership.”

The change in command at Medtronic is the latest in a spate of recent departures by top healthcare executives, including a transition at Merck & Co. and the abrupt exit of Pfizer Inc. CEO Jeffrey Kindler. These bigwigs—like their colleagues in other industries— face the enormous challenge (and pressure) of driving growth in an economy decimated by high unemployment, Wall Street’s financial meltdown, deflating real estate prices and nervous (as well as cost-conscious) consumers. Medtronic’s troubles over the last few years are not unique to the company: Their product sales have slumped as people who have lost jobs or faced higher co-payments and deductibles in their health plans postpone treatment.

“Anyone who comes in (to replace Hawkins) is going to face the same challenges,” Denhoy noted.

Among those challenges will be slumping sales, product innovation and pricing pressure.

J.P. Morgan analyst Michael Weinstein noted that 62 percent of Medtronic’s sales are tied to businesses that are unlikely to grow and face pricing pressure over the next three to five years. “The question, of course, is what can a new CEO do for Medtronic?” Weinstein asked.

That may be a tough question to answer, though the obvious choices are restoring growth and boosting the number of innovative new products the firm markets. Since August 2007, Medtronic stock has slipped 26 percent, compared with a 15 percent decline for the broader S&P 500 index, said Wells Fargo analyst Larry Biegelsen. “We are encouraged by Medtronic’s plan to bring in an external candidate, which we believe can bring fresh ideas and strategies to help reinvigorate the business and boost company credibility,” Biegelsen wrote in a research note.