Technology company Royal Philips announced on August 16 that Philips CEO Frans van Houten will be stepping down as President and Chief Executive Officer in October. He will be succeeded by Roy Jakobs, head of the company’s Connected Care businesses.
In January 2022, the Dutch company’s shares plunged over 15% when it announced that supply chain disruptions will affect its profits while its ventilator Recall might be expanded as more machines were found to be defective. The Philips recall damaged its market value like no other.
With a change in leadership, Philips is hoping to transform its fortunes in the coming year.
Philips Recall and Market Crash
In June 2021, Philips had recalled nearly four million breathing-aid machines amidst concerns that a type of foam used in it could turn toxic. By January it raised its estimate to an additional one million. The extended recall shaved off around 15 billion euros off Philips’ market value. As the Philips recall was put into motion, the company admitted that it is working with health authorities to find a suitable replacement for the foam, but it will first need to get testing and regulatory approvals in place before distrusting it.
The recall had seriously damaged the company’s reputation and increased estimated costs of the Philips recall. The Dutch company was already facing over 100 class action lawsuits and fears of a large claims bill affected Philips’ market value. Overall, the company has recalled almost 15 million ventilators that were used to treat sleep apnea.
In addition to the expanded recall, Philips also cut its estimate for adjusted earnings before interest, tax and amortization (EBITA) by almost 40% in the fourth quarter to about 650 million euros ($739 million), as it continued to scramble for memory chips and other parts.
In November, the FDA ordered Philips to have an independent laboratory perform additional testing to check if the repairs may pose any potential safety risks to patients. Rival company ResMed saw an increase in demand for its products after the Philips recall was issued. At the time, Van Houten had told stakeholders that he expects strong growth in the second half of 2022 – a statement that was met with significant skepticism from stakeholders.
A New Philips CEO
Philips CEO Frans van Houten’s third term was due to end in April. But in a written statement, the company mentioned that Houten and the supervisory board have agreed that the “time is right for the change in leadership.”
“I’m happy with the outcome”, Van Houten told reporters. “It’s always difficult of course to let go, but it is a logical moment to hand over after 12 years. It’s great to be able to hand over to an internal successor with the conviction he will build on the foundation that I have laid.”
Although it appeared the tech firm might consider outsiders for the top job, supervisory board chairman Feike Sijbesma asserted that Roy Jakobs is the right man for the job. Sijbesma clarified, “He has extensive international experience and he increased the growth profile of the businesses he led. He led the ramp up of production following the recall and knows very much about patient safety and product quality, so also from that perspective he is the right person. He can hit the ground running.”
Jakobs is expected to steer Philips towards a promising future while addressing current headwinds and strengthening the supply chain to avoid future hassles.
Sijbesma stated that Jakobs has an “impressive track record in driving performance improvements and value creation across a broad range of businesses – both within and outside Philips – including in health technology, coupled with extensive global leadership experience across Philips’ health systems and consumer businesses throughout the company’s transformation.”
The company will have an Extraordinary General Meeting (EGM) of shareholders on September 30 to appoint Jakobs as Philips CEO and President. Van Houten will continue to support the new Philips CEO in an advisory role until April 30, 2023.
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