AT&T ran a months-long search to replace CEO Randall Stephenson but ultimately couldn't find an outside executive with suitable experience in both telecommunications and media that satisfied hedge fund Elliott Management, according to people familiar with the matter.
Elliott, the hedge fund run by Paul Singer, remains skeptical of incoming CEO John Stankey's decision-making but has decided his understanding of AT&T's sprawling assets makes him a better candidate to take over for Stephenson than any external candidate, according to the people.
AT&T announced Friday that Stephenson, 60, will retire July 1 and will remain executive chairman of the board until January.
Stankey, the current president and COO, was the only internal candidate who was a finalist to take over for Stephenson, said the people.
Elliott said Friday it "supports John Stankey as AT&T's next CEO."
"We have been engaged with the company throughout the search process, which was a robust one, including a range of highly qualified outside candidates and overseen by independent directors," Elliott Management partner Jesse Cohn said in a statement. "We look forward to working with John as he begins his term as CEO."
This appears to be an about-face from Elliott's stance from last year. Elliott acquired a stake in AT&T because it didn't trust its leadership and path forward. Elliott was skeptical of Stankey's decision-making as an architect of AT&T's acquisitions of DirecTV and Time Warner. It advocated that AT&T focus on divesting assets and lowering debt, pushing the largest U.S. wireless company to sell DirecTV, one of the assets Stankey has steadfastly defended. AT&T has no plans to sell DirecTV, according to people familiar with the matter.
"AT&T has suffered from operational and execution issues over the past decade, for which the current leadership team is accountable," Elliott wrote in a Sept. 9, 2019, letter. "We've conducted hundreds of interviews with former executives, competitors and partners, all of whom have raised the same question we have: Given AT&T's history of strategic and operational issues and the very different skills needed to manage some of these new businesses, does AT&T have the right mix of leadership at the Company?"
Over the past five months, AT&T has run an executive search process led by board member Beth Mooney, who chairs the board's human relations committee. The company hired headhunter Jeff Sanders, vice chairman and managing partner of the North American CEO practice for Heidrick & Struggles, to find suitable candidates to replace Stephenson, said the people familiar with the matter, who asked not to be named because the process was private. A short-list finalist group was made of several telecommunications executives, one large media company CEO and an outside executive with operational experience.
"The HR committee's process was robust and it considered internal and external candidates," said an AT&T spokesperson, who declined to detail the candidates or consultants used in the process. "The HR committee and the consultants they formally retained were the only ones involved in the search process."
None of the candidates understood the entirety of AT&T's business as well as Stankey, according to people familiar with Elliott's thought process. AT&T owns a large telecommunications business, with wireless and wireline technology, and a sprawling media empire, which includes HBO, CNN, Turner, DirecTV, Warner Bros. Entertainment, regional sports networks and other assets. After interviewing the candidates, Elliott came to support Stankey as the new CEO because hiring someone without enough knowledge of AT&T's empire, especially during a pandemic, could be disastrous, said the people.
Elliott also became more comfortable with Stankey because the hedge fund is confident he won't be making any new acquisitions for a long time. AT&T will be focused on divesting more assets and lowering its debt in the coming years, Elliott believes, said the people.
A spokesperson for Elliott declined to comment.