Franklin's Succession Plans May Overshadow


     (Adds closing stock price.)


     San Mateo, California, April 23 (Bloomberg) -- Franklin

Resources Inc. investors searching for clues about who will

succeed Chairman and Chief Executive Charles B. Johnson, 70, might

study the bronze statue in company headquarters of Benjamin

Franklin reading a book. The pages are blank.

     Ever since Johnson's eldest son, Charles E. Johnson, 46,

resigned after his arrest in September on domestic violence

charges, the future leadership of the U.S.'s fourth-biggest mutual

fund company has been unsettled. Johnson's other son, Greg

Johnson, 41, is co-president of Franklin.

     The succession issue risks overshadowing earnings that are

outperforming rivals. Analysts expect Franklin to report fiscal

second-quarter earnings of 44 cents a share, according to Thomson

Financial. The anticipated 4 percent decline in profit compares

with about a 30 percent drop at rival T. Rowe Price Group Inc.

     ``The Johnson family has placed sons in executive positions

and I don't think that's a positive for shareholders,'' said

Christopher Bonavico, manager of the $84 million Transamerica

Premier Growth Opportunities Fund, who doesn't hold Franklin

shares. He instead owns shares of competitors Legg Mason Inc. and

BlackRock Inc.

     Franklin's board of directors has no timetable for making a

decision, said Martin Flanagan, 42, who's co-president with Greg

Johnson, in an interview.

     ``They're making sure we have a deep bench and things seem to

be working well for us,'' Flanagan said. ``At some point, Charlie

and the board will resolve that.''


                          Beating Rivals


     Franklin, the largest U.S. manager of municipal bond funds,

has done better than most competitors because of the San Mateo,

California-based company's emphasis on tax-free bonds and stock

funds that buy beaten down shares.

     Between 2000 and 2002, shares of Franklin gained 6.3 percent

as the Standard & Poor's 500 Index slumped 40 percent and the

Putnam Lovell NBF U.S. Asset Manager Index fell 7 percent.

     Franklin's assets under management increased 10 percent to

$258 billion in the three years ended Dec. 31. By contrast, assets

industrywide declined 6.7 percent. Franklin's assets included

$52.1 billion of municipal bond funds and $81.4 billion of

international stock funds, mostly invested at Franklin's Templeton

Asset Management unit bought in 1992 for $913 million.

     Shares of Franklin are up 4.9 percent this year, compared

with the 4.5 percent gain in the S&P 500. The shares lost 18 cents

to $35.75 in composite trading on the New York Stock Exchange



                         Succession Concern


     Succession ``is absolutely a concern,'' said Bill Katz, the

head of equity research at Putnam Lovell NBF Securities. Johnson,

who's the son of the company's founder, turned 70 in January. He's

three years younger than Fidelity Investments Chairman Ned

Johnson, who's no relation to the Franklin Johnsons.

     Charles B. Johnson gave up his day-to-day operational role

three years ago and created an Office of the President comprised

of his two sons, Flanagan, who was chief financial officer, and

Chief Information Officer Allen Gula. The Johnson family owns

about 32 percent of Franklin.

     The office lost half its occupants last year. Charles E.

Johnson is scheduled to appear for a May 21 preliminary hearing on

felony charges of domestic violence, battery and false

imprisonment and one misdemeanor count of child endangerment, and

faces 10 years in prison if convicted on all charges. Gula, 48,

resigned after his wife fell ill.


                         `Formal Understanding'


     That's left Greg Johnson and Flanagan handling day-to-day

affairs under what they describe as a ``formal understanding'' to

consult on major decisions like hiring and capital spending.

     ``I think we're in a pretty good position right now with the

existing structure,'' Greg Johnson said in a joint interview with

Flanagan. ``There is accountability with the two of us.''

     The heads of all units report to Flanagan or Johnson except

Vice Chairman Anne Tatlock, 64, who ran Fiduciary Trust before

Franklin bought it in 2001 and still oversees the sales effort to

wealthy individuals. She reports to Charles B. Johnson.

     Flanagan and Greg Johnson also spend time together outside of

the office. Johnson's son and Flanagan's daughter are on the same

Hillsborough little league baseball team.

     Each received an almost identical $2 million in total

compensation last year, although Greg Johnson's salary is $4

higher than Flanagan's. CEO Johnson received $562,107 in

compensation and use of a corporate jet valued at almost $130,000.

     In the fiscal year ended Sept. 30, total expenses climbed 5

percent to $1.9 billion. Revenue rose 7 percent to $2.5 billion.

     Compensation-related expenses increased 5 percent to $645

million in fiscal 2002. Technology-related spending gained 12

percent to $294 million because of a 2001 outsourcing agreement

with International Business Machines Corp.

     Franklin is trying to renegotiate fees in the contract to

account for the lack of growth in his company's funds and the

slower pace of business transactions, Flanagan said.

     ``It's a very fixed-cost structure,'' he said. ``It's

difficult to react to in a volatile revenue environment. I don't

think anybody foresaw how the business would go.''


--Aaron Pressman in the Boston newsroom (617) 338-5822 or Editors: Pickering, Quinson.