A Costly Loss for Costco?


This article is part of ourRising Star Portfolio series.

It's been a tough week for admirers of star CEOs. First, Apple's (NAS: AAPL) visionary Steve Jobs announced that he's relinquishing his post at the head of the company's daily operations. Now, Costco's (NAS: COST) CEO Jim Sinegal has revealed plans to retire Jan. 1.

Sinegal's not vanishing completely, He will seek reelection to the company's board next year, and will serve as an advisor until January 2013. Perhaps because of that gentle transition, investors have thus far taken the news in stride. Costco's 11% surge in same-store sales in the latest quarter -- 6%, excluding fuel -- might also have lessened the sting of Sinegal's pending goodbye.

However, Sinegal's departure gives investors who value strong managers plenty of food for thought. Sinegal's been worth his weight in gold -- a valuable intangible asset who's steered his company into a strong competitive position against discount rivals like Wal-Mart (NYS: WMT) , Target (NYS: TGT) , and BJ's Wholesale (NYS: BJ) .

Sinegal also set a high standard for behavior that more chief executives in corporate America should follow. His pay has never been outrageous; his base salary last year was $350,000. He has resisted Wall Street's short-term pressures and provided excellent benefits for Costco employees, recognizing that healthy, happy employees lessen worker turnover and help create a better customer experience.

Furthermore, Sinegal has consistently defended his long-term approach to building his company, in defiance of Wall Street's frenetic quarter-by-quarter profit demands. His old-fashioned approach to leadership includes answering his own telephone and paying personal visits to every Costco warehouse.

In fact, Sinegal's exemplary 20-year leadership of Costco was a major reason I purchased shares of the company for my socially responsible Rising Star portfolio. Costco is also a longtime Motley Fool Stock Advisor favorite.

Happily, fans of principled leadership have no reason to ditch Costco now. COO Craig Jelinek, a 28-year Costco veteran, is slated to succeed Sinegal in the CEO position. His lengthy tenure certainly implies that Jelinek's on board with Sinegal's vision.

Costco without Sinegal could be a strange place indeed. I feel so strongly about his wonderful leadership that I had to work hard not to freak out when I saw the news. But there's good reason to believe the strong foundation formed under Sinegal's stewardship remains reassuringly tough to crack.

At the time thisarticle was published The Motley Fool owns shares of Costco Wholesale, Wal-Mart Stores, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Costco Wholesale, Apple, and Wal-Mart Stores, and creating a bull call spread position in Apple and a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter servicesfree for 30 days.Alyce Lomaxdoes not own shares of Costco in her personal portfolio. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.