Strengthening the Executive Team

The HR Director mustn’t shy away from assessing the capabilities of the top team. They should hold candid conversations with the CEO about skills, succession and whether senior executives are genuinely aligned, or if they are just a loose collection of individuals with competing agendas.

At Criticaleye’s recent Human Resources Director Retreat, the focus was on how to strengthen the capability and cohesiveness of the leadership team. After all, unless senior executives are working together, how else are they going to create an organisation that’s customer-focused, agile and driven by a clear sense of purpose?

Here are some highlights from Day One of the Retreat:

Don’t Get Comfortable

The steady build-up of silos, bureaucracy and legacy-thinking will inevitably result in a business slowing down and becoming estranged from the customer.

Andy Griffiths, Advisor and former President for UK & Ireland at Samsung Electronics, was unequivocal about the need for businesses to quickly adapt to changing markets.

He explained: “We tried to bring Samsung together as one big organisation, but how do you do that when you’ve got nine big silos? We decided to talk about the externalisation of the business as it’s a common mistake for companies to be too inward-looking.

“This entailed talking to the end users and distribution partners to get their perspective. The danger, when it comes to assessing performance, is to just keep looking at the numbers again and again.”

People must have the space to understand the context they’re working in, Andy noted. “The atmosphere, in some ways, has to be one of organised chaos so people don’t get comfortable – complacency is a killer. Each year, you need to tear up the previous business plan and start again,” he added.

Matthew Blagg, CEO of Criticaleye, agreed: “It’s increasingly important for leaders to not be insular. If they’re going to successfully navigate a fast-moving and complex business environment, they must have external reference points in order to draw on a diverse ecosystem of skills, expertise and experience.

“It’s this that will shape the talent agenda of the future and it is why, as a leader, you need to accept that you don’t have all the answers.”

Devise a New Purpose

The notion of organisational purpose is increasingly on the radar of employees, customers and other stakeholders.

Stephen Pain, Vice President of Sustainable Business and Communications at Unilever, commented that it stems, in part, from a loss of trust in big business. Now, there is greater pressure on organisations to be more inclusive and to act with transparency.

“People are much more aware of sustainability as an issue and this is also amplified through social media,” he commented.

It’s up to the senior leadership team to respond to these expectations and not just focus on business as usual. Steven Cooper, CEO, of Personal Banking at Barclays, noted that “creating a sense of purpose galvanises people and enables them to overcome a shock to the organisation”.

At Equiniti, there has been a concerted effort to create a new story for the business as it’s grown. Nicky Pattimore, HR Director at the payments provider, described two attempts at establishing such a narrative: “We devised a new purpose for the organisation to bring the different elements together. HR focused on internal engagement, and marketing concentrated on communicating to external stakeholders; it was quite a powerful message in terms of being a more solutions-based business.”

However, Nicky explained that the leadership at the time didn’t give the support that was required. “In 2014 the business underwent refinancing,” she continued. “After that, the leadership team were reviewed and this resulted in about 70 per cent of the top 40 leadership roles being changed. That was a catalyst for transformation.

“The new team that came in was aligned and we created a clear purpose that was supported by the business’ strategy.”

Don’t Just Pay Lip Service to Succession

Current frameworks for top-level succession planning tend to be inadequate at best, especially when it comes to the chief executive role.

Simon Laffin, Chairman of airline parent company Flybe Group, said: “Succession planning for the CEO is difficult. For one, corporate governance puts pressure on boards to look externally, at least to benchmark. I have seen as many issues through external candidates being appointed as I have internal ones promoted.”

According to Matthew, boards often assume that the answer to CEO succession lies externally, rather than internally: “There tends to be a view that the external person is bright and shiny and will solve all of the problems within an organisation.”

It remains a difficult area for HRDs and boards. In many instances, an organisation’s appetite for succession planning at the top level depends on the CEO’s attitude and openness to discussions about tenure.

“Most organisations pay lip service to succession,” Matthew warned. “From the point of view of the board, they need to be strong in dealing with succession – sooner or later it will be an issue they have to confront.”

Put the Business First

If a HRD is to behave as a true business partner to the CEO and other senior executives, they need to speak the language of the board.

Simon urged HRDs “to put the business first” when talking with executive and non-executive directors. “If you’re describing people development, that means describing it in the context of the business need,” he explained.

He added that it was important for HRDs to bear in mind that boards, out of necessity, tended to be task-oriented. “There is a lot of time pressure at a board meeting and it’s not often a place for much emotional intelligence,” he said. “I would suggest a HRD tries to talk to directors in advance, particularly the remco chair who is often, in effect, the non-executive HRD.

“Also speak to people afterwards and get feedback, not so much on how they thought you did in a board presentation but how they think you should move forwards.”

At the same time, HRDs shouldn’t be overly deferential. “One of the problems is that CEOs don’t always recognise the importance of the HRD,” said Matthew. “Allied to that, I’m not sure HRDs always understand the power they have, or that they’re unwilling to wield it. After all, it’s easy to forget that they have the ability to fire the CEO.”

Next week, we’ll be covering Day Two of the Retreat, which explored how HRDs and senior executives are preparing for the workforce of the future.

Read more on trust and alignment in the top team here.

Or, read about creating passion and purpose here.

Counting the Cost of Unequal Pay

As of April 2017, UK organisations with more than 250 employees will be required to publish the difference in pay between male and female staff on their website. It’s part of a drive by the Government to close the gender pay gap within one generation. Are you ready?

Employers will be given one year from the first annual reporting date of 30 April 2017 in which to publish their data and correct any disparity before the next annual report. There are plans to name and shame the worst offenders in a league table in 2018.

The legislation affects those who ordinarily work in Great Britain and whose contract of employment is governed by UK legislation.

Speaking about the draft legislation, Vanda Murray, Criticaleye Board Mentor and Non-executive Director at FTSE 100 distribution and outsourcing company Bunzl, where she chairs the Remuneration Committee, says: “It will draw attention to those companies that are not paying equally and they will have to do something about it.

“How big an issue it will be for those companies will depend on individual cases, but certainly they will need to act quickly to address any imbalances that they have.”

To help, the Government is rolling out a £500,000 package to support companies implement the regulations, including UK-wide conferences, free online software and support for male dominated-industries, such as technology and engineering, but the onus is on the employer to take action.

It’s hugely important to get the board involved in this right away. Jamie Wilson, Managing Director at Criticaleye, says: “That’s not just because of potential bad publicity, but because it should serve to fuel a cultural shift in organisations that need it. When the culture is skewed so strongly in one direction it probably indicates that there are much wider issues for the company than just that of pay.”

Yetunde Hofmann, Non-executive Director at the Chartered Institute of Personnel and Development (CIPD), advises: “Take the opportunity to review, revise and realign. CEOs would be wise to commission internal research looking at statistics, history and trends throughout the organisation.”

Challenges and concerns

The data is to be reported using five calculations including the mean and median differences, quartile figures and two calculations on bonuses. “With these five different measures, I don’t think there’s a lot of hiding room for employers. Everyone is quite surprised at the detail and amount of work that’s going to be involved,” says Elizabeth Lang, Partner at international law firm, Bird & Bird. “Because the data is going to be cut in so many different directions, the only way employers will be able close to the gap comprehensively is by addressing the issue.”

It will take a sizable chunk of time and money, Elizabeth explains: “Every individual’s numbers are going to have be calculated individually, so when you’re dealing with 250 or more employees, it is going to be a big administrative burden.”

Even those that already collate such data may be surprised by the severity of the gap. Under a previous voluntary gender pay gap reporting scheme set up by the Government in 2011, about 275 employers signed up, yet only five went on to publish their pay gap information.

One of the biggest concerns regarding pay gap reporting is how that data will be presented, which is something yet to be ironed out.

Mel Rowlands, Deputy Group General Counsel and Company Secretary at FTSE 100 company Smiths Group, says: “I think the problem with the requirements is that they don’t take into account different businesses and the way men and women lean towards certain roles within them. The challenge for businesses will be to explain their figures properly so that their statistics are not read out of context or with them seeming defensive. For example, I can see this being an issue for businesses with high proportions of male engineers versus high proportions of female call centre staff.”

Supporting this view, Jamie at Criticaleye says: “In principle, it’s a step in the right direction, but these sorts of initiatives are always more complex than they appear so great care must be taken in the actual reporting of the statistics.”

There are no legal penalties for non-compliance and any ramifications will mostly be reputational. “Having a gender pay gap does not mean that there is any unlawful activity going on within an organisation because there can be a number of valid reasons for having a disparity in pay. That’s very important to understand,” Elizabeth says.

Taking action

One might think the simplest and fairest option for companies to avoid a bad reputation or threat of tribunal would be to make the necessary adjustments to remuneration, but it may not be that easy. Steven Cooper, Chief Executive of Personal Banking for the UK and Europe at Barclays, explains: “Should there be a gender pay gap, one of the challenges would be the increasing cost base, but you must have equality otherwise what does that say about the values of the business and how you treat people?”

A slower yet less costly way to tackle it could be to focus on the new hires as they naturally enter the organisation, providing them with equal pay under transparent polices. “But even that is not black and white,” Yetunde from CIPD points out. “You might want to increase diversity in the business and hire a woman on the basis of her potential, someone who hasn’t quite demonstrated the track record of another seasoned candidate who just happens to be a man. Do you pay her the same on the basis of equal pay or less, but offer a great development programme?”

While the regulation is a great step towards pay equality, the issue is much bigger, as Mel notes. “This legislation doesn’t really address the wider need to look at why there is little diversity in certain industries and women aren’t represented at senior levels across all businesses,” she says.

Steven adds: “At Barclays, we have gender parity on pay, but the issue we still need to talk about is gender parity on roles… Our employee split is 51 per cent male to 49 per cent female and we look at that very closely. What skews it is that we have more men at the most senior positions and we are trying to get a better balance on that.”

It’s evident that gender equality in the workplace is not just about pay. As Mel points out: “Boards need to be up to speed with a number of new rules and regulations that are coming into effect around culture and social responsibility − and the new gender diversity rules are just part of that.”

Find out more about the gender pay gap legislation, how to report it, and what it means to your business 

Or, join our next Women in Leadership event.

By Mary-Anne Baldwin, Editor, Corporate

What are your thoughts on the new legislation? If you have an opinion that you’d like to share, please email Mary-Anne on: maryanne@criticaleye.com

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Creating a Mindset for Fast Growth

The challenge for the leaders of fast-growth companies is to master the art of reinvention. It’s a matter of creating teams that possess both the capability and desire to keep rebuilding and improving the business model in order to gain competitive advantage.

Not every company will make the journey. Criticaleye looks at some of the common barriers that need to be overcome when scaling-up a business at pace:

Attitude is everything

The priority for any leader of a fast-growth business is to bring in people who can cope with the demands of ongoing change. Jim Macdonald, CEO at Calvin Capital, says: “We altered our recruitment policy. We had always recruited on a skills and capability basis but changed our first priority to recruiting on the character of the individual and whether we believed they could lead us to growth.”

For Joanne Thompson, CEO of Penrillian, a shift in mindset has been crucial as the software company moves from providing clients with one-off technology solutions, to rolling out its own white-label products.

“The most critical barriers for us to overcome are the ones we set for ourselves through our own lack of imagination, or by too readily accepting the constraints imposed by our current environment,” she says. “By accepting a limit on what’s possible, you make it more difficult to innovate and impossible to completely re-envision an environment in which you’re able to grow rapidly.”

Matthew Blagg, CEO of Criticaleye, agrees that leaders must promote a shift towards a forward-thinking approach. “A business going into growth needs to unlock inhibitors and ensure it is not wedded to the things of the past. It must create an adaptive culture, recognise the potential it has and speed up all elements of the business,” he says.

Stay on top of the numbers 

Many promising businesses have strayed off course due to poor financial management. As Jim notes: “One of the common barriers is not having the funds; there’s no point having a strategy for growth if you don’t have the finance behind it.”

This is something Jay Patel, whose experience covers numerous rapid-growth businesses from publishing to online retail, has learnt first-hand.

Jay, who is now CEO of IMImobile Europe, a software and solutions provider for mobile communications, explains: “A lot of entrepreneurial companies misunderstand revenue growth for success. They typically over service clients and don’t make any money. They then tend to struggle when it comes to funding future growth.

“Anyone looking at growth initiatives should make sure they measure it properly − revenue can be a crude measure.”

Walking the M&A tightrope

An acquisition can rapidly change the fortunes of a business, for better or worse. This is why plenty of thought and planning must go into deciding whether the target company is the right fit.

It’s something that Steve Richards, CEO of Casual Dining Group, knows all about. The multi-branded restaurant company, with subsidiaries including Café Rouge and Bella Italia, acquired the chains La Tasca and Las Iguanas last year.

In the case of Las Iguanas, Casual Dining Group set up a devolved structure. Steve explains: “Anything to do with the consumer, people or brand, we left within the business. The Managing Director of Las Iguanas is continuing to run it with his team. We’ve integrated his IT and finance but haven’t gotten in the way of his business. Getting that balance right is at the heart of the matter.

“Whenever you buy a business you have to remember that you’re doing so because you admire it. We loved lots about Las Iguanas and the fact it’s so scalable. The worst thing you can do when you buy a business is to homogenise it and turn it into your own. So many companies do that through M&A, but that certainly doesn’t work for a consumer-facing business.”

The tactics for combining two businesses will vary by sector, but in no case should the newly acquired entity become a distraction. Stuart Lisle, Tax Partner at professional services firm BDO, comments: “One of the big problems is not planning for integration ahead of doing the deal – a lot of companies focus on the deal first and then think about integration. Issues can build quickly when the two businesses are working on different systems or have different cultures.”

Build capability in your team

Questions on talent, capability and resources will dominate the thoughts of a CEO leading a business through rapid growth. Among the many questions, they will want to think about how much to spend on training and development, how you raise professional standards and improve processes, and whether the senior leadership team is capable of stepping up to the next level.

Joanne explains that she will need to build the company’s workforce in order to match its growth trajectory: “What I am doing at Penrillian, as well as ramping up our permanent resources quickly, is looking to work with partners and contractors while in the process of achieving critical scale. That enables you to recruit in slower time the right people who are able to stay with you on your journey.”

For Jay of IMImobile, an individual and collective sense of responsibility is important. “The one thing I always ask when a business is entering a period of growth is which one of my team is going to handle it? If you don’t have that individual who has put their hand up it’s very difficult to sustain growth, or even believe that you’ll succeed,” he says.

“We have people in 15 territories and operations in about 70, and the one characteristic in people across all those areas is that they are entrepreneurial self-starters that we’ve built trust in.”

Matthew notes that the qualities and skills of the team you require are likely to change over time. “Rapid growth doesn’t go on forever. You can have a team in which the executives are great for growth but not consolidation and the converse is true. A team can evolve if the appetite is there but you’ve got to invest in them as you’re going along,” he concludes.

By Mary-Anne Baldwin, Editor, Corporate

Do you have a view on this subject? If you have an opinion that you’d like to share, please email Mary-Anne at: maryanne@criticaleye.com

Interested in reading more? Find out how to stay calm in an overheated M&A market,
Or, discover the six steps to unlocking performance.

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