Too Much Information

Annual reports are fast becoming the dustbin for every imaginable corporate risk. This presents a number of headaches for audit committee chairs as they seek to produce accounts that are true and fair, while still meeting expectations on compliance, bribery, culture and business model disruption.

Given the scope of what needs to be covered, keeping a sense of direction and purpose can be tough. Scott Knight, Head of Audit and Assurance at BDO, comments: “The audit committee must not simply respond to management and the auditors, or just edit the debate in some way. They need to control the agenda, even if some of it is merely putting a marker in the sand and saying: ‘Right, this issue is important but we will come back to it in a year’s time.’”

John Allkins, who is Chairman of the audit and risk committee at Punch Taverns, and Non-executive Director at Renold, Fairpoint and the Sweden-based Nobina, says: “The audit committee chair needs to be able to run a process that enables everybody to have their say, even if they are not the ‘financial experts’…. Provided each person can contribute, the committee will arrive at the best answers.

“That committee as a whole should talk to management, advisors, internal and external audit – and actuaries, if pensions are a big issue for a business.”

On the table

The pressure is mounting on audit committees to show a greater degree of scrutiny, notably in light of substantial EU audit reforms. Tom Beedham, Director of Programme Management at Criticaleye, comments: “When a public interest entity runs aground, accusations will inevitably be levelled at the non-executives about how they allowed a crisis to occur.

“Such criticism is justified if NEDs categorically fail to ask pertinent questions to both the CEO and finance director, not to mention each other.”

It means holding a wide range of conversations. John says: “I like to communicate beyond the normal committee members, including the CEO and CFO. I will talk to the head of internal audit, the financial controller, and the company secretary, who will be involved with issues like whistleblowing and bribery. That way, you tend to get a total view of the business.”

The axis between finance director, auditor and audit committee chair is vital. Theresa Wallis, Non-executive Chairman at medical devices company LiDCO, says: “In a small company, the auditors will speak with and see the finance director and finance department on a fairly regular basis. Given this, it is important for the chairman of the audit committee to also make time to establish a relationship with the audit partner.”

Andrew Walker, Chairman of the audit committee at Plastics Capital, says that it requires “people who are numerate and fully understand the class of business they operate in – things become unzipped when there is a lack of understanding of the real financial risks”.

If you are questioning these matters, such as capitalisation of development costs, you should expect pushback. “You need to be quite sure of your ground in order to be resolute; these are the crunch times when the audit committee earns its crust,” adds Andrew.

Seeing the wood for the trees

Aside from regulatory change and an expanding risk register, the biggest shift for audit committees relates to data and analytics. Scott from BDO says: “We have probably seen more innovation in audit in the past three years than over the last 20. It is changing the way audits are done, such as removing sampling so you can look at entire populations.”

At present, some committees lack expertise about how to use this information while also maintaining a healthy degree of scepticism. Scott warns: “There is a risk that audit committees can take false assurance. While an auditor might be able to scan ten thousand invoices a minute, this technology won’t be able to tell whether it’s a fake invoice or the real thing.

“Equally, the audit firms have very sophisticated tools looking for outlier type journals but if the general IT controls are weak, say around password security, then it is impossible to tell who is really posting those journals.”

It is essential for committees to be comprised of individuals who understand the different pressure points within an organisation. Theresa states that “you need people who are independently minded and are prepared to think carefully about the judgements that need to be made, who proactively ask good questions and don’t just accept the recommended approach”.

According to Tom at Criticaleye: “It is the responsibility of the chairman of the audit committee to ensure everyone understands their responsibilities and feels able to raise issues they believe are important.

“Without the right degree of openness, an audit committee can quickly become blinkered to the financial, operational and strategic risks within a business.”

In the current environment, no company can afford to have its board of directors behave like nodding dogs.

These views were shared during Criticaleye’s Global Conference Call, How To Create an Effective Audit Committee.

Don’t miss next week’s Community Update, which provides an outlook on the retail sector.

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Holding Up the Mirror

The criteria for what makes an effective leader is changing. If senior executives are serious about sharpening their leadership skills, they need to be open to receiving constructive, candid feedback from colleagues. It may be an uncomfortable experience, but taking the time to evaluate and assess personal performance is increasingly important.

According to Charlie Wagstaff, Managing Director at Criticaleye: “Leaders should not be precious when receiving challenge from their peers and colleagues. They need to welcome honest, open critique from those around them and factor it into their approach – ego and a reluctance to adapt are damaging traits.

“Openly discussing vulnerabilities and promoting frank dialogue will help you determine how to improve performance and engage your teams.”

Failure to do this could lead to stagnation, says Judith Nicol, Director for Leadership Services at Warren Partners. She explains: “If as an individual or as a team you don’t reflect and continue to develop self-awareness, you can’t improve your effectiveness. All you do is produce more of the same and it becomes your default position.”

360-degree feedback

At Land Securities, Chairman Alison Carnwath uses 360-degree feedback for the leadership team, including the CEO.

“If you want to provide a balanced view to a chief executive about how they are doing, beyond simply saying: ‘You’re doing a great job, keep going,’ you have to find tools to help you,” Alison notes. “My CEO absolutely wants to hear what his direct reports think about him, cogitate on that and talk to me about it. It gives him some hints as to what he could do better.”

As well as providing the chairman with a fuller picture on leadership performance, using such tools can make a good impression further down the organisation. “Most people say ‘yes’ to CEOs the whole time, so the opportunity to receive frank feedback is great. It also sends a good signal that they are willing to learn and be challenged,” Alison adds.

Handling sensitivities

Adopting this kind of approach requires a mature and open attitude. Alan Armitage, CEO at Standard Life (Asia), found that encouraging his leadership team to critique one another has helped them assess their own style and characteristics, as well as understand how they can best work together as a team.

The executives have to trust each other for this to work. “It’s easier to do when the team has had some successes and you’re wanting to take it to the next phase,” Alan says. “If there are conflicts or issues this could just antagonise the situation further.”

Last year, Alan introduced 360 feedback to his leadership team on a more regular basis. “I felt the team was mature enough to take direct feedback from others,” he explains. “We even managed to take into account some of the cultural differences they have versus a Western organisation.”

There has to be clarity on why you’re introducing new forms of appraisal. If it’s not implemented effectively, it can easily backfire and result in suspicion and unwanted politics.

Nicky Pattimore, HR Director at Equiniti, says: “I’ve seen organisations introduce it for development purposes but then suddenly it’s built into performance assessment, which creates distrust.

“There is often nervousness around these kinds of tools if they have not been used before. Being clear on why you’re using it and ensuring it’s done in a safe environment is important.”

It’s a point echoed by Judith from Warren Partners. “A lack of transparency is a killer. Right from the off you’ve got to be very clear about why you’re doing this, what good looks like, and crucially what information is going to be shared with whom, as well as what support will be given.”

While the success of using frank feedback in leadership development hinges on the attitudes of the chief executive and chairman, a strategic HR director who can guide its implementation is key.

By Dawn Murden, Editor, Advisory

Do you have a view on 360-degree feedback for leaders? If you have an opinion that you’d like to share, please email Dawn at: dawn@criticaleye.com

Don’t miss next week’s Community Update on how to create an effective audit committee.

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Taking the Top Spot

The learning curve for a rookie chief executive is notoriously steep. They will have to adjust to an unprecedented level of accountability as they assess the talent within the organisation, build strong relationships with the board and articulate a strategy that captures stakeholders’ imaginations.

Conventional wisdom focuses on making your mark in the first three months, but many CEOs will tell you it’s not so simple in practice. In most cases, the job is never quite as advertised, even if you are promoted from within.

Matthew Blagg, CEO at Criticaleye, says: “There is a lot to accomplish as a new CEO. While you should go in with a strong understanding of the business and what you hope to achieve, you will also have to spend a lot of time uncovering hidden truths and evaluating your team.

“You will need a strong network around you, including a leadership team that you can trust and collaborate with, and external confidants whose experience and knowledge you respect. Never hope to go it alone.”

Here, we share advice from a range of business leaders on the skills and actions new CEOs need to address.

Listen Before You Act                                                                                                                              

Debbie Hewitt, Chair at Moss Bros Group, advises new CEOs to spend time reflecting and listening to the board before taking decisive action.

Usually first-time CEOs have worked in the business before, which can bring its own challenges. They have a track record, style and approach that was conducive to a different role. As a chair, I always advise people to spend time thinking about how they will adjust.

Most new CEOs were previously commentators on what their predecessor didn’t do well. The natural inclination is to go in and fill the gaps as they see it, so I encourage new CEOs to think about the business, not what their diagnosis was under the previous leader.

It’s also common to want to jump in and make new hires or lose people they don’t think are right for the business, but I urge them to think first about the strategy and then build the team around it.

NEDs are an invaluable source of input – I recommend asking a lot of questions as it’s essential to get feedback on the leadership team from the board. Far too often new CEOs want to illustrate that they know the business and its problems, but actually once you’ve got the job it’s really important just to listen because the board has an impartial view of the business, your team and your predecessor.

When a new CEO is not used to working with NEDs they need to balance how much information to give versus drowning them in detail. Some CEOs worry that information will be used as a stick to beat them, but the board doesn’t need to hear about what’s going perfectly.

Get Your Team ‘On The Bus’                                                                                                                

Matthew Dearden, former President for Europe at Clear Channel, reveals how he got his team on side.

You need to be very clear on your expectations for performance, as well as the behaviour and values that will get you there. As a leader you will have some non-negotiable requirements – make sure people understand them and then bring in the team to agree the rest.

A polished appearance doesn’t necessarily equate to underlying talent. You have to figure out exactly who you need and show patience to those who possess real ability but are rough around the edges.

I found it useful to bring in a small number of external hires – partly because of what they brought to the team and partly because of the signal their appointments sent to the rest of the organisation.

Over the first year, about half of my senior leadership team changed. It was important to do that with respect and humanity. You need to have clear, honest conversations about the direction you’re going in. That will usually excite those who fit your needs, and those who don’t appreciate it will decide they should move on. That’s better for everyone.

I talked a lot about emotional commitment and used the question: ‘Are you on the bus?’ It became a motto, so when I took the top team away for an off-site trip, I hired a double-decker bus to take them to dinner. I acted as conductor handing out tickets for those committing to coming aboard. Some thought it a bit cheesy, but five years later they still talk about that magic moment of accepting the ticket and getting on the bus. It built a sense of drama and that’s critically important if you’re going to get people to come with you on a tough journey.

Create a Culture of Ownership                                                                                                      

Peter Sephton, CEO of The Parts Alliance, discusses the dynamics of being a new CEO under private equity backing, and how he created a culture of ownership.

One of the first things we did was to create a founder mentality by involving a wide group of people in defining and building our strategy. We branded it the ‘10 steps’ as it was designed to keep us 10 steps ahead of the competition.

We broke our business into divisions and introduced new performance management metrics with real-time updates throughout the day. Regional directors were assessed against those metrics so performance was highly visible. This was an important aspect of building a founder mentality.

I also took the opportunity to distribute sweet equity widely. One of the key advantages of being a PE-backed CEO is the ability to do this. Through this, behaviour changed as people realised they were in effect running their own business.

We kept a sense of ownership at a local level by deciding not to change the operating brands of the businesses we acquired. Local branding is critically important to your buy and build strategy – too many opportunities go wrong because of corporate arrogance and the ‘conqueror syndrome’.

Prepare Early For The Role                                                                                                                

John Goddard, Partner and Member of the Global Leadership Team at LEK, explains that CEOs typically have only six months to really make an impact, so early preparation is vital.

The CEO’s chair can be an uncomfortable place to sit. As well as more scrutiny and higher expectations, you will have limited time to make your mark in shaping the business.

It’s popular to say that the first 100 days are make or break for new CEOs, but we have a different metric: you have six months to fail and two years to succeed. In other words, you need to make significant progress in your first 180 days. If you do this convincingly, you’ll be given more time.

There are four very practical steps you can take before your first day: identify and address any gaps in your industry knowledge and how the business competes; start developing some strong relationships with the board — you will need them; find a confidant outside the business who can provide a broader perspective, such as a fellow CEO or a trusted advisor. Finally, begin to formulate a high-level narrative, which you will need to inspire confidence both internally and externally.

Some of the individual team members may resent you as the newcomer, a few may even have applied for the top job. They may be waiting for you to make your first mistake. A quick way to assess the team is to commission an external executive audit, but there is no substitute for spending time with them yourself.

By Mary-Anne Baldwin, Editor, Corporate

What are your experiences, thoughts or concerns about being a first-time CEO? If you have an opinion you’d like to share, please email me on maryanne@criticaleye.com

Don’t miss next week’s Community Update on the importance of 360 feedback as a leader.

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How to Strengthen the Leadership Team

Should the leadership team shift every time an organisation encounters change? It’s a question many CEOs and boards grapple with, because it’s certainly not clear cut. One thing we do know is that every business needs a complementary team of individuals to lead it to success.

Of course, the context will differ for each company and will also constantly evolve. Indeed, over half (53%) of respondents to a Criticaleye survey said that they are either going to replace members of the senior leadership team or overhaul it entirely.

Here, a number of executive and non-executive directors reveal four questions to pose when assessing the leadership team:

1) Do you understand what’s needed?

It would be futile to evaluate the leadership before you know what mix of skills you require to execute the strategy.

Robin Murray Brown, Partner at executive search firm Tyzack Partners, comments: “The most frequent strategic error, in my view, is failing to anticipate future leadership needs. All too often, organisations tend to think about what has worked in the past, or to try to correct current weaknesses rather than working out what leadership qualities are required to deliver their strategy.”

According to Howard Kerr, CEO at UK business standards company BSI, the chief executive and the board must look at strategy, structure and people – in that order – to assess what’s needed.

“If you’re not clear what leadership capability you need to support your strategy, you will fail,” he adds, frankly. “The strategy has to be absolutely pinned down and clear. Not just from a design point of view, but also execution. Who do you need to make it happen?”

2) Is the CEO driving it with the right support?

Effectively assessing the senior executive team calls for a number of constituents. It must be led by the chief executive, while the support of the chairman, board and HR director will be critical.

Anne Stevens, Criticaleye Board Mentor and former Vice President for People & Organisation for Rio Tinto Copper, says the most challenging aspect of strengthening the team can be persuading the CEO of its importance. “You have to coach and support them to take an objective look at their team, their attributes and where to develop them. The HR director has a key role to play in making sure the CEO is comfortable with the approach and prepared to take action where required.”

For David Parry-Jones, Vice President and General Manager for Northern Europe at software company VMware, the HRD and chairman should both act as agitators, pushing the issue to the forefront of the CEO’s mind.

He explains: “CEOs can sometimes get wrapped up in quarterly reporting or annual cycles of the business and lose sight of stuff that may help them in two or three years’ time. The chairman’s role is to look over the horizon to see what’s coming.”

The chairman’s role is also fundamental in assessing the CEO. Alison Carnwath, Chairman at Land Securities, says: “A non-exec chairman of a Plc should require that leadership capability assessment and development be brought to the board regularly for discussion, but only the chair will really assess the CEO.”

3) Can the leadership team be developed?

If the path or direction of the business changes, the leadership team must be reviewed; it may then become apparent that there are gaps. The question is whether you change the team, develop them, or apply a combination of the two.

But ambitious leaders need to feel they can progress. “There needs to be more focus on development,” argues Jamie Wilson, Managing Director at Criticaleye. “Just because someone has reached the higher echelons of their career doesn’t mean they should stop learning.”

On that point Kevin Barrett, Operations Director at Howden Joinery Group, notes: “The CEO should demonstrate their own personal skills and outline what’s missing around the table. They should then ask: Do we buy those skills in, or does someone want to put their hand up and develop them?”

It’s down to the CEO to lead by example. “I sit down once a quarter with a coach for half a day and talk about my leadership strengths and weaknesses. I’m very reflective and get a lot of feedback from people,” Howard says. “That makes it harder for people to push back on their own development.”

Unfortunately, some leaders may feel they are beyond that. Anne notes: “I found a clear link to those who were keen to learn about their own strengths and development and strong employee engagement. The more resistant leaders, typically, were the ones who needed the most development.”

Reticence may lead to difficult exit decisions. Chris West, Vice President for Commercial Operations at Asda, comments: “It’s better to address things quickly than hope they will get better over time. Focus on what’s probable versus possible.”

4) Are you over-promising on succession?

Every company should be preparing internal talent for future roles, as well as providing continuous development. However, you should think twice before committing anyone to a specific role too early, such as the CEO role.

“That’s a mistake organisations make, they lock themselves in and feel they can’t go back,” Anne continues. “Inevitably, if the business does take a different direction or adopts a new strategy, you end up having to manage a very difficult conversation and the subsequent fall out.”

According to Kevin, there’s a fine line between leadership development and succession; they need to be in balance. It might be more effective to develop someone, rather than bringing in the next person. “You can get sucked into succession planning, so much so that you do it at the expense of leadership development,” he says.

One suggestion for avoiding this pitfall is to focus on a much broader set of leadership skills, rather than being driven by roles. “If you’re specifically developing someone for an ‘as is’ type of role there is a high chance of failure,” Howard says. “You should be preparing people for the ‘to be’ state.”

That’s why the whole leadership team – plus another 100 employees – at BSI have been through a leadership challenge programme. It’s based on methodology developed by the CEO, HR and an external facilitator. It studies an individual’s strengths and weaknesses related to three elements: strategic thinking, relationship building and operational execution.

“My philosophy for leadership development is to build, rotate and change,” Howard says. “You’ve got an organisation stuffed full of really smart, ambitious people who want to learn and develop, give them opportunities, don’t let them atrophy.”

 

This article was inspired by Criticaleye’s recent Executive Breakfast Briefing: How to Strengthen the Leadership Team

By Dawn Murden, Editor, Advisory

Would you like to share your thoughts on developing leadership teams? If so, please email dawn@criticaleye.com

Don’t miss our Community Update next week on innovation.

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How I Changed My Leadership Style

Guiding people and situations is not a one-size fits all game; leadership styles must evolve to suit the environment and people around them. As such, a good leader will be responsive, adaptive and open to feedback, all of which takes excellent emotional intelligence.

“Leading a team largely comes down to engagement. Get people inspired enough and they’ll follow you on whatever journey you wish to take them,” explains Tom Beedham, Director of Programme Management at Criticaleye.

“Of course, complexity comes when leading teams of different personalities, cultures or geographies – but it’s your job as a leader to read the room. Regular feedback on your leadership style can help with this.”

Here, we ask business leaders how, and why, they’ve adapted their leadership styles over the years:

Caroline Rainbird
Director, Regulatory Affairs
Royal Bank of Scotland

I reflect a lot on the styles I come across in other individuals, and try to incorporate those I have an affinity with into what I do. For example, I’ve been influenced by leaders who have listened to me and adapted their approach.

I try to have a very open, inclusive and affiliative style. I want to make it clear to people that while I have views and opinions, I don’t know everything and want to hear their ideas.

When I took on my current role, I was not a subject matter expert and had a lot to get through. I needed to engage with the experts around me but they didn’t work at the pace I wanted. I realised I had to slow down in order to go faster and modify my approach in an engaging way.

As a leader, it’s really important to role model behaviour but also to show that you’re adapting and learning yourself. I choose people in the organisation who I trust to get feedback on how my leadership style lands, because if it’s not working I need to know and to modify it where I can.

Across the bank, we’re rolling out a new and consistent approach to leadership. One great part of this is continuous observational feedback and coaching, under which I locate the skills I can work on to improve my leadership style. I then work on that skill until it becomes authentic and sustainable. It’s being rolled out from the top, throughout the organisation.

Alastair Lyons
Chairman
Admiral Group

Early on in my career, when I was a CFO, I asked my then Chair of Audit whether I was capable of stepping up to the role of CEO. He told me yes, but only if l learnt how to leave the office without checking if the windows were open. I was known for my detailed approach and had to learn to let go.

My leadership style as a chairman has also developed over the 16 years I’ve held the role across different businesses. I now have a much greater focus on the strategic, rather than operational,elements. I’ve also developed my ability to communicate both internally and externally, and understand the importance of really knowing the mindset of all stakeholders, including what is not said as much as what is.

In my view, a good chairman needs to be a chameleon and able to adapt their leadership style to fit the particular situation. I enjoy deciphering how to work with people, understanding the person, what their strengths are, what their fears are, and how they like to interact so that I can properly engage with them.

Those I’ve found hardest to work with have very set ideas on how to get things done and resistance to input, mixed with a strong belief in their own importance. That kind of person I find difficult to relate to.

Gary Kildare
Chief HR Officer, Europe
IBM

If there are aspects of your personality that you don’t like, you can certainly make adjustments to them. However, it’s important that you’re natural; don’t spend time trying to be something you’re not.

I think the same is true in leadership – being a leader can be tough enough without trying to fake it. Also a message often has more impact when delivered in a natural style.

There are many examples of people having to behave in a particular way because circumstances or situations demand it, but it’s not something they can do long term. Ultimately your true mettle will show through and it’s often at points of high pressure.

What you should focus attention on is changing your unproductive or negative habits, such as micro-managing, inspecting, checking and reviewing. Over time this will change your behaviour.

We all need feedback but it must be constructive, just being told what you do wrong won’t help. You must also decide how much stock you take in others’ opinions, while being open to change. I’d hate to be like an actor on opening night who celebrates the good reviews but completely ignores the bad.

Margaret Rumpf
General Manager, Hong Kong & Macau, Emerging Markets & Asia Pacific
GlaxoSmithKline

Everyone has comparable expertise by the time they are in a senior executive role, but what distinguishes someone above the rest is their ability to communicate, inspire and engage different people across the organisation. That means being able to adapt ones leadership style to suit the relevant audience.

I think it is incredibly important to know – and adapt to − who you are influencing, their perspective and the reason why they would buy into your message. It sounds really simple, but I see too many people trying to drive their own agenda and then asking why people haven’t followed in their direction. This takes time and effort.

I ensure the key message is clear and consistent no matter who I speak to, but how I frame the idea will be different depending on the audience. I also look at my circle of influence to ensure I cover everyone, not just those above me.

By Mary-Anne Baldwin, Editor, Corporate

Would you like to share your thoughts on changing leadership styles? If so, please email maryanne@criticaleye.com

Don’t miss our next Community Update, which will deliver highlights from Criticaleye’s Non-executive Retreat 2016, held in association with Santander.

Follow Criticaleye on LinkedIn

Can a Chairman Mentor the CEO?

A chairman should be able to provide support and guidance to a CEO when necessary. That said, a big question mark hangs over how open the two can be about business challenges given that the chairman’s ultimate responsibility lies with shareholders.

It’s a notoriously complex relationship, so Criticaleye spoke to a range of executive and non-executive directors about the ability of a chairman to mentor a CEO. They came up with four key points to bear in mind:

1) CEOs Don’t Do Vulnerable 

Understandably, a CEO may think twice before admitting to a chairman they’re struggling to resolve an issue in the business and need help.

Sir Ian Gibson, Criticaleye Board Mentor and Chairman of Norbrook, a global provider of veterinary pharmaceuticals, explains: “Often, people don’t want to show weakness to those they work with and therefore it’s the natural reaction of the CEO to question what signals they would send by raising a certain point.”

For mentoring in its truest sense to be effective, there has to be openness. While that’s not impossible between a CEO and chairman, it will take time to establish the necessary level of trust.

2) The Chairman Does the Hiring and Firing 

The chairman is expected to find a new leader if company performance levels are below par. Naturally, the CEO knows this and it’s a defining element of their relationship.

Tom Beedham, Director of Programme Management at Criticaleye, says: “True and effective mentoring can only be delivered by someone who has been at the coalface of leadership and understands the real life, day-to-day challenges faced by executives.

“A chairman may have this experience but they cannot truly be an independent mentor to the CEO as their ultimate role is to hire and fire them; their primary responsibility is to ensure the obligations to investors and stakeholders are both understood and met.”

Ian Harley, Board Mentor at Criticaleye and former Deputy Chairman and Senior Independent Director at British Energy, comments: “By and large the chair can’t be the CEO’s mentor – especially if they selected the CEO.

“It’s tricky to be seen coaching and helping someone you have picked because you believe they have what is required for the job.”

Cheryl Black, Non-executive Director at insurance agency Unum, notes: “The chairman has a role to help the chief executive succeed but they are not a sponsor. It’s very clear that the chairman is there to help the business succeed first.”

3) A Powerful Combination 

Of course, as trust builds between both parties, it should encourage greater openness. Anthony Fletcher, CEO of snack company Graze, says: “To not have the chair mentor or coach the CEO in some way would seem like you’re missing a trick to me,” he says.

“They understand the perspective of everyone around the board table; some of those perspectives may have been given in private – they don’t have to be betrayed – but that information will help [the CEO] do their job well.”

A similar point is made by Richard Laing, Criticaleye Board Mentor and Chairman of 3i Infrastructure:  “The chair can help the CEO deal with the many complex issues he or she will face, especially around the human aspects, such as the CEO’s colleagues, career progression, the way they are handling the job and so on.”

As Sir Ian puts it, “it’s about relationships”. He explains: “Process tracks what is happening, whereas relationships define whether it happens easily, seamlessly, or if there is a standoff. If it becomes fraught it will take longer to execute the strategy and that just isn’t helpful.”

4) An Independent View

It is all too easy for a CEO to find themselves isolated, especially if they are in the role for the first time. “Being a CEO is an extremely lonely life, you’re always having to keep things to yourself, you’re always guarding your views; whether you like it or not, you need to continually evaluate your people and whether they are working as a team,” Sir Ian comments.

“Eighty per cent of that you can and should share with your chairman, but there will be things that mean you’ll want to talk in a way that you can’t do with somebody in the business. If the conversation involves you questioning your own judgement as a CEO, you don’t want to share that with your chairman.”

That’s when speaking with someone who is genuinely objective and independent can be invaluable. “Early on in my career, when I stopped being a CEO and became a NED and chairman, I was relatively unimpressed by the idea of CEOs needing external mentorship,” recalls Sir Ian. “That’s touching 20 years for me now, and over that time I’ve become more convinced that it is of benefit.”

Do you think the chairman can mentor the CEO? Please do send your thoughts to: dawn@criticaleye.com  

Don’t miss next week’s Community Update in which business leaders will discuss the role of the CFO. 

How to Support a First Time CEO

Stepping into the CEO role for the first time is a daunting task. You’ll face immense pressure to tackle widespread responsibility at a relentless pace. No CEO can do it alone and a first-timer in particular will need support in making that transition.

“The top job requires so many skills and leadership capabilities that just acquiring them − let alone using them − can seem overwhelming. Once you’re in the role, don’t expect that you can do everything yourself; a strong leadership team should be there to support you and give you time to reflect and decompress,” says Matthew Blagg, CEO of Criticaleye.

We ask leaders for their experience of being, or supporting, a first time CEO. Here’s what they had to say…

Get the Support of the Board

Ron Marsh, Criticaleye Board Mentor and Chairman at Polypipe

For a first time CEO probably the biggest challenge is having the confidence to drive through change in an organisation that they’re not entirely familiar with.

The chairman is there to support them in that, but also to challenge them and respond to their individual needs. He should be supportive without taking responsibility away from the chief executive. It’s more difficult for a NED to directly support the CEO as they don’t have routine interaction with them, but they should provide the sounding board for the chair and CEO to reach a solid conclusion that they can then back.

One of the things a chairman should look for in a new CEO is whether they are overworked – the hours they put in and the sheer effort needed for the job is immense; it can be too much for some.

The main concern is whether the chief executive is feeling lonely and isolated. That often happens when significant changes occur within the top team and at that point the chair should provide a little more help.

Look for Strategic Insight

Catriona Marshall, CEO at Hobbycraft

I joined Hobbycraft in 2011 as a first time CEO. I was heading into a major change programme in a very competitive market with high expectations from my private equity owners. I knew I would need the support of a good board.

The chairman’s role is very important – they maintain a healthy relationship with investors and the board. They should be supportive but also independent. You want them to point out the pitfalls and give you honest advice but also help you on how to get to where you want to be.

From a functional perspective, the CFO should be able to take on things like IT, the supply chain and property but I love to have a buddy on the strategy; someone who can understand the implications of a strategic question.

Getting a CFO who is technically good and commercially savvy is hard, but getting one who can also build a team is the real trick.

Find a Top CFO 

Ian Harley, Criticaleye Board Mentor and former Finance Director and Group CEO at Abbey National

The relationship between a CEO and CFO is the most important in any corporate entity because of the level of contact between them.

They should be complementary – with different strengths and talents – but it’s also very important that they are in locked step; they must move together on the big issues.

I spent five years as CFO to a very charismatic CEO, an ideas factory who sometimes spoke before he thought. When doing investor roadshows with him I’d need to catch those loose balls. My role was to be pragmatic. I also focused on the numbers because he wasn’t technical in terms of accounting.

When I was promoted to CEO I was lucky to be able to pick my own CFO. It was someone I knew from inside the organisation and had worked with for years. If you inherit an incumbent that’s potentially quite tricky – especially if they were a candidate for the top job, which is almost always the case.

Any CEO will have disagreements with the CFO but you must try to have them in private because stakeholders in the business will see the chinks between you and will worry about it, if not try to exploit it.

Create a Team with Complementary Skills 
Greg Morgan, Director at executive search firm Warren Partners

The energy and dynamism of the first time CEO can be a huge asset to any business, especially when well-supported and given the autonomy they crave.

When preparing for a first time CEO role the candidate should be open and honest about their relative blind spots – everyone has them. These could range from having a limited experience of operations, not having done M&A or being a novice in engaging with shareholders or the City. Individuals should involve themselves in situations that enable them to mitigate some of those blind spots.

Businesses that are committed to developing their people will encourage their ‘brightest and best’ to operate outside of their comfort zones and to seize every opportunity to broaden their skillset.

As a first time CEO, it’s no less important to flag where you’re going to need support – the business will not be expecting you to be the finished article; they will respect your honesty and candour and it will get them thinking about the make-up of the team you will need around you.

Potential implications for the business range from hiring or retaining a ‘heavyweight’ CFO to support the new CEO, or asking the chair to remain in the post a while longer.

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4 Tips on Improving Performance

Improving business performance takes strong leadership and immense effort, but neither will have impact if the company’s customers, staff and other stakeholders don’t believe in its future. A good leader will be able to create buy-in from everyone involved and use it to drive change.

When looking to bolster the performance of a company or division, Matthew Tait, Business Restructuring Partner at BDO, emphasises the value of communicating a clear strategy to all involved.

“One risk to recognise about businesses in distress is management’s tendency to lock the doors to the bunker. Despite the evidence, they can believe that no one sees what’s going wrong. Nothing could be further from the truth. Staff, customers, competitors, will know what is happening,” he says.

“A good turnaround plan needs to be agreed by the stakeholders as opposed to being imposed on them. You must understand what you need from each stakeholder – it could be time, funding, or a change in work practices. You also need to understand what the turnaround offers them; if it doesn’t give anything to key stakeholders then the turnaround won’t work.”

Change can be worrying for anyone, but the greatest fear comes from not being informed about where it will lead. As Joe Berwick, Business Development Manager at Criticaleye, highlights: “A clearly communicated strategy is the cornerstone of any successful change programme, and it is the leader’s responsibility to ensure it’s well-received by all stakeholders.”

We spoke to a range of business leaders, each of which have been through a restructuring, to find out how they managed their stakeholders. Here’s what they had to say:

  1. Reassure Your Customers 

When Vanda Murray, Criticaleye Board Mentor and Non-executive Director at Bunzl, led the turnaround of conservatory provider, Ultraframe, where she was UK MD and Group Marketing Director, she knew all key stakeholders had to be involved. “You must engage with them on a meaningful level about what they need, what their issues are and how you will work together,” she says. “The core of the turnaround story should always be the same and it should be based on reality, but you will clearly want different messages for different stakeholder groups.”

One move Vanda made early on in Ultraframe’s turnaround was to reassure customers that the company was reacting positively to market changes.

“The competitor had copied the product and halved the price, the product wasn’t quite as good but it was good enough. Our customers were leaving us in droves; it was a critical situation and action needed to be taken very quickly,”Vanda explains.

“I spent a week on the road speaking with all of the top customers to really understand what was happening. I spoke to most of the senior people in the company and then modelled how it could survive. We made it very clear what we hoped the timeline would be and we told them about our milestones to show we were on track. That was really important for them.”

  1. Build the Right Executive Team

When Andrew Richards took over as Managing Director of Britvic’s newly acquired Irish operations, recession had just hit the country. “We saw a procession of poor numbers, poor productivity and a poor marketplace performance across almost the entire spectrum. The business was failing,” he explains.

Andrew realised that he needed a team fit to take the business through Ireland’s recession; that meant very honest conversations with his executives, culminating in five of the seven leaving the business.

“In my first 90 days, one of my goals was to assess the nature of the loadbearing team,” says Andrew. “When I arrived, the Britvic Group Chief Executive had confidence in the Britvic Ireland executive team we’d inherited, but as we spent time pressure-testing the plan it became apparent that a lot of people weren’t capable of making the journey.

“The first person to exit the executive team, which was within three or four months, was the HRD. He was very well intending but not capable of managing a progressive HR agenda, and he recognised that.”

This process needs to be maintained throughout the change programme – while it’s common to make initial changes to the executive team, continued assessment will ensure the team still carries the skills it needs as the business evolves. “Those who initially feel they’re engaged and involved can begin to lose the energy to continue,” Andrew explains.

  1. Restore Staff Morale 

Low morale will take its toll on any business in decline; it can blight productivity, stain your company culture and lead your best staff towards the door. While emotions are bound to run high, there are ways to improve things – the most important of which are openness and clarity.

“People know when you are being straightforward with them. I talked to the staff in small groups of their own teams, so they felt comfortable enough to ask questions. I was as honest as I could be with them about the changes that would happen,” explains Vanda.

The greatest fear for many employees will be redundancy, so it is important to ensure it is handled properly. “We allowed people to leave with dignity and their heads held high, as much for them as the people left behind,” says Vanda.

It’s also important to understand how cultures vary across regional and international operations. Bryan Marcus, now Chairman of JBR Capital, recalled his experiences while being CEO of Volkswagen’s Latin American financial services division, VWFS.

Tasked with the turnaround of loss-making businesses, Bryan says: “I was a Brit leading a turnaround of German-owned banks in Brazil and Mexico, so the cultural, regulatory and operational challenges were numerous. From my experience, the critical success factors were openness with shareholders, consistency with local stakeholders and to ‘walk the talk’ with the local management teams.

  1. Communicate With the Board

Having led the turnaround of an international division, Bryan is familiar with the complexities of dealing with a distant board, as he explains: “Having worked in a local corporate, one of the challenges I faced was being part of a global corporation with global standards. You need to manage the pressure from headquarters and meet shareholder expectations while creating the time and space for the transformation to take root locally,” he explained.

Andrew faced similar issues at Britvic Ireland and found face-to-face communication was the remedy. “Some of my group executives and board colleagues had less sympathy or understanding of the situation I was in,” he explained.

“One of the ways I tried to work through that was to get the Chairman and a couple of non-execs over to explain what we were grappling with, that’s how I tried to manage my stakeholders back at the group level. Once I’d got them on the ground to see the situation first hand, they started to understand the challenges better.”

Whether you meet your stakeholders in person or build a rapport from afar, it’s imperative that you earn their confidence. As Matthew explains: “You need to have a trusted starting point otherwise people will hear the same messages reiterated but never believe it.”

And as much as you may want it, widespread improvements won’t happen without the belief of others.

Read more on managing your staff through a turnaround and rebuilding a business.

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Succession Planning in Private Equity

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While the focus in private equity is on building immediate value for exit, leaders must consider the company’s development after it’s been sold. Investors will want a growth story and succession is integral to that. A solid talent management plan proves the business has the depth and breadth of skills to support it for the long term.

recent poll by Criticaleye found that while ninety per cent of respondents believed that succession planning built a company’s valuation on exit, none were satisfied with their existing framework for succession.

“It can be uncomfortable to have conversations regarding your successor at the best of times, not least in private equity when other business challenges can seem more immediate. Yet succession is a vital part of building value in the business,” says Matthew Blagg, CEO of Criticaleye.

We asked a range of business leaders within private equity to share their thoughts and experiences on succession planning. Here’s what they had to say:

Understand What Makes a Good Succession Plan in PE

Paul Brennan is Chairman of private equity backed cloud software provider, OnApp.

A succession plan is not only good for the business but for its potential buyer – it’s the insurance that underpins the value of the existing team. If an acquirer comes into a business without a succession plan, it’s really only buying the IP.

Some private equity-backed businesses neglect succession because they just don’t see the importance when they are looking to get out in three or four years. Other PE houses focus on it as a way of replacing the CEO, which isn’t succession planning, it’s replacement planning – there is a fine line at times. A good succession plan is one that the person who will leave buys into.

If you have a strong number two in place because they are a co-founder, that is not succession planning. Good planning brings the whole company upstream.

If it’s handled in a way that’s best for the business then succession shouldn’t be contentious. While the decisions should be made by the CEO and board, an experienced HR Director − which you may only get in a larger business − is critical in understanding the nuances and processes.

For example, people may question what will happen to them when they leave – will they lose their stock or options? Having a HRD who can explain remuneration avoids having conversations about packages on the fly, which is not what you want to do.

Decide Whether Succession is Right for Your Business 

Graham Maundrell is HR Director at The Vita Group, which is backed by private equity firm, TPG.

While I was an advocate of succession in my previous roles as HRD at De La Rue and Diageo, I think succession planning can be less relevant in PE, depending on the anticipated holding period.

I started off with a classic succession planning model at Vita but it wasn’t appropriate for us as it didn’t add anything. One of the things with PE is that if it’s not adding value, you shouldn’t waste your time. What was important was developing capabilities, and the way we did that was by getting the right calibre of people at the top of the business.

We’ve retained a lot of our managers so there hasn’t been a lot of churn but, where managers have left, we’ve been able to do a lot of internal promotion [because of] the development we’ve done [with] our people.

Potential buyers always want to go out to sites and hear managers talk about the business. If they get the sense that management knows what they’re talking about, I think that gives buyers much more confidence than if they’re given a colourful presentation on succession. After all, numbers are audited but who audits succession planning? No one really.

Use Succession to Build Value for the Exit

Debbie Hewitt is Chairman at Moss Bros Group and the private equity owned Evander Group.

When you come to exit a PE-backed business, the value of being able to show you have a very credible team but also that there is some succession within that team – is significant. If you have no demonstrable succession plan for critical roles, many potential buyers are likely to see that as a risk to the long-term sustainability of performance across the business. Having succession options is a critical part of building value.

What I’ve often found is that succession planning becomes part of the exit plan but if you wait until six months before the exit, you won’t have a plan. Assess the team early on in your ownership of the business, be clear about the critical roles, understand how you might build the cadre of talent and then implement that.

It’s really important to understand the vital roles in the exit story, and the strength and depth of your team in those roles. For example, is the digital expertise concentrated in just one person, or across a team?

I don’t see succession in private equity businesses as any different from succession in other ownership structures. Arguably, the value from good succession planning in private equity-owned businesses can be more tangible.

Prepare for Your Departure 

Stuart Coventry is Partner at Jamieson, an advisory firm that supports PE firms in succession.

In private equity you have a combination of new owners, liquidity and management time horizons to deal with. Those three things together mean you have to manage succession more vocally than if you had a business that was not changing hands.

If you think about a typical four-year PE hold, you’d need to have succession in place about mid-way through, which is when most people only just start to think about it.

Leaders must prepare for their own departure and that means succession planning.  We sometimes get asked “Do I always have to roll?” I tell them that if they haven’t prepared anyone to replace them they’ll be too important to the deal to leave, which is why they end up rolling again.

Succession is not a dirty word, actually it’s part of ordinary business process and if you do it in an orderly way there is no issue with it. Investors will want that conversation to be had. While it can be a difficult conversation for management to raise, it’s healthy on both sides.

Don’t Stop at the C-Suite

Shaun Middleton is Managing Partner at Dunedin, a UK mid-market PE firm.

Many of the businesses we buy have been run on a shoestring so don’t have a broad enough base for succession. In those cases owners don’t invest in quality people because they are focused on the short term. Investment into building the right team, and one that can progress, will have an immediate hit on your bottom line but pays off in the longer term when you’re growing.

We continually look at succession and that’s not just regarding the leader, it’s about the entire business. If you look at it in that way, CEO succession happens naturally.

The biggest issues we face are when someone leaves a business and you don’t have the tiers below to step up. Having someone internally is far easier than recruiting from outside.

When it comes to exiting, if you have a strong management structure with good people below, it makes the sale easier. If you’re selling a business that relies on one or two leaders, people aren’t going to pay as much for it.

The better the management team, the more willing they will be to put succession plans in place. Some don’t want the threat they perceive a good succession plan may pose. There are myriad reasons why people might be nervous about it, but you need to deal with the human element and persuade people about the value of succession.

Do you have a view on succession in private equity that you would like to share? If so, please email maryanne@criticaleye.com

Read more on succession for the CEO and wider company.

Plus, join the discussion during our Global Conference Call on Succession Planning for the C-Suite

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Trust in the Top Team

A business can move so much faster when leaders trust one another and are able to work together towards a common goal. Conversely, when senior executives behave as a disparate collection of individuals, the consequences affect not only the CEO, but the entire business.

As Hera Siu, Managing Director for Greater China at Pearson, says: “You want people to be able to debate and agree to disagree on certain topics, but once they leave the room they [must] present a unified front to the rest of the organisation.

“They should be open to ideas and constantly challenge themselves, so they’re asking: ‘Is there another way to do it?’ If the team is to be effective it will be a living thing and [will] evolve. The loudest member will learn to listen more, while the quiet ones will speak up because trust has been built.”

If senior executives start to prioritise their own agendas and forget what’s best for the business, that all-important alignment can be lost. Matthew Blagg, CEO at Criticaleye, says: “When trust isn’t there, the senior executive team won’t be able to execute their objectives, and that can happen for many reasons, such as when the CEO isn’t capable. Similarly, problems occur when the competencies of one or more individuals are not right, and especially when politics form.”

True north

It’s up to the CEO to articulate the direction of the business and then decide whether the current crop of senior executives have the talent and desire to get there.

Leslie Van de Walle, Criticaleye Board Mentor and Chairman of SIG and Robert Walters, says: “Cracks appear when the business is not performing in-line with the common purpose; some people start doubting the vision or personal agendas creep in.”

This needs to be dealt with swiftly. “If a person has been given a fair chance to realign but they haven’t changed, that person needs to be dismissed or replaced,” adds Leslie. “If you don’t make that decision quickly it taints the rest of the team, or they become disturbed because you’ve not reacted to it.”

Of course, getting the chemistry of the top team right is one of the biggest leadership challenges a CEO will face. Neil Matthewman, has appointed six new senior executives since becoming CEO of Community Integrated Care (CIC) Group four-and-a-half-years ago. He has introduced ‘away days’ and offsite sessions so that executives can discuss strategy and overall performance. Recently, he brought the executives together to run through team development.

“We started to explore behaviours. Getting to know each other is important and we’ve invested more in team-based activities in order to maximise the potential around the table,” he says.

It takes work to ensure that communication doesn’t solely occur in weekly meetings when the focus is on short-term priorities. Gary Kildare, Chief HR Officer at IBM Europe, comments: “There are still many organisations that have appraisal systems and management by objectives; that’s great but it needs to go way beyond that for senior leaders.”

Gary argues that there must be an emotional connection that allows them to feel part of the team: “You may start off a little bit mechanically to ensure that regular discussions and meetings are taking place. Often a bit of forcing needs to happen by the CEO and other senior leaders in the team, but through these sessions you should be building trust, which allows more ideas and information to flow openly.”

It comes back to alignment, clarity of purpose and openness, which enable senior teams to navigate challenges, whether that’s a turnaround, disposal, acquisition or moving into new markets. “There has to be something that pulls them together and not just business as usual,” Gary comments.

If a business is to achieve sustainable success, both the CEO and board have to recognise why it’s important to reassess and appraise the qualities and chemistry of the top team. Matthew at Criticaleye comments: “More conversations need to be had about how long someone will be on the journey for.

“Skills are interchangeable within great teams so if someone leaves − including the CEO − the results are not impacted. It’s a matter of having a succession process.”

By Dawn Murden, Editor, Advisory

What are your thoughts on forming trust in the top team? If you have an opinion that you’d like to share, please email Dawn at: dawn@criticaleye.com

Read more on succession here.

Or, see what Hera Siu from Pearson said about Building a Winning Team in China

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