A Meeting of Minds

Comm update_3 SeptemberLeaders that spend some of their valuable time on networking never look back. They’re willing to meet a mix of people, are keen to share their own experiences while also taking advice that could inform their own thinking on how to tackle business dilemmas. Fundamentally, they understand that a diverse network, where there is mutual respect, can only be a good thing.

Sir Ian Gibson, Chairman of supermarket chain Morrisons, says: “Networking is useful because it opens people’s minds and stops them becoming too internalised. It’s also good for appreciating what you’ve got, because every company [and]… management team will have challenges and issues to overcome and, seeing the way it works for others, provides an external reference which can be useful to validate ideas and ways of working.”

It forms an important part of leadership development for directors who are curious, always on the lookout for fresh insights. “The real purpose of networking has become clearer in recent years,” says Dominic Emery, Vice President of Long-Term Planning for BP. “Certainly my experience of it, in terms of understanding how other companies do strategy, which is primarily what I’m involved in, I’ve found extremely useful… [and] I’ve learnt an enormous amount from real practitioners about what works and what doesn’t.”

Paul Withers, Senior Independent Director at engineering concern Keller Group, comments: “What it does is give you other people’s perspectives. So, like I did, if you spend a lot of time in one company, there’s a danger that you get a particular perspective on how things are, how things might be and how things should be.

“But if you see different companies run in different ways, in different styles and you meet a mix of people who have their own particular approaches, you’re more flexible in terms of how you see possible solutions or ways through situations and that is good to have.”

Code of Conduct

If you’re to extract the full benefits from networking, there’s some basic etiquette to follow. Jeremy Williams, Chairman of design agency Assembly Studios, says: “For me, people selling their services at a networking event, particularly at the outset or in an insistent way, is a big mistake. My approach to networking is to look for opportunities to help others, be that by making connections, further introductions or recommendations.

“If you focus on the needs of other people rather than yourself, then you will add great value for them at networking events. I feel this approach is much more likely to develop into mutually beneficial, two-way relationships in the future.”

Neil Wilson, CEO of recruitment concern Stanton House, agrees: “When you’re networking, you have to go into it with a feeling of trying to help people, whichever way that might be, because then it could be reciprocal. But if you just go in and think: ‘What can I get from this personally?’ and don’t give anything back, that’s when I think it can go wrong. It’s a case of striking the right balance.”

A transactional attitude will be damaging, both for the person trying to sell and the organisation they represent. Liz Bingham, UK&I Managing Partner for Talent at professional services firm EY, says: “You can’t expect an immediate outcome, like another meeting, a piece of work, a job opportunity, whatever it may be. The problem with that approach is that the whole thing becomes more tactical than relational.”

According to Liz, it’s a misunderstood skill. “One of the challenges is that people view networking as standing around with a glass of something fizzy in your hand chatting, whereas the true value really does need to be better understood,” she says.

Quality, rather than quantity, is frequently cited as vital when building a network. Mike Greene, Chairman of online education company Bolt Learning, says: “I would rather meet one person a year who was hugely beneficial than a thousand of no value.”

In its purest form, knowledge, learning and diversity of thinking are what high-value networking can provide. “It works in a rather diffuse way,” explains Dominic. “You’re never quite sure what you can potentially offer until you get into the conversation. So you may have a superficial view that you’ll be able to exchange ideas about how strategy gets created in your company, but until you get to the conversation it’s not obvious where the giving and taking will be.

“So, I think if you go in there with some sense of what the purpose of the conversation is and then allow it to evolve, often it will result in a lot of common ground emerging very quickly.”

Not everyone is a networking natural but that shouldn’t be an excuse to shy away from it. With a little planning and effort, the benefits, both personal and professional, will soon become apparent.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Advertisements

What’s So Scary About Social Media?

Comm update Faces - 28 august1

Executives have an irrational dread of social media. They instantly go on the defensive as they imagine endless breaches of trust and the horrors of shredded reputations. In most instances, it’s way over the top as none of this is overly complicated or taxing – it’s just another form of communication which needs to be understood and managed like anything else.

It’s about taking an interest and knowing what the boundaries are. Paul McNamara, Managing Director of Insurance and Investments at Barclays, says: “From time to time I will ‘join the conversation’ or share thoughts or ideas I find interesting. These could be on significant topics like retirement, financial planning, use of technology… equally, it could be on a simple observation from during the day.”

For Phil Smith, CEO for UK & Ireland at Cisco Systems, social media is a “useful way of providing a concise and current update to a wide community who can typically receive it in a convenient form, which is usually mobile”.

The value lies in it being quick, easy and direct as opposed to putting out messages through laboured, endlessly re-worked press releases. Adam Bates, UK Head of Foresight and Innovation at KPMG, comments: “Not enough UK board members use social media to interact with customers or to show their own people that they are not boring, grey-suited and dyed-in-the-wool…

“The reality is that if they are sensible, don’t give away market sensitive information and talk in general about things that are happening, they are not going to get into big trouble and it’s a great way of communicating with their different types of stakeholders. People are just too cautious and the risk dial is probably turned up too high.”

Test the Waters

Beyond the more established social media channels like Twitter, Facebook and Linked-In, newcomers like Google+, Pinterest and Instagram are gaining traction among the business community (Snapchat might be a bridge too far).

Helen Murray, Chief Customer Solutions Officer at outsourced contact centre company Webhelp TSC, says: “The more I use social media channels in different ways, I get a better feel for how people respond to the information that’s out there and the speed at which they respond. Very often people will comment on a tweet or Linked-in post in minutes, wanting to get a more in-depth view of our opinion because they can see we have some understanding on the topic and that we can add some value to the discussion.”

It’s a case of experimenting and finding your voiceAndrew Powell, Chief Operations Officer at Colt Technology Services, says: “I started using social media about two years ago when our brand team came to the executives and said: ‘Look, none of you guys are using it and you’re missing a trick because this is where the future employee base will live, breath and operate…’

“It’s been a real watershed for me at Colt and has opened up conversations with people who in the past have been very nervous about hierarchy and reserved about approaching and raising business issues.”

The general view from those who’ve ‘done it’ is that it’s not so scary an endeavour after all. Peter Cheese, CEO at the Chartered Institute of Personnel and Development (CIPD), comments: “There are CEOs I’ve come across who are terrified about how much time it takes. And I must admit, before I crossed the Rubicon and embraced social media that was one of my fears.

“My marketing team were constantly saying you’ve got to get on Twitter and I was saying: ‘Well, I haven’t got time for all that, what with all the emails, articles, blogs and meetings I have to attend to… But it’s not that onerous at all.”

Perhaps one of the biggest risks is discovering whether you’ve actually got anything of interest to say. Andrew comments: “If I just re-tweeted or sent Colt corporate messages onto Twitter all the time, people would soon be turned off. You have to give a little bit of yourself and give a little of what you’re thinking to a much wider audience than your company’s employees.

“I have about 700 followers, only about 150 of which are Colt employees, and to have any credibility in this space you have to show you are a human being by expressing your opinions. It’s not just a corporate messaging system.”

Phil says that statements have to be differentiated from the brand messages or “it can be seen as just marketing” and he’s learned to adapt his approach over time to become “very casual and personal”.

Fine Lines

If there is a danger, it’s being unclear about how those within an organisation are communicating. Helen comments: “We take quite a structured and planned approach. We have customer-facing social media experts who also invest their knowledge internally, to help us understand how to use it.

“We also have people in our comms and marketing teams who see things from the brand perspective. We use them to build a plan around what we want to say and between the three or four of us on the board that use social media, we agree who’s most appropriate to respond… if there’s any ambiguity we’ll have a conversation about it, but we’re keen to each have our voice and our own style.”

Yetunde Hofmann, former Global HR Director at Imperial Tobacco, says: “The risks of social media are the same as any other form of written communication, it’s open to interpretation by the reader and therefore the intention of the writer might be completely misunderstood. It’s fine if you’re just providing links and neutral comments, but the minute you’re starting to give your opinions and commentary on other people’s work or responding to questions, therein lies the danger.”

Like any communication, timing and delivery have to be tailored to the situation. Chris Merry, CEO of accountancy firm RSM Tenon which was taken over last week in a pre-pack by Baker Tilly, was not about to start using Twitter to inform employees and shareholders about what had happened.

“We didn’t use social media,” he says. “Rather, we did the usual RNS [Regulatory News Service] announcement via the London Stock Exchange, then I recorded a video which all staff can watch and then there will be a series of presentations in offices which supports the initial written announcement.”

Common sense plays a part in this, as it does with all internal and external communication. But avoiding social media channels completely, or having a half-hearted approach, will only serve to create a negative view of both yourself and the business you represent.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Why Mentors Help Leaders Grow

Community Update Faces - 16 July 2013To keep improving as a leader you need to find the time to pause and reflect on how you’re making decisions and what you might do differently. That’s where a mentor comes in; a good one will know when to speak, when to listen and be able to share their views based on years of experience in a way that is free of any hidden agenda or bias.

Mark Castle, Deputy Chief Operating Officer of international construction and consultancy concern Mace Group, was interested in having a mentor as he wanted to tap into the management experiences of other individuals who came from different organisations and industries. “I see my mentor four times a year and I guess I am sucking information out of these individuals as at various points in the cycle there are areas that I will be interested in talking to a mentor about,” he says.

It’s all part of the healthy desire to widen knowledge. Geraint Anderson, CEO of TT Electronics, comments: “It’s been tremendous for me. To have someone who is truly independent who you can discuss issues with and talk to is superb. The chief executive position can be lonely and having an external mentor who has been there, done it and more, can add significant value just through occasional conversation or discussion.”

Paul Staples, Head of Corporate Finance at BNP Paribas, says: “I was fortunate to have a mentor at an early stage of my career in banking. The relationship was similar to that between an apprentice and a master craftsman; it helped me greatly in learning my trade. More recently, I have actively sought mentors from different walks of life, mainly outside my own professional sphere, to broaden and deepen my perspective on issues such as effective leadership.”

Two-way street

The saying ‘you get out what you put in’ certainly applies to mentoring. Leslie Van de Walle, Chairman of building materials supplier SIG plc and a Criticaleye Board Mentor, likes to set clear objectives over a six to 12 month period so results can be measured. “If a mentor makes you stop, pause, reflect, but you do nothing about it, then that’s not helpful,” he says, adding that executives need to be honest about their motives, such as whether they do really have what it takes to step up to the role of CEO.

Katherine Innes Ker, Senior Independent Director of transport concern Go-Ahead Group and also a Criticaleye Board Mentor, argues that it isn’t essential for an executive to have a mentor but it can certainly be useful. “It’s important that mentoring mustn’t be seen as a criticism but is part of [an executive’s] training and development which helps bring out even more of their qualities,” she says. “It isn’t about teaching you what to do and how to be. It’s more of a sounding board where you have someone to whom you can turn to and say: ‘This is what I’m doing, is there anything I haven’t thought of? Have you done this before?’”

While there has to be chemistry between the mentor and mentee, or at least mutual respect, this can’t just be about cosy chats. The mentor, where appropriate, should be able to steer the conversation into taboo areas and tease out insecurities and concerns, plus the tactics to address them, in an open, non-dictatorial fashion.

“The challenge dimension is really important,” says Bryan Marcus, Regional Head for Latin America at Volkswagen Financial Services. “The chances are that if you have been doing things in a certain way and they’ve been highly successful, you’re going to repeat them [so] somebody who has a slightly lateral or alternative view is very useful.”

Geraint says: “It’s good to be challenged in a different way to how the board challenges you, which is all about the business. This is more a personal thing about the impact you make and I think a mentor does that better than anybody else. I also think you can leverage their experience in working with boards.

“As a chief executive, it’s one thing running a company – and most of us have the skills to do that well – but how many of us really understand how to operate and work with a board? How to keep that board informed and the dynamics involved?… Having a mentor who has been in that chairmanship position and a chief executive too, who has that degree of experience, there’s nothing they haven’t seen before.”

Sir Michael Lyons, Chairman of the English Cities Fund and a Criticaleye Board Mentor, says that “for anyone who has a big, complex job, the key to improving performance is finding the time to reflect on what you’re doing, why you do it, how you might do it differently and how you might do it in the future.”

He recalls how, when Chief Executive of Birmingham City Council, he himself had a mentor who helped get to the heart of what needed to be done: “It was useful for me back then as my mentor at the time told me not to be snagged by issues which were not immediately relevant to the challenges at hand… He was very much about focusing on the immediate challenges and freeing yourself up from the baggage we all carry around – easier said than done, of course.”

Each mentor will have their own style and approach, with some preferring targets and goals while others will be more free-flowing. Likewise, there are executives who will switch mentors every year in order to keep the input fresh, whereas others are content to allow the relationship to develop over a longer period of time.

It’s a case of whatever works in order to be better at what you do. “You’re never too old to continue to learn and develop,” says Geraint.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

The Intelligent Way to Network

pic-2-web

Networking at its best makes you a better leader. Those executive and non-executive directors who are serious about developing their own skills, while also staying on the lookout for new ways to improve business performance, work hard at building a diverse array of contacts. Some people are simply bad at it while others over-think it, but those who do understand networking appreciate the competitive edge it provides.

Glen Moreno, Chairman of global education group Pearson, says: “In a corporate context, we often think of networks as a vital part of career progression and getting things done. But developing contacts outside our normal corporate and social circles – outside our normal ‘zone of comfort’ – can be important as well.

“A wide circle of contacts and acquaintances – in areas like public policy, academia, journalism, creative arts, the not-for-profit sector and religious organisations – can help sensitise us to the forces and issues which are shaping the world in which we operate. We ignore those forces at our peril.”

This is about broadening knowledge by developing relationships in the business community, as opposed to simply being transactional. Crawford Gillies, Non-executive Director at insurer Standard Life, says: “I abhor ‘networking’. So often it is no more than a shallow exchange of business cards.

“However, a network of individuals with whom you have a relationship based on trust, experience and mutual respect can be an invaluable source of advice, introductions and references throughout your career.”

Lord Mervyn Davies, partner and Vice Chairman of private equity firm Corsair Capital, comments: “As a leader, you have to produce results and you also have to develop and care for people, but don’t forget that you must never stop learning yourself. Networking is very important as you never know what you might learn from others – you also never know how that network might help you in the future. In short, networking really matters.”

Those that excel at making connections realise it takes time and effort and that they too may be called upon for advice, guidance and insight. Ian Durant, Chairman of Capital & Counties Properties, comments: “What you learn from observing those who are clearly good at [networking] is the obvious dedication that success demands. You can’t just network with the people you like, although you do need to establish a personal rapport with those in your network if you can, and it requires hard work and commitment…

“Typically, people’s networks are quite inward looking, but by reaching out to former colleagues, bosses and colleagues of colleagues, you may find particular benefits later on… the value in a real, deep and diverse network of individuals is much underestimated.”

Anthony Fry, Chairman of Dairy Crest Group, comments: “Every single meeting and interaction is one in which you can learn something which you didn’t know; it could be a fact, it could be an experience, it could be an idea. You are never too experienced to be able to enhance one’s own effectiveness by meeting new people as well as existing relationships.”

pic-1-web

Keep an open mind

A strong relationship-based network makes a positive impact on your ability to lead. Helen Grace, Vice President, Global Airport Sales at American Express, says: “Networking helps me make better and faster decisions because I get more context or specific information [from speaking to contacts]. Gathering information, advice, counsel and experience are always good to have, to make a better decision.”

Sir Brian Bender, Criticaleye Board Mentor and Chairman of the London Metal Exchange, says: “[Networking] enables you to, for example, engage with people who’ve faced similar challenges, or who can help you see things in a new and different light, or who can simply add a fresh dimension to your thinking.”

There are different approaches and styles and while it should be thought through, it’s important for this to be fun as well. Andy McFarlane, Head of Marketing at telecoms company, Vodafone, comments: “My usual mode of operation is to reach out to a fair number of people… find out what’s hard and challenging for them, and see if I can help them without even trying to get a favour returned.”

Gary Kildare, Vice President of HR for the Americas, Europe & Asia Pacific regions at IBM, says: “It’s not about having one thousand contacts or collecting business cards and contacts like badges, it’s about being considered, economical and selective about creating and maintaining an active network.”

It can and does go horribly wrong when individuals think only in terms of ‘what’s in it for me?’ or ‘how can I win business?’. Rob Atkinson, Chief Executive of Adshel, the Australian subsidiary of outdoor advertising company Clear Channel, says that he tries “to keep an open mind and network as broadly as possible” so he’s not just within his own peer group.

Nicola Mumford, Board Advisor at law firm Wragge & Co, comments: “Some people are quite good actors but it’s always going to be more of a strain not to be yourself… If you don’t get on with someone you could spend an awful long time trying to impress them and you wouldn’t get very far. It’s as basic as that.”

Above all else, it’s important to be authentic when networking. Andy says: “I don’t view it as a task or an activity but as good behaviour… if I treat [my contacts] with respect, they will treat me with respect.”

Criticaleye Launches New Asia-Pacific Offering for Members

These are exciting times at Criticaleye as we announce the establishment of our new subsidiary, Criticaleye (Asia) Ltd, headquartered in Hong Kong.

asia-pac1-webSince its launch in 2003, Criticaleye has established itself as Europe’s pre-eminent boardroom Community, providing integrated layers of support across industries, business functions and geographical locations to resolve issues through peer-to-peer debate and discussion. But, as the needs of our Members have grown in the more globalised world of business, it’s clear that now is the right time to provide a truly international service by extending our presence to the Asia-Pacific region.

The success of Criticaleye lies in our ability to support our Members across the world in challenges core to their roles and ambitions – both areas in which they will typically need to engage with others to access peers’ insights, support and advice.

For more information, please contact us.

Middle Management: Blessing or Curse?

Comm-update-13-03-13-web

Can middle management be trusted when they smile and nod as you espouse your latest grand plan? There has to be supreme confidence that your managers will tell you honestly what they think and then relay the right messages with passion to their respective teams. Otherwise, extensive damage will be inflicted if they say one thing, do another and feign enthusiasm for your ideas.

If that is the case, they need to be weeded out fast. Jon Moulton, Chairman of turnaround investor Better Capital, says: “If it’s an excellent business and it’s got lousy management it could still be generating reasonable results, but if it is anything less than excellent and it’s producing poor results you can be pretty confident that management is your first place to look for blame.”

Here are five pointers to help you sift the wheat from the chaff in your business:

1) Are they company advocates?

“It’s clearly very important that your middle managers are ambassadors of the business,” says Geraint Anderson, CEO of TT Electronics. “They are the ones in front of customers and talking to lots of the employees on a daily basis. If they don’t believe in the business and really walk the talk, then you’ve got a major issue on your hands.”

Richard Oosterom, Executive Vice President of Group Strategy & Business Development at business communications provider, Colt Technology Services, comments: “[It means] having frequent interaction with [managers] as well as their teams, watching whether they are focused on short as well as long-term goals and serve the company’s interest and not just their own or their team’s.”

2) Attitude and ability

The pressure to figure out where the real talent lies often comes to a head in a turnaround situation. For Ian Toal, CEO of dairy company Adams Foods, who has cut some £5 million of costs out of the business since joining in July 2011, it has been a case of being harsh but fair. “I did a lot of profiling with the individuals in terms of skill-sets, which also gives you a flavour of the people who want to be on the journey with you,” he claims.

“If you’re not the finished article and you want to be on the journey, I’m one of those people that will work to get that person where they need to be… But the people who simply don’t want to be on the journey shouldn’t be, and I’ve removed them very quickly. It took me a year, but 90 per cent of our underperformers have now gone.”

Naturally, experience makes you better at identifying strengths and weaknesses. Chris Merry, CEO of accountancy firm RSM Tenon, comments: “I’m looking for proof of a professional track record. Are they engaged with the client and do they have the technical knowledge they need to do their job and are they competent at managing people and driving teams? But there are softer skills required too, which are much harder to measure. Clearly, you are looking at their ability to make an impact quite far into the future for them to be really successful.”

According to Jim Waller, formerly Group Commercial Director at Carphone Warehouse and Commercial Director for Foods at Marks & Spencer, the questions around an individual’s attitude are absolutely fundamental: “You’ve got to look much more at the character of the person, how they treat staff and customers and how they talk to people. Is it purely transactional or do they want to understand a bit more about the person?”

3) Consistent message

“I’ve seen too many companies where they let people slide by in terms of not meeting performance targets or they’re not keeping to some of the company values, and if they continue to be kept in the firm it produces incredible cynicism around them,” says Nandani Lynton, Criticaleye Thought Leader and Adjunct Professor of Management at CEIBS, Shanghai. “If a company won’t stick to what it says it is looking for, it can quickly ruin the morale of everybody else.”

Sarah Murphy, Group HR Director at international food business AB Mauri, says: “Have regular dialogue about personal performance, not just delivery against goals – ‘how’ someone does their job is as important as ‘what’ [they do] when trying to achieve a sustainable organisation.”

Untitled-1
4) Can they delegate?

Creating a well-rounded, committed team is a skill in itself. Ken MacRae, CEO of real estate concern Northacre, comments: “While I want to see them hitting their targets and producing high quality work, it is important to see growth and development within the team also. The middle managers have a direct impact on this.”

How quickly the team matures will often be defined by how willing a manager is to delegate responsibility. Jim says: “Good managers will canvass the opinions of the team around them, thereby allowing individuals to feel that they are making a positive contribution to whatever project they’re working on.

“I remember my boss once said to me: ‘You’ve got a team of doers; what you need are innovators, so you’ve got people who can create value.’ Those that give their teams a to-do-list every week are never going to encourage others to make decisions and therefore be creative. You have to give people enough latitude to make decisions and provide them with the opportunity to make mistakes and learn from them.”

5) Embracing change

“The ability to be able to keep reinventing themselves and keep evolving is absolutely critical,” says Adrian Gunn, CEO of recruitment agency, Matchtech. “In order to retain the respect of the team around them, they’ve got to keep one step ahead, just as I welcome my management team to challenge me and keep me one step ahead of them.

“It requires a continual evolution of your skills to show that you can keep adding value to that management chain. Those that don’t will be caught out and will lose the respect of the team, which may mean they have to exit the business.”

Rod Webster, CEO of mining concern Weatherly International, says: “Circumstances change so quickly that, for me, rigidity in thinking is the biggest problem in managers. In the mining business, for example, we’re constantly subject to political and social forces, changes in commodity prices and work practices and the threat of industrial issues, so the people you employ have to be flexible… but it is pretty hard to get.”

***

Your middle management can be the biggest source of drive and passion within your business, or an inhibiting force which must be removed. There are various ways and means to bring the blockers and dissenters to light and each director will have their own techniques for spotting them.

Jon, for one, has a pretty straightforward approach. “The presumption from my experience is that anybody who has had more than two divorces is a bad manager,” he declares.

Five Steps to Achieve High Growth

Comm-update-26.02.13

No-one succeeds in isolation which is why high-growth companies need access to a clear network of support, encouragement and advice. It’s frustrating when you see that a fantastic business with huge potential has faltered in that journey from toddler to titan because management lacked that crucial bit of experience, or didn’t quite know where to turn in order to get the finances right.

It is a risk for the founder of a successful private company, which provides a secure and comfortable lifestyle, to raise the stakes and go for high growth. Here are five of the most common barriers which need to be overcome:

1) Working capital and finance

Richard Barley, Director of Deal Origination at private equity firm LDC, comments: “You don’t want to be overtrading, especially as a business starts to grow quickly. In past recessions, what’s been found is that as economic conditions improve there is a spike of businesses going under because of a lack of working capital.”

It’s easy to be overwhelmed by success. David Soskin, Chairman of SEO specialist Smart Traffic, says: “If sales appear to be going up, then everyone is feeling good and that is a danger because you have to be paranoid when sales are rising quickly. You have to watch your finances even more closely than you would in a company that’s growing stably as obviously there are huge implications on cashflow and, in many cases, the quality of the debtors.”

As important as it is for a growing company to remain agile, it’s easy for CEOs to become distracted and dazzled by opportunities. “It’s tremendously challenging for SMEs to turn down business and this is why overtrading is such a problem,” says John Williams, Head of the Breakthrough programme at Santander.

Terry Stannard, Chairman of interior furnishings group Walker Greenbank, says: “If you’re in a start-up phase and you’ve got some initial funding, even if that’s pretty small, the key thing is to plan ahead with cash in mind. You don’t want to get carried away by all the opportunities… as you need to understand that when that first round of funding is exhausted, you must have a pretty good story to attract some more.”

2) Listening to the customer

Customer-centricity should be a priority for any business, but early-stage companies can be naïve about how vital it is to interact with customers and shape innovation accordingly.

Jay Patel, CEO of mobile data provider IMImobile, says: “The single biggest danger I’ve seen is that people get preoccupied with a product rather than focusing laser-like on what the customer wants. It is something that needs to be watched as the customer needs change and you will never get it right by producing a product in the abstract.”

Untitled-1

3) Evolving management & culture

For many CEOs, this is the number one challenge because as a company shifts through the various stages of growth, the skills and expertise required to make the business successful will be different. David says: “The faster a company grows, the more pressure it puts on the top team. There are some people who thrive in a very demanding environment – others don’t.”

Henri Winand, CEO of fuel cell business Intelligent Energy, comments: “When I came in, I set the expectation that every 12 to 18 months we would have a major organisational change. You need to be able to work out how to execute that without breaking the business, because if you change too quickly or too slowly it can [cause problems].

“But you have to constantly think where you are going to be in two years’ time and the reason for that is because any change we implement can take between 12 to 18 months to stick, and then a few more months to basically operate and ripple through the business.”

This is where the CEO and senior management team earn their stripes (and the introduction of experienced non-executives can add significant value) as they address conflict and tension within a changing business. Maria Pinelli, Global Vice Chair for Strategic Growth Markets at professional services firm Ernst & Young, says: “You start out as an entrepreneurial, innovative, fast growth company and you want to sustain that growth, but what’s difficult is that you need to do that while building infrastructure, systems, processes and controls.”

4) The case for partnerships

Joining forces with another company may have its dangers, but it can be an effective way to gain new business. Rob Wirszycz, Non-executive Chairman at technology consultancy Portal, comments: “You’ve got to deconstruct your routes to market through all stages of the buying and selling cycle, and you’ll then be able to work out where you may be able to benefit from a partnership.”

Bill Payne, General Manager of Customer Experience and Industries at IBM, says: “Many business leaders have a sales strategy that overlooks the opportunity to use partners as an indirect sales channel. It’s easy to be overly focused on organic growth from your own direct sales team, but young dynamic businesses cannot afford the luxury of time to grow and so using a partner channel becomes second nature to them. In particular, SMEs have a significant opportunity to expand their selling if they understand how to sell through a larger enterprise or specialist partner.”

5) International expansion

Headaches and heartbreak, that’s what international expansion can bring to a business if done in haste. The added cost, bureaucracy and problems around staff recruitment can be a massive drain on what domestically may be a very successful business.

Terry says: “It’s usually better to establish the business profitably in the UK and start to properly do due diligence and find out the opportunities overseas in terms of the best model for expanding, whether it be agents; distributors; joint ventures; acquisitions – for the very biggest companies; where your priority countries are; what product is likely to succeed; and whereabouts the competition is not so entrenched. But all of that needs to be done at the appropriate stage of growth.”

There has to be significant commitment and planning. Steve Jones, CEO of pharmaceutical company Special Products, says that attention must be given to recruitment and that, although an international strategy is often necessary, you can’t underestimate the time and investment it requires, along with the knowledge that there is no guarantee of success. “It always takes longer than you think it’s going to, so if you’re in any way half-hearted you’ll do your profit lines all kinds of damage.”

However, an international strategy, executed properly, will take a business to the next level. John says: “Fast growth businesses are obviously not all international businesses, but they should be thinking internationally, either in terms of their own growth outwardly or a consciousness that international competitors will be entering this market.”

****

There will be those who scoff at the idea of year-on-year double-digit growth presenting a “problem”. But it is necessary to have an eco-system whereby real entrepreneurs feel confident about maximising the potential of their business, so they can go on to conduct an IPO, find backing from private equity or some other heavyweight private investors.

Any attempt to back ambitious businesses should be welcomed, such as the recent move by the London Stock Exchange to bring in a High Growth Segment which will help niche companies wishing to transition to the Main Market. “It’s part of a longer term and wider dialogue about how to make equity aspirational for investors and management teams again,” says Marcus Stuttard, Head of UK Primary Markets at the London Stock Exchange.

Whatever the path taken, it’s all about ensuring businesses don’t lose momentum. John says: “If there is a single biggest barrier to growth, it is finding a willingness within the management team to drive for growth as opposed to settling for business as usual.”

And who wants that?

Certainly not Henri at Intelligent Energy: “Without a shadow of a doubt, this is going to be a huge business. The reason for that is we have excellent technology and it is proprietary. This, combined with the demand for [energy] efficiency… all points to our technology being a significant player.”

Making the Switch from CEO to Chairman

Comm-update-06-02-13-web

There are CEOs who make the move to chairman without missing a beat. They understand how to support the executive team and won’t interfere with their decisions unless the long-term interests of the business and its stakeholders are threatened. Others, it’s fair to say, aren’t quite so enlightened.

That’s why it’s often advisable to gain non-executive director experience first, especially if you’re thinking about stepping into the public company arena. Leslie Van de Walle, Criticaleye Associate and Chairman of building material company SIG Plc and recruitment concern Robert Walters Plc, says: “Before becoming chairman you need to learn a bit more about chairing board committees and understand that one of the roles of chairman is to foster a consensus. People don’t always come from the same angle or share the same view and chairing a committee is a good way to start learning that skill.”

Geoff Brady, Non-executive Chairman of Harvey Jones Kitchens, recalls that he only took on his first chairman role after four years in NED positions: “I decided my first NED roles should be a mixture, so I got one in a family-run business, one in a Plc and one in a private-equity backed business because they are very different animals.

“It’s important to understand not only the difference between being an exec and non-exec, but also between being a non-exec and a chairman in each of those arenas as the chemistry needed for success is different. Clearly, if you are in a listed company you are a little more of a policeman and a little less of a strategist and sounding board, whereas in a PE-backed business you are at the other end of the spectrum.”

There are a number of companies where the CEO moves into the role of chairman or takes on the title of ‘executive chairman’, which can prove problematic. Douglas Quinn, Chairman of care home developer Castleoak and former CEO of Voyage, which operates in the care sector, says: “Before becoming chairman of Castleoak I had stayed on the Voyage board as a non-exec having been the chief executive, which was quite difficult. I did it to provide a bit of continuity and a period of transition, so I took on the chair of the governance committee. To be a NED of a business where you’ve been a CEO is difficult, but being a chairman of a business of which you’ve been a CEO is nigh on impossible…

“The chair should allow the CEO to shine, so if you’ve been the CEO previously you’re still seen as the person in the spotlight… you’ll know all the details of what the CEO does so it must be very difficult to tread the line between challenging without sounding a bit defensive.”

Personal ambitions have to be kept in check. Clive Sharpe, Chairman of Quorn Foods and former CEO of Golden Wonder, makes a similar point: “I have seen chairmen wanting to be CEOs and it is important that you don’t think you can do a better job. If I ever felt like that, I’d need to review the CEO’s performance, address any deficiencies or change them.”

Untitled-1-web

Chairing the new normal

So once the move has been made, what can you expect? Lady Barbara Judge, Chairman of the Pension Protection Fund, comments: “Chairmen have to be strategists and very good with people. There are times when problems can occur between the executives and the only one who can effectively sort things out is the chairman. That is the situation I have seen a number of times and in which I have been personally involved.

“In order to have the stature and knowledge to do the job effectively, the chairman needs to really understand the business and should spend much more time on it than any other non-executive. The chairman has a real opportunity to add value with respect to strategy and people management.”

The executive team must be driving the execution of strategy, but the qualities a chairman brings to a business, particularly if it’s family owned or backed by PE, will go beyond the efficient and timely running of board meetings.

“Chairmen are increasingly becoming involved in understanding the day-to-day of the business,” says Clive. “Quorn, for instance, has a lot of overseas business and I visit partners in different countries, whether that’s distributors, joint venture partners or even customers.”

The profile and expectations placed on the chairman are rising too. Leslie says: “In today’s world, when there’s a problem, people will not just go after the CEO for answers but the chairman too, so the chairman has a duty to be able to influence and be aware of what is being decided.”

Douglas comments: “The level of involvement is higher, particularly in difficult times. That’s why it’s important to understand the nuts and bolts of the business. It’s no longer enough to just go along to the board meeting and read the newspapers.

“In the care sector, for example, it looks likely that the government’s proposals on corporate and personal liability of boards and directors are going to be pushed through… so that sense of responsibility is going to be accentuated more than before, and a good chairman is going to have to know what’s going on in the business.”

Businesses need strong and genuinely knowledgeable, experienced chairmen. Geoff says: “Chairmen do need to be a little more hands-on in tough times… As soon as you have a problem, a NED will spend more of their time looking after the shareholders’ interest, changing personnel on the board and getting more involved in strategy and spending time in the business. You have to keep a little bit of distance from the CEO and not get too close because you never know when you’re going to tap the CEO on the shoulder and say, ‘Look, this just isn’t working out.’”

The skill is in knowing when to step in and when to remain at arms’ length as too much of either can create serious problems. Alan Giles, Chairman of clothing retailer Fat Face, says: “Your principal duty as chairman is to manage the board, ensuring that the right strategy and management is in place, that there is a focus on performance and management of risk, and that the organisation has sound values.

“To do that you must be able to constructively challenge, support and mentor the management but it’s your responsibility to hold the CEO to account, which ultimately might result in firing them, stepping in if necessary and hiring a replacement. Your primary duty is to shareholders, so you must understand their views and represent their interests in the boardroom.”

That harsh reality is and always should be there but, on the upside, when the relationship functions properly it provides fantastic momentum and energy for a business. Douglas says: “If you’ve got a good chairman and a good chief executive, and the two are working together well and each understands how the other operates, it can be a very powerful and important thing. Having been a chief executive, I valued the role my chairman played and I am trying to replicate that and make sure I add value as a chairman.”

Finding the Upside in PE

Driving growth requires management teams to combine ruthless focus with an agile response to both challenges and opportunities. Ernst & Young’s private equity specialist, Harry Nicholson, explains why CEOs of PE-backed businesses should be doing more to create fresh exit options

The total number of exits of private equity-owned businesses across Europe rose to 83 in 2011, according to Ernst & Young’s research of European businesses worth more than €150 million at the time of PE investment. This was the highest recorded number of exits since the peak years of 2006/7.

Harry Nicholson, Partner at E&Y, who has been advising on PE deals for more than two decades, provides a snapshot of European deal activity in the mid and large buyout sectors of the market.

What drives a successful sale in the current market?

Quite simply, it has to be a very good business. Remember, the majority of buyers of PE-backed businesses at present are other PE firms. While there are plenty of PE buyers around with cash to spend, they are selecting only the very best assets. To continue to generate attractive returns, PE firms must seek out the investments with the most potential, then work actively with those companies to achieve that potential.

However, secondaries are not going to clear the overhang of unrealised PE investments, so the piece that needs more thinking about is the hook for trade buyers. Therefore, as the interested seller, what more can you do to really think about who might be interested and why?

In practice, what can vendors do to attract trade buyers?

It’s harder to sell a business today unless you have demonstrated a scalable, often international model for driving growth. Trade buyers from the US and Asia-Pacific are clearly showing more interest in the mid to large end of the market in Europe. So as a potential seller, you’ve got to broaden your horizons and think creatively about who might be interested, particularly on the international stage, and why they might be interested in your business. Sometimes the trade buyers, and their investment rationale, may be obvious. But there are evidently benefits to be gained from management teams challenging their own thinking. It is something that, to date, too few private equity owned businesses have undertaken.

It’s then a case of helping to make it happen. Wear out some shoe leather and get out there and spread the word. Remember, there’s a huge backlog in the market, all hoping that it happens to them too. There are simply too many sellers and not enough buyers. With buyers more circumspect and with the focus, as ever, on business fundamentals, achieving any exit in today’s context means more effort is required all round.

Does the PE model need to change in order to create new opportunities for an exit?

It’s about rekindling the intensity of the original investment case, looking for new drivers of value that others haven’t seen, the pooling of great minds, intelligence and expertise. It’s about returning to the mentality of ‘this is what we’re going for and why’.

It’s always a big challenge. I’ve seen examples of where a business will almost hit the wall but manage to limp along. There’s a great temptation to just survive when you’re in such a position and the macro market looks unkind for years ahead, but that’s not enough.

This is a challenge of leadership. Can CEOs find the inspiration and decisiveness needed for change, which will increase cash flows and create fresh exit options? Waiting for the tide to rise just doesn’t feel like the right thing to do. Business leaders should be asking, ‘How do I make something happen to create value?’

What’s the mood among PE firms?

For the PE guys, they’re thinking: ‘I really want to crystallise my best deals, which will help me raise funds, but for the rest of my portfolio, as long as they don’t mess up, we’ll wait and see…’ That’s why it’s beholden on management in some of these companies to rattle the cage and create the urgency, because there won’t be that intensity coming down from the GPs [general partners] to force that in many cases.

Is the financing landscape for deals improving?

Deals are getting done and leverage hasn’t gone away. There’s still finance for a performing business that’s shown some ability to absorb external shocks and has some resilience to its earnings and cash flow. Sure, the leverage ratios are off their peaks, but it’s not a reformatting of the financing model and there’s still a significant leverage arbitrage built into the PE model. For the right deals, the money’s still there.

What about refinancing the existing portfolio?

That’s the bigger question because there is a raft of businesses struggling under the capital structures that were taken on in 2005 to 2007. The data we’ve looked at shows that in the biggest buy-outs, close to one-in-five may still be facing financial distress. Few are acting recklessly. So, as a PE firm faced with a business that is still making some money but which can’t refinance then, actually, you don’t want to sell it in today’s market because you won’t get top dollar. If it’s still meeting its interest repayments, you’ll keep it running. The LPs [limited partners] could kick up a fuss and get a consortium together to try and put a bit of pressure on the GP, but if they ask them to act fast and crystallise those investments to release cash, are they going to get the right value for those assets selling in today’s tough market?

Has the dynamic between management and sponsor changed?

In the largest deals, the boom years of the early noughties where PE backing was a one-way street to riches are over. For great management, they’re now asking: ‘Is PE the path to fame and fortune or not?’ Therefore, the opportunities have become more of a hard sell for PE to get management engaged and interested.

For incumbent management teams, incentive structures that looked good in 2006/7 don’t look very exciting in 2013. The model for me has always been a combination of carrot and stick: the stick being the financial leverage and the discipline that brings, with the carrot being the alignment of objectives, so if you can make it work we’re all going to do very well.

But the crash meant it ended up being just a stick for management teams. As a result, some management teams have been changed, while others have reacted to the challenge and opportunity of the ‘new normal’. Often, this has been followed by a rebasing of management incentives to re-create equity upside (for management, the prize of creating the new plan). It’s been a major trend in the last few years and it is still working its way through the PE environment.

Incentive structures that looked good in 2006/7 don’t look very exciting in 2013

********************************************************

Harry-Nicholson-webHarry Nicholson, Partner, Ernst & Young

Harry Nicholson is a Partner at Ernst & Young, the global professional services firm. He heads the Commercial Advisory practice which provides market, customer, industry and business advice to clients engaged in transactions and strategy development. Harry advised on his first PE deal in 1992, and has been actively engaged in the industry since then on new investments, realisations, re-financings and restructurings. He leads Ernst & Young’s annual global research programme, ‘How do private equity investors create value?’, and is a member of the British Venture Capital Association’s Research Advisory Board.

Contact Harry through www.criticaleye.net

Own Goals in Cross-Border M&A

Comm-update-23-01-12-2

The acquisition of a foreign company figures highly on the agenda of many executive teams as the quest continues for new markets and improved economies of scale. Such transactions pose a considerable amount of risk and that’s why management must ensure the strategy is sound and the legal and cultural differences are understood, so a clear plan for integration is in place once a deal has been signed.

There will always be an element of risk associated with purchasing another business, domestically or abroad. Here are five of the most common howlers that CEOs need to avoid when they decide to go shopping overseas:

1) Assuming too much

It’s a dangerous game for management teams to make assumptions about foreign markets. Jim Wilkinson, Group Finance Director at online gaming company Sportingbet, says: “Every country has a different culture to the UK, with different rules and regulations, so you need to understand everything from holiday times, payment processes, bonuses, how they actually work, levels of remuneration, and how quickly people expect integration processes to happen.

“In the US, for example, where I’ve done a couple of acquisitions, management have expected all the redundancies to happen straight away, whereas in other countries, particularly in parts of Europe, they don’t expect redundancies to happen at all. Understanding how people expect you to manage them afterwards is important.”

Aleen Gulvanessian, Partner at law firm Eversheds, comments: “Local teams mustn’t be left to make assumptions which might be inappropriate in the foreign country, so you conduct the transaction in the way you would locally at your peril when dealing with a cross-border acquisition. It’s very easy to think that there won’t be a problem and just not be aware of something potentially critical.”

There will be differences, legal and otherwise. Ian Bowles, CEO at software provider Allocate, says: “It’s a mistake for an acquiring company to automatically assume that their way of doing things is absolutely correct and try to do things exactly in the way they would in their own territory, and I’ve been a recipient of this rather than a manager of it.

“There are legal and process differences and you need to understand the working environment and customer environment. You’ve got to be culturally sensitive when you acquire something overseas. You can endorse corporate standards but you’ve got to do it in a way that is acceptable to the team you’ve acquired or you’ll create misunderstandings and false barriers that’ll make smooth integration more difficult.”

Nothing kills a deal quicker. Jim says: “The biggest single mistake is cultural, where people assume that it’s the same as the country they’ve already operated in, and if you want to destroy value very quickly then do the acquisition and watch the management team walk as you end up with a rudderless company.”

2) Inexperienced management

As an acquirer, you need people you have absolute faith in on the ground. Paul Budge, UK & Ireland Managing Director at consumables distributor and outsourcing business Bunzl, says: “Because we’re very decentralised as an organisation, when we do an acquisition, the person that’s going to run that business, whether they are from the acquired company or our own resources, is going to be working remotely, so it has to be someone we absolutely trust.”

Bob Emmins, Finance Director at ABF Ingredients, says: “You’ve got to have a local presence. You can’t run it from the head office or another geography. You’ve got to have people that know the geography, the language and customers, the legal practices in particular and some of the local nuances that are applicable in that market, otherwise you’ll be very lucky to conclude the deal and you will not integrate it.”

It’s a case of getting the balance right. If the acquirer brings its people in and drives change too quickly or, by equal measure, too slowly, then the value in a company can quickly be eroded. Alan Howarth, Non-executive Chairman of telecoms specialist Cerillion Technologies, says: “The first 100 days of any M&A activity is key to an enhanced future business. Too often there appears to be a lengthy period of inertia where fear of the unknown travels across the combined business.

“The desire for change – always underestimated – is seldom found beyond those that initiate any such programmes. So the board has a responsibility to communicate the advantages and consequences the changes will bring to the new corporation. All too often, senior executives work very hard in this period but in isolation.”

Untitled-1

3) Post-deal lethargy

Another danger is that the process of integrating two businesses can be lost on executives. They get excited about the value creation on the balance sheet but forget the hard part lies in knitting the companies together. Aleen says: “We find that where the acquirer is disappointed with the target they’ve acquired, it’s often because you’ve got a different team dealing with the integration post transaction to the team that was involved with actually doing the deal.

“You should be thinking about integration during the course of the deal process. Where your team doing the deal overlaps with the one conducting the integration post acquisition, you tend to find the most successful transaction.”

Jim says: “You need to keep control of it from your head office; you can’t just leave it up to the local team. This means a lot of time is spent on the phone and it requires frequent visits to the country while you’re conducting the negotiations and due diligence, and once you’ve made the acquisition you need to physically be there.”

There are no shortcuts. Alan says: “In my experience, both in terms of mounting an international acquisition and more importantly integrating the target organisation with the host, success revolves around the understanding of culture and change. The more you appreciate the drivers and operating style of the acquired business the greater your likelihood of successful integration. Due diligence pays scant attention to the less quantifiable measures when the key to integration is ensuring that a new corporate message can be embraced by all parties.”

Bob comments: “People can get wrapped up in doing the deal and money talks, so money can often be used to get over the normal negation tactics to conclude a deal. But when you come to integrate it, if you haven’t thought about that market and put the right local resources in place, you are just destined to fail. You’ve got to have knowledgeable local resource with local connections.”

4) Poor use of advisors

Aside from having seasoned non-executive directors who know what to expect, it makes sense to invest in quality advisors as they can make an enormous difference during negotiations. Jim says that “you need local advisors as the local tax rules, regulations and laws are important, so you need people that know what they are doing”.

Bob says: “Third party advisors are the voice of reason that prevents you from going headlong into the pitfalls. They should not just be encouraging you to do a deal because they get a healthy commission on completion, but they have got to do more to protect the risks. For a longer-term benefit for their customers they need to be helping that customer ensure that the integration is successful.”

5) No plan B

Surprises in M&A are rarely of the good variety. Things will go wrong. That’s not to be cynical, but when you have volatile market conditions, different ways of operating and cultures and large sums of money involved, it’s probably wise to expect the odd hiccup along the way.

Simon Braham, Investment Director for cross-border M&A at private equity firm LDC, explains that contingency plans are crucial when a business begins to operate internationally and makes acquisitions, such as putting in place someone whose role is to specifically liaise between the domestic board and local management in order to ensure that any fires within the business are spotted and extinguished quickly.

***

A lot of M&A loses momentum because management focuses solely on the deal and loses interest in implementing the rationale for increasing the size and presence of the business. Few companies can afford to be that lackadaisical in their thinking anymore. As Don Elgie, CEO of insight and communications agency Creston, puts it: “The key point is that acquisitions stand a greater chance of success if there is a strategic reason for them, rather than just financial roll up.”

That’s true regardless of where you’re buying a business, although acquiring abroad will undoubtedly present a greater test in terms of putting your ideas into practice, largely because of there being more variables to overcome.

Nevertheless, it’s not something to be shied away from. “Acquiring companies in faster-growing overseas markets gives UK companies an opportunity to more quickly build up scale and buy into the growth of these quickly expanding economies and markets,” says Simon. “Importantly, cross-border M&A offers a very strong alternative to what could be a higher risk and importantly slower ‘greenfield’ organic growth strategy.”

Just be sure your team are up to the task and the reasons for expansion have been examined. Pankaj Ghemawat, Criticaleye Thought Leader and Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Spain, warns: “It’s the oldest mistake in international business, companies going overseas when they’ve succeeded at home.

“If you’re Walmart and you’ve mowed down Sears and K-Mart at home, obviously there’s a tendency to think: ‘If we can do this in the US retail market we should be able to do it in South Korea, Brazil or elsewhere.’”