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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Understanding Risk Culture

Attitude is everything when it comes to managing risk effectively. “If a company doesn’t have a positive culture you can have as many rules as you like, but in that moment of truth when people are under pressure, they will tend to do the wrong things,” says John Shelley, Chief Risk Officer at RBS Asia Pacific.

Creating the right mindset in a global business is a difficult undertaking. The emissions testing scandal in the automotive industry and the discovery of slave labour in the supply chain of food companies reinforce why serious attention has to be paid to risk.

Rules and regulations, combined with integrity around remuneration and bonuses, will provide a framework for making good decisions, but senior executive and non-executive directors need to understand that governance won’t be enough.

“Risk needs to be a responsibility of everyone in the organisation and the board needs to test that there is a strategy and direction in place, monitoring and reporting against key measures and indicators, and a culture of awareness and ownership,” says Lucy Dimes, Non-executive Director at European textile service business Berendsen and former COO of Equiniti.

Charlie Wagstaff, Managing Director at Criticaleye, says: “To manage risk across a global organisation there must be an operational framework that is consistent with the organisation’s values. This needs to be wide-ranging and sensitive to all situations encountered.

“Transparency and openness are also key, so that any outcome is readily apparent. There should be no opportunity to hide or conceal anything.”

Criticaleye looks at the questions boards should ask in order to assess their company’s risk culture:

What do customers think about our company? 

Customers can give you an entirely different perspective from those within the business. Jim Meredith, Chairman at hazardous waste management company Augean, says they can “tell you whether management… understand and deal with them appropriately”.

Realistically, not all non-executives will have the time to interact with customers, so Jim promotes the idea of having a “mini customer conference” during which NEDs and others can hear their candid feedback.

Do we have a whistleblowing system? Is it effective? 

Employees must be able to raise concerns without fear of losing their job or damaging their career.

Andrew Heath, CEO of Alent a global supplier of surface treatment plating chemicals and electronics assembly materials and Independent Non-executive Director at Imagination Technologies Group, comments: “We look at the whistleblower statistics at every board meeting at Alent. I report on it because the only way you can get the right culture is by people telling you the truth, otherwise you live in a bit of a bubble.”

It’s a case of the board asking simple, direct questions. “Is there a whistleblowing line?” asks Lucy. “Is it anonymous? Does it allow employees to flag concerns and risks against a clearly communicated set of values and tolerances? Is speaking up valued or discouraged?”

Andrew agrees: “You’ve got to have various channels, such as employee helplines and whistleblower facilities whereby people can independently flag things without going through the chain of command.

“People have a duty to flag concerns, especially when it comes to reputational risks such as things to do with ethics, bribery, corruption and bullying.”

Where have we had near misses? 

Consider those close shaves and what they say about your organisation.

John from RBS comments: “We have a system of notifying senior management about things that nearly went wrong. Think about the airlines reporting near misses and then put that into the context of your company… Getting information about them is more valuable than going on a witch hunt to see who almost messed up.

“We want to know if our process, or something we did or didn’t do, almost resulted in an error. When these things happen we need them to be reported so we can learn from them.”

For David Gooding, Group IT Director at waste management company Biffa, health and safety is critical. “The waste industry, after agriculture, is the most dangerous industry to work in. So, this has been a primary focus for us,” he explains.

This kind of reporting has been an important part of Biffa’s process for a while but is something they have recently pushed further. “In the last four years we’ve had a double digit decrease in our incident frequency – we’ve done that by really pushing the reporting of potential hazards and near misses,” he adds.

What tone does the board set?

Respect for risk management has to start in the boardroom. Andrew Allner, Chairman at the Go-Ahead Group, says: “That is where the tone and culture are set. If the board takes risk seriously then the organisation will naturally follow that lead.”

Samantha Barber, Non-executive Director at Spanish utility company Iberdrola, agrees: “A strong risk culture also requires trust, transparency and challenge within the boardroom between executive and non-executive directors.

“Effectively managing risk is far more about culture and leadership, than it is about filling in a matrix.”

According to Deepika Bal, Managing Director and Head of Risk Architecture for Asia Pacific at Citibank: “The foundational elements of a strong risk culture include, among others, a common purpose and mission, clear goal-setting, fair and transparent rewards mechanisms, ethics policies and whistleblower protection.

“Most importantly, there has to be a culture of learning and self-improvement. Most large companies do have many of these elements in place. However, boards should focus on the efficacy of these measures in embedding a strong risk culture. Beyond these policies and controls, boards are in a unique position to set the tone at the top.”

 

By Dawn Murden, Editor, Advisory

Do you agree with the questions posed above? Would you ask something different? If you have an opinion you’d like to share, please email Dawn at: dawn@criticaleye.com

Find out more about how to embed a positive risk culture across an organisation at our Hong Kong-based Discussion Group, with John Shelley, Chief Risk Officer at RBS Asia Pacific. 

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What NEDs Bring to the Table

Would you accept a role as a non-executive director that required you to work for 120 to 140 days a year? Thought not. And yet one of the UK’s major financial institutions is apparently scouring CVs and conducting interviews in the hope that somebody will make that kind of commitment. It’s another example of the ever-increasing demands put on independent directors today.

Those aspiring to a seat on the board need to be careful what they wish for. While 140 days a year is obviously extreme, the time NEDs are required to commit is generally creeping up from the standard of 18 to 25 days a year, as is the depth of insight they’re expected to bring into the business.

This is testing the notion of what it means to be independent. For David Dumeresque, Partner at executive search firm Tyzack Partners, there is a real danger that, with all the talk of providing digital expertise, sharing global know-how and contributing to boardroom debate by drawing on other areas of operational experience, the real purpose of the position is being forgotten.

“[People are] beginning to confuse the role of the non-executive and conflate it with that of an advisor,” he explains. “The non-exec is focused on governance: it’s about holding the board to account, not second-guessing them or being appointed because of specific knowledge gained in an executive environment…

“One of the things that I hear quite regularly from chief execs is that non-execs are interfering in their work.”

There needs to be balance. Gerry Brown, Criticaleye Board Mentor and Chairman of private equity firm Novaquest Capital Management, argues that an independent director can only properly fulfil their duties by being strategic. This means actively contributing to the debate on questions of operational excellence, especially in areas such as risk management.

Risk is an area where independent directors are expected to check that the right procedures and policies are in place, but for Gerry this doesn’t go far enough. He recalls when he sat on the board of a global construction business and it was felt safety improvements needed to be made.

“We decided we would have a health and safety sub-committee and it would be led by one of the board members who was very experienced,” he says. “We then developed a strategy and policy about strengthening the whole area of risk prevention and awareness throughout our subsidiaries around the world.”

Rather than solely looking at compliance and adopting a box-ticking approach, the NEDs went further than was necessary, pushing the executives to improve the business. Ultimately, this is what executives should seek from their independent directors.

Be committed

Given the onerous liabilities and expectations, it’s more important than ever for those considering the transition to NED to understand the demands of the job. Ruth Cairnie, Criticaleye Board Mentor and Non-executive Director of Keller Group, ABF and Rolls-Royce, says: “You really need to think through why you want to do it and what you want to get out of it. In my experience, unless you’re clear about this then you’re probably not going to succeed…

“Linked to that, it’s important to try and understand what boards do. So, what is the role of a NED? There are lots of things you can do to find this out… I’ve found it helpful to really understand what I could contribute.”

Ian Stuart, Chairman of manufacturing concern Aspen Pumps, says: “Go and talk to some people who are NEDs or [those] who want to employ NEDs. So, for instance, I’m in private equity and I think it would be critical to talk to people who are either existing NEDs in private equity or private equity sponsors…

“You should understand what is truly involved. You also need to know what you’re bringing to it; what is your prime selling point?”

If an opportunity does arise, don’t be reticent about undertaking some thorough due diligence. “Talk to the brokers, nomads, accountants and investment bankers and as many other members of the board as you can,” says David. “I would consider it a massive red flag if you’re not allowed to.”

Vanda Murray, Criticaleye Board Mentor and Senior Independent Director at manufacturing company Fenner, comments: “You need to believe you can make a valuable contribution to that company. Be sure that it’s the right board for you, not just in terms of the mix of skills around the board table, but in terms of culture…

“If the board have done their job properly, they’ll know what skills they’re looking for and you can have a conversation around those skills. Then… you will have to assess to what degree you’re the right fit for that board culturally. Does this group of people share the values that I have? Will we be able to work together as a team?”

Increasingly, it makes sense to take on a not-for-profit or charity role before looking to step up to a public company or private equity board position. It provides a platform to gain experience about how a board is run, governance procedures and the different ways to express a point of view as a non-executive in the boardroom.

“There are all kinds of organisations with good corporate governance regimes that can teach you the basics of being a NED,” says Vanda. “That will make it so much easier when moving into a large private, private equity-backed or a quoted company board.”

It underlines the need to be fully prepared so that you, as a representative of shareholders, know what you should be doing. “The reality is that you are there as an influencer,” says Ruth. “You don’t have direct authority, and you shouldn’t be trying to tell the executives what to do. You’re there to provide the input, the stimulus and the challenge to help them formulate their views.

“Things do happen more slowly, but then the satisfaction comes over a period of time, when you see the executives really starting to embrace some of… your ideas.”

The competition for independent director roles remains fierce. To succeed, you will need to educate yourself, expand your network and then think carefully about what organisation will be right for you, especially if you’re being asked to work for a third of the year.

I hope to see you soon

Matthew

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Making the Move to Group CEO

CE update 19.02.14Becoming Group CEO is the pinnacle of an executive career, but those with ambitions of taking the helm of a global business should be careful what they wish for. From managing the board and marshalling the views of divisional heads, to communicating with the media, analysts and shareholders, it’s a 24/7 responsibility which provides the ultimate test of a person’s ability to lead.

“The biggest impact for me was recognising the demands of the City and shareholders,” says Mike Turner, Non-executive Chairman at engineering concern GKN and formerly Group CEO of BAE Systems. “What surprised me at first was that at the half-yearly or yearly presentation the shareholders and analysts weren’t interested in the results, they really wanted to know about the future growth prospects of the company. That brought home to me the need to be able to articulate a clear, long-term growth strategy.”

Pim Vervaat, who became Group CEO of plastic manufacturing company RPC following five-and-a-half-years as CFO, comments: “Being good at governance, numbers, talking to banks; this alone is not enough to make the transition to CEO. You really need to have an interest in the people and the key strategic drivers of the business.”

A change of mindset will be needed by those who’ve stepped up from a divisional CEO or regional MD role. Leslie Van de Walle, Chairman at building material company SIG, who made the transition from Divisional CEO to Group CEO at United Biscuits, says: “Divisional heads often underestimate the difficulty of always getting the right compromise between the various stakeholder objectives. When you get to group level you have to balance decisions against the needs of the business, the shareholders, the wishes of the board… and the interests of suppliers and customers.”

Carl-Peter Forster, Non-executive Director at engineering company IMI and formerly Group CEO at Tata Motors, says: “You have to move on from being very operationally focused, which most divisional CEOs are, to becoming much more strategic. Leading a group calls for a more indirect way of influencing and motivating people.”

In focus

The pressure of being the public face of the business can come as a shock to the uninitiated. Judith Nicol, Director at executive and non-executive recruitment specialist Warren Partners, says: “Most people at the very top of organisations are absolutely gobsmacked by how much everyone scrutinises them on a daily basis.

“You become the cultural compass and people take in everything from how you’re walking around the building, how you look, your mood… It all becomes so much more important when you’re a chief executive.”

Mike comments: “The UK press is pretty demanding, and that was a challenge, but the biggest struggle I had was in dealing with the government… In the end I had to talk with then Prime Minister Tony Blair to try and get him to understand that this county’s defence equipment base would just disappear unless he adopted a defence industrial strategy.

“In business, you’ve got to look to the long term. I’m afraid a lot of politicians just look to the next election.”

To make it as a Group CEO, you need experience across a range of functions and situations to understand how a business operates. Pim comments: “As CFO you have got to deal with shareholders, the board, and all the stakeholders quite closely already…  Working closely alongside the chief executive in a public company for five years has helped me immensely.”

Likewise, taking on a NED role as an executive will certainly give you valuable insights. Carl-Peter says: “Dealing with the board was certainly something I found to be a bit of a challenge and it was the one area I wasn’t particularly well prepared for… An external NED role would have helped massively because it puts you in a position where you can observe things objectively.”

The real differentiator for the best CEOs is the ability to see the bigger picture, showing superb leadership skills and possessing the strength of character to handle the constant pressure of being in the spotlight. Leslie says: “You have to be clear not only about the attraction of the role and the power associated with it but also the downside, which is the fact that you are alone and that you are ultimately responsible and accountable for whatever your team and the group does.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Where’s the Future in CSR?

Comm update_21 JanThe pressure is on for boards to back effective corporate social responsibility (CSR) programmes as no company can run the risk of being accused of putting profits before people or the environment. While businesses have to accept that stakeholders and the wider public will continue to demand greater engagement and disclosure, there remains the thorny question of how the value and impact of such schemes can be measured.

So what does best practice in CSR really look like? According to Martin Cook, Commercial Managing Partner for the UK & Ireland at EY, there is a growing trend for businesses to tackle major social issues, often in spaces vacated by the state, and being upfront about doing so and linking it to their brand.

He explains: “In tackling significant issues, businesses are working together, not just with third sector organisations, but with the public sector and other businesses to achieve common social and business aims. There has been something of a CR [corporate responsibility] revolution in the last decade among those organisations with a long-term commitment to making a difference.”

Ian Wright, Corporate Relations Director at global drinks business Diageo, says: “It’s not corporate philanthropy of the old kind; rather, it’s about doing good for people through a very clear business orientation… In the last few years I have become much more a regular attendee at the board meetings for sessions on this topic and it is regularly under scrutiny on the executive committee.”

The attention given to sustainability is only going to increase. Mary Jo Jacobi, Non-executive Director at Mulvaney Capital Management and a Criticaleye Board Mentor with extensive experience advising companies in the energy sector, comments: “In the past, responses have been: ‘We’ll spend some money here; we’ll do some charity there.’ The companies that have succeeded have been the ones that have had a serious consultation process with the communities in which they operate… [and have] found out what’s important to the local community and worked on those things, as opposed to just coming in with a blanket approach and throwing money around.”

In other words, while ramping up investment in CSR is welcome, it needs to be done in a way that feeds strategically into an organisation’s goals. Nicolas Mamier, Director at brand consultancy Appetite, says: “Planning for CSR should be undertaken with the same rigour as strategic brand planning – with a central strategy that is understood by everyone in the organisation. Companies go wrong by seeing CSR as a series of initiatives rather than part of their key commitments.

“Additionally, we find that relying solely on traditional governance measures does not always allow for objective feedback on performance as too many internal influences can take control. Therefore it can be helpful to actively enrol external community stakeholders that act as objective ‘control and feedback’ elements of the organisation’s performance.”

Bruce Cox, President and CEO of Pacific Aluminium, a subsidiary of Rio Tinto, says: “In the case of more developed geographies I have come to believe that the demonstrated use of a ‘moral compass’ in the way [a business] deals with all of its relevant stakeholders is far more important than directing resources or money to community activities. The ‘moral compass’ in this context should be defined as what the average person in that community would see as fair and reasonable in conducting business in a modern society.”

Change for the better?

Engagement is clearly a key aspect of any successful CSR agenda. Tracy Faulkner, Vice President of Global Communications for Shell’s Downstream business, says: “We work to incorporate the views of people living close to our operations when we make decisions that may affect them… Being part of a community means sharing a range of benefits with those around us. These can include local jobs and training, contracts for goods and services, and the investments we make in community programmes.”

At Diageo, Ian sees a clear responsibility to bridge the skills gap in the communities in which it operates: “We’re expanding fast into Africa, Asia and Latin America and those are often areas where we don’t find the skills that we need… One of our major programmes is to put those skills back into the community with what we call ‘Learning for life’, [which] is basically a programme that delivers [hospitality, retail, entrepreneurship and bartending] industry skills to people who would otherwise not have access to them.”

On a broader level, companies can build a framework on how to operate by using The UN Guiding Principles on Business and Human Rights. Luke Wilde, founder and CEO at business consultancy twentyfifty, comments: “Global business leaders should see these frameworks as helpful indicators of the direction of social and political expectations, changes in the business environment and possible direction of future legislation. Being ahead will avoid the costs of catching up later, and most likely will place your company in favoured positions for contracts, licences and finance.”

Certainly, these Principles offer international credibility and can help companies gain political support, but it’s something that requires constant revision. Mary Jo says: “They are just guidelines; a broad-brush approach that may or may not be relevant to each company in each local situation. That’s where consultation and conversation become very important… And remember, best practice is only best practice for so long, and what may have worked in 2013 may not be appropriate in 2014.”

For Martin, a robust approach to CSR means treating it as something that runs through the business and having processes set up to show this is the case: “Being able to measure and publicly report on your social impact in an age where trust has become eroded and greater transparency is the norm, particularly with the growth of social media, is vital. It is one thing to aim to make a difference and quite another to demonstrate that you are actually doing it.”

I hope to see you soon.

Matthew

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Finding Your Voice as a NED

Comm update_15 JanWhile landing a position as a non-executive director may be difficult enough in itself, more mysterious still can be what to expect around the boardroom table in those early days. The real challenge for first-timers in the role, especially if they’ve had limited interaction with NEDs in their executive career, is in knowing how to influence other directors and when to keep opinions to themselves.

“I couldn’t have been a non-executive director earlier on in my executive career because I probably wasn’t as confident as I needed to be,” says Cath Keers, Non-executive Director at Home Retail Group. “It’s important to gain solid boardroom experience as an executive director to build your confidence before moving to a NED role, because you need to be able to challenge constructively and act independently and impartially. You should also prepare to be a lone voice around the table as, sometimes, even the other NEDs might not agree with you.”

Anthony Fry, Chairman of UK dairy foods processor Dairy Crest Group, comments: “For people who have not spent their careers in boardrooms, my advice would be: learn how to read the room. It’s not just important to be right on an issue – it’s working out how to persuade your colleagues that you are.

“It’s also critical to learn how to challenge executives in a positive but not aggressive manner – many new NEDs make the mistake of confusing the need for critical judgement and comment with negativity which can often create an ‘us and them’ atmosphere.”

Even those with a wealth of boardroom experience must learn to adapt their approach. Michael Benson, Chairman of emerging market investment management firm Ashmore Group, comments: “Having been a pretty hands-on executive director, I had to remind myself what my new role [entailed]. Remember that the role of a NED is essentially to ensure the financial well-being of the company, to be the guardian of all aspects of governance and to approve the top-line strategy and monitor its implementation.”

Use your initiative

The skills required to be successful in the role are changing which means that a lot of work has to be put in if you’re going to make the grade. According to Joelle Warren, Chairman of executive and NED recruitment specialist Warren Partners, companies are looking for “broad experience to be able to assess and comment on a full range of commercial and governance issues… [and] as far as personal qualities, we’re looking for team players with small egos; people with self-confidence and good judgement…

“The Combined Code talks about five aspects of the NED role: constructive challenge; scrutiny of performance; risk assurance; remuneration and succession planning for executive directors; and stakeholder engagement. Look for opportunities to demonstrate these in your executive role – potentially with subsidiaries or joint ventures.”

Ian Durant, Chairman of property investment and development company, Capital and Counties Properties, comments: “The role has changed over the last five years or so. There’s a bit more governance structure and technicalities required, and a greater sense that institutional investors are interested and want to be engaged with what boards do and how they go about their roles… [so] you need a softer way of delivering your challenges in order to become more effective as a NED.”

The onus is on a NED to make sure he or she is up to speed. Carl-Peter Forster, Non-executive Director at engineering concern IMI, who took on his first NED role at Rolls-Royce in 2003, says: “I was very much in listening and learning mode to begin with, although I didn’t feel uncomfortable with this because UK corporate governance is really quite complicated these days. Everybody initially has to learn a lot… so I would recommend asking for formal training sessions in all aspects of corporate governance early on – and it’s very much up to the NED to actively pursue this.”

Don’t rush it

Dedicating plenty of time to the role early on will certainly help you feel more comfortable sitting on the board. Jeremy Williams, Non-executive Chairman of Assembly Studios, an international design and digital services company, says: “My first [NED] role was as chairman for a marketing services business… [and] I devoted a lot of time to this… and as a consequence felt comfortable from the beginning. As part of my contract I made a set of recommendations to the board after the first three months and [was] influential in helping to create a full turnaround and growth plans for the business.

“It takes care, confidence and a fully immersive induction programme, looking at the major challenges, issues and functions of the business. Over six weeks I sat in on key meetings within the business, be they business development, marketing, operations or finance related… had one-to-ones with all of the key managers and held video calls with those in the international offices.”

Ian comments: “Those early months are as much about getting to know the business and feeling comfortable about your own contribution in a board situation… Take your time, observe the behaviour of other NEDs, get to know the business as well as you can and develop credibility with the management – not just the board – by getting out and about in the business and meeting people.”

Bearing in mind the higher expectations and increased scrutiny now placed on NEDs, it’s a case of taking nothing for granted and going all out to do the hard yards in those early days to make sure you’re properly informed about the business.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

 

The Mindset of the CEO in 2014

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For returning CEOs, January will be about keeping energy levels high, ensuring goals and objectives are communicated clearly and paying close attention to the balance and make-up of the senior leadership team. As the year progresses, momentum is going to be everything as there is an increasing sense that the time has come for businesses to go on the attack.

A common refrain from executives is the need to have the right people around them. Matthew Dearden, Regional President for Eastern Europe, UK & Ireland at outdoor advertising company Clear Channel, explains: “My [New Year’s] resolution is to remember that it’s not about [me], it’s about the team; ultimately, the goal is to make sure that everybody in my team is in a place where they don’t really need me.”

Marnie Millard, Group CEO of soft drinks business Nichols Plc, comments: “The main thing I’ve got to focus on now is the development of our leadership team, because I’ve inherited [it]… and I’ve got people at very different levels. If myself and the FD had to step out of the business for a period of time, not only would I want it to be able to continue to function, but [I’d want] the development of the organisation and the business strategy to continue too.”

Likewise, Mark Wood, SVP and Managing Director of EMEA for US-based cosmetics firm Revlon, stresses the importance of engagement: “Create the right environment, where people see that they can make a contribution to improving the business… [because] giving people more rewarding jobs and careers should be [fulfilling] for leaders.”

Solid foundations

For Jim Waller, who became Commercial Director at Italian food manufacturer Sacla last September, it’s a case of building on what’s already been put in place: “I’ve done a lot of graft in my first three months, setting people’s objectives for the year ahead and driving some common and consistent behaviours and ways of working. This will hopefully get people operating much more as a cross-functional team… so that every single person has consistency in their targets for the year.”

Communicating objectives and goals in a transparent way is vital. Paul McNamara, Managing Director of Insurance and Investments at Barclays, comments: “Make sure that the strategy is not forgotten in the New Year… [and] remind yourself of the key messages: what do we want to achieve and what does success look like?”

Don Elgie, CEO of insight and communications agency Creston, agrees: “Be clear, either in your own mind or by constantly referring to your business plan, about what you want to achieve… there’s no point having goals that you won’t be able to succeed in, otherwise it’s just wishful thinking.”

According to Martin Balaam, CEO at IT services concern Jigsaw24, staff will already be fired up because of the greater optimism about the economy. “The key thing will be to direct that positive energy in the right areas and prioritise the things that are going to add the most value [to the business],” he says.

Fundamentally, if performance is to be maintained, it comes back to CEOs having a team of people around them who are going to be able to provide insights, take on responsibility and challenge where appropriate.

Mark comments: “If I’m going off kilter, then I would expect the team to pick me up and say: ‘Where is this on the objectives? How does this fit into the three-year plan? Where are we going with this?’

“You’ve got to have those continuous feedback loops in place so that the leader doesn’t get carried away and lose the team. Actually, I think that’s the acid test for leadership: it’s whether you can continue to take the team with you.”

It’s a point that certainly rings true for Paul Walsh, advisor and former CEO at global drinks business Diageo: “You need great people around you and they will only be attracted and retained if there is a collegiate environment… [That’s why] you have to be prepared to listen and learn. A leader who thinks they have all the answers will very quickly come unstuck.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

 

CEOs: How to Manage a Crisis

Today’s intense public scrutiny seems to unearth business calamities on a weekly basis, whether they’re leadership gaffes, tales of wrongdoing or a disastrous technical failure. When such a crisis hits and the media demands immediate answers, it’s up to the chief executive to get the details clear, control any panic and secure the long term reputation of the business.

Andrew Heath, President of Energy at engine-maker Rolls-Royce says: “Our approach is to stick to the facts: acknowledge them and work swiftly internally, to understand what we need to do before we tell people [outside the business]. The media doesn’t necessarily like it, but both [they and] our business circles do recognise that… we don’t speculate and only put out what we know when it is factual.”

Once the details and the extent of the risks to the business are ascertained, the clear up can begin. Leslie Van de Walle, a Criticaleye Associate and Chairman of both construction supplier SIG Plc and recruitment consultancy Robert Walters, says: “Be vigilant: you need to monitor the… feedback from your audience. Be ready to react relatively quickly, with a low profile and with the facts, hoping that it will calm down the bad press before the spotlight moves on to something else. [The key] is giving an appropriate response to the events, without under or overstating it.”

It’s a case of defining your priorities and the interests of key stakeholders first and foremost. Kevin Murray, Chairman of PR consultants Good Relations Group, says: “Trust is a strategic asset and if you destroy a relationship with a customer or a supplier it is far more damaging to your business than some bad media headlines. Ask whose relationship with you is being damaged [by the crisis] and what you need to say and do to fix it. It is about developing the right strategic response, rather than the right media response.”

Enough businesses have undergone high profile catastrophes to make it clear that successfully handling the external perception of a crisis hinges on the quality of internal management and with the aforementioned focus on a business’s relationships, values and reputation.

In mining, for example, the ongoing stability of a venture is threatened when companies don’t keep local communities onside. Bruce Cox, Managing Director of Rio Tinto Diamonds, says: “It is not just the global brand reputation that is critical, but the perceived or real community concerns. They can result in lasting local reputational damage that is hard to recover from. The solution there comes from facing issues head-on, through sincere and genuine engagement with community leaders.”

The company line

When a crisis breaks, it’s the CEO who has to exercise judgement on what the impact of a crisis is on the business and decide on the appropriate course of action, rather than relying solely on the opinion of advisors and comms teams (although they certainly have their place). Likewise, it’s the leader who needs to ensure, and thereby feel confident, that the values of the organisation are understood by each and every employee right through to those in the supply chain.

Easier said than done, perhaps, but weak links in organisations are causing catastrophic consequences. Patricia O’Hayer, Vice President of Global Employee Engagement at Unilever says: “Today at any point in time anyone can mobilise a maelstrom of activity which challenges a company’s reputation, so never discount a threat as insignificant or not credible… But it’s not all doom and gloom, a company’s reputation is an asset that can be managed and bolstered each and every day.

“Invest in your employees as the first line of defence, they are the best advocates for your company… and hold your suppliers accountable to use your products, speak well of your company and adhere to your standards, [as they] too have a vested interest.”

It’s about drilling home what’s at stake to the whole business, adds Martin Sutton, Head of Corporate Assurance at National Lottery owner Camelot Group: “On the very rare occasions that a player has a problem with our lottery systems, we know that, no matter how small or temporary the problem may be, news of it will spread like wildfire on Facebook and Twitter… [but] most crises start small and like a storm approaching don’t necessarily in themselves warn you of what’s about to come.

“It’s a fine judgement and the first indications often won’t lead an inexperienced manager to think this is indeed a crisis… [so] we put all of the senior executives through a training process, which I found incredibly useful because you know what to expect in those first 24 hours that define the overall response.”

Let’s not forget that with all of this, good non-executive directors have a role to play in protecting the reputation of the business. Leslie explains: “I think it goes back to the board… If you have an experienced board that is capable of taking an appropriate assessment of the situation, the company’s leadership is likely to be helped in taking the right decisions… It’s difficult once the press get involved but it is the role of the board to take a balanced view and a balanced response.

“In a crisis, it is a question of being prepared, it is a question of being transparent and honest, and it is a question of having people who are mature and experienced. [They] know that as a CEO you will have a crisis during your tenure.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

A Dream Board

Balance and diversity are quite rightly heralded as essential for creating a good board. The challenge in achieving this is often not a lack of will, but rather trying to find the people who have the knowledge, experience and commitment to push an organisation to the next level. This is especially the case for public companies, where onerous liabilities and personal risk remain extreme for board members.

Sir Peter Mason, Chairman of Thames Water and Senior Independent Director of BAE Systems plc, says: “The talent pool is getting tighter and smaller. What I see, certainly in my oil and gas business and in BAE Systems, is that we are looking wider in terms of hunting for the right talent – meaning outside of the UK. We want to find the best wherever we can, locate it and I think that will increase as the talent pool in the UK continues to shrink.”

This doesn’t mean that you shouldn’t strive to improve the make-up of the board or to assume that you won’t be able to find that non-executive director who can make all the difference. If you are fortunate enough to have worked in a boardroom that contains the right mix of individuals, then you can see how people take their responsibilities seriously, showing passion for the business and feeding off each other to focus on broadly aligned goals. There will always be antagonisms, but that’s no bad thing either (in fact, there should be disagreements). For many, the chairman is the vital element when it comes to forging an effective board. We asked our Community what they consider to be the essential elements of a ‘dream’ board.

Ruth Cairnie, Non-executive Director of the FTSE 250 engineering firm, Keller Group plc, says: “Board members should have varying backgrounds to bring in different perspectives and to achieve the right balance. They need to support the executives as ‘one team’ but also have the courage to bring in an element of edge and challenge.

“Respect, trust and openness are probably the most essential ingredients and the chairman’s role is key to engender this. People need to listen and be open to understand each others’ perspectives and even be prepared to adjust their own position; the chair sets the tone for this but each individual has to bring the right behaviours.”

It’s a point taken up by one of Criticaleye’s Thought Leaders, Stephen Davis, Executive Director of the Millstein Center for Corporate Governance & Performance at the Yale School of Management: “The right leadership and right composition are essential to board success. The chair needs to orchestrate meeting agendas in close consultation with executives and independent directors, and to ensure that sessions feature a sensitive balance of teamwork but challenging discussion. The best boards are composed not to achieve smooth relationships, though that can be important, but to reflect the real business of the company. For many firms, that means a need for a lot more diversity than exists today.”

For the Criticaleye Community, it’s evident that, aside from the importance of the chairman’s role, the common dominators for a good board are as follows:

  • Fit for purpose: the board needs to have a range of skills that are relevant to what the company does, but it’s also advisable to combine this with strong, independent non-executive directors who have experience elsewhere
  • Challenging the norm: a board should be asking open-ended questions. These are fundamental to the success of the company
  • Communication: everyone needs to be on same page (not to be confused with a harmonious environment)
  • Governance: weak corporate governance will hold your organisation back and could eventually destroy it
  • Creative tensions: disagreement is healthy for an organisation, provided it isn’t motivated by personal agendas

People power

A wish-list for the perfect board will probably incorporate a fine blend of industry expertise, mixed with some seasoned veterans who can spot both the dangers and opportunities for an organisation. Sir Peter says: “There has to be a good relationship between the executives and non-executives – to make a board coherent, there must be fluid communication between executives, board members and the chairman. Ongoing and routine engagement I think is really important to deliver a well-functioning board.”

A board must be engaged but not too close to operations so as to miss the big picture. John Whybrow, Chairman of AZ Electronic Materials SA, comments: “In board meetings, there should be a good understanding by the non-executives, in particular the chairman, of the company, the business and the markets…and the individual members should stay relatively close to those areas. It’s not good enough to just say ‘why?’ in board meetings – you need to have a fundamentally good reason to ask ‘why?’ and then be able to explain yourself.”

It’s here that non-executive directors have a crucial role to play. John continues: “As a NED, you need to have empathy for what the issues are out there and help those executives as much as you can; it is not easy sometimes to find a route through. Solving a problem is far easier when you are 100 miles away from it than if you are just a metre away – and boardrooms tend to be a long way from problems…However, execs and non-execs mustn’t be too close.”

Anthony Fry, Non-executive Director of Dairy Crest Group plc, CALA Group and Espirito Santo Investment Bank in London, notes that creating an effective board is not as simple as bringing together an assortment of brilliant individuals. “Boards work because of mutual respect and the relationships that are established around the table; a lot of that comes down to the behaviour of individuals.

“I happen to believe therefore that a degree of diversity – in its proper sense of diverse background, experience and skills – around the table is essential because that gives you different perspectives and, in a rather odd way, less competition. If you put a group of like-minded people around the table together, there will be competitive tensions between them – it’s the nature of the beast.”

Joe Darby, Non-executive Director of Premier Oil plc, agrees: “You’ve got to have the right people on the board, with the right skills and the right experience, to fulfil the particular role that they have. It is also important that the board focuses on the right issues – the key issues facing the company. They shouldn’t be bogged down in routine. They should focus on the key issues and make sure that they get those decisions relating to those issues right.”

Due process

It’s no coincidence that companies which run into trouble invariably have weak internal controls and governance procedures. Andrew Dougal, Non-executive Director of Premier Farnell plc, says: “I think a clear track record of good reporting practices and sound risk management processes, including the assessment of the risk appetite, which has been confirmed and vouched for by the auditors is essential.” However, that shouldn’t be confused with being formulaic and staid: “At board level, there should be a suitable balance of formality and flexibility. There should not be a rigid approach around the board table nor with regard to running the business.”

Sir Andrew Likierman, Dean of London Business School and Non-executive Director at Barclays plc, observes that a solid board never rests on its laurels. “You have got to keep up with good practice to make sure that you don’t sink into complacency and just assume you’re doing a great job tomorrow, just because you’re doing a great job today. One of the ways in which you can keep up with good practice is by making sure that you have some non-executives who have experience elsewhere so that they can then look at what good practice is.”

Indeed, success can present its own dangers for a board. At the extreme end of the scale, it can lead to unchecked largesse (remember the $6,000 curtain rings and $15,000 umbrella stands of Tyco’s Dennis Kozlowski in the US?), but generally it results in a crippling lack of clarity and an inability to execute on strategy. “There is a bit of a tendency for a group of people, given half a chance, to sink into the assumption that, because they’re doing okay now, they haven’t got to change anything. And I think for boards, as with everything else, you have to be mindful of where you can improve,” adds Sir Andrew.

According to Ruth, it’s a case of remembering why you’re there. She explains: “A good board must be both efficient and effective. Efficient is really the basics – necessary, but by no means sufficient. It means good scheduling, forward agenda planning to spend time on the right issues, focused board papers produced in good time, discipline in meetings to stay on topic. Effective is much more challenging. It requires having the right people and then having them work together in the right way.”

The perfect board may generally not go beyond wishful thinking and, in some ways, it’s a case of horses for courses as the needs of organisations vary enormously given their particular growth story (pre-float, PE-backed, public, etc) but that doesn’t mean you shouldn’t be striving to calibrate and refine your board to ensure your decision making has the necessary edge. John Whybrow says: “Boards will never get it right all the time. All we can do is put together a mechanism – a set of processes, which have a fair chance of helping us to get it right. We don’t know the future, we only know the past, and therefore we have to make judgments about the future – and sometimes we get it wrong.”

Honest mistakes are all part of the game. However, there are no excuses if poor performance stems from a lack of endeavour to improve a board by searching for those people who can genuinely bring something to the table. At the end of the day, who really wants to settle for second best?

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Making Boards Better

Major business failures and, by association, those of their boards, over the past decade have brought about a plethora of new corporate governance codes such as the Combined Code in the UK and the Sarbanes-Oxley Act in the United States.  These codes are intended to be the parameters in which boards and their directors operate.

However, Professor Bob Garratt, Criticaleye Associate and author of the bestselling book on effective corporate governance, ‘The Fish Rots from the Head’, believes that corporate governance in its current form is a sham. “It does not deliver what it says on the tin for most organisations because they are not covered by the Corporate Governance Code,” he says, adding that the government needs to understand governance more thoroughly, a lack of knowledge illustrated by its failure to apply the Companies Act and Corporate Governance Code to all registered organisations – private, public and not-for-profit (as the King 3 code has done in South Africa).

Jim Wilkinson, Chief Financial Officer of SportingBET plc, agrees, “Assuming that the corporate governance rules that apply to listed companies are the most effective way of managing an entity, it makes perfect sense that these rules are invoked across all sectors, including governmental and non-profit organisations. However, there does seem to be a long way yet to go to prove that the corporate governance rules in existence have been successful in reducing the number of corporate ‘failures’.”

Worse yet, Bob suggests that civil servants, politicians and, sometimes, business leaders themselves, tend to look at corporate governance as a silver bullet to solve “any lack of organisational direction or management”.

Bernard Cragg, Senior Independent Director, Mothercare plc and Criticaleye Associate, agrees: “Corporate governance is certainly no silver bullet and, if misdirected, can have all the wrong consequences. The failures of banks are a good example. These were regulated organisations with more supervision than an industrial corporate. Having been on the board of a financial institution, they took the governance very seriously but, in practice, this resulted in not enough time spent on commercial realities and on risk.”

Sadly, most corporate governance tends to be looked upon as a box ticking exercise to be completed once a year to placate regulators. Yet, this attitude has not protected against failures. Indeed, at the time of its infamous demise in late 2001, Enron was 100 per cent compliant.

Bob continues: “Whilst this rather negative ‘tick-box’ attitude is still strong, there are some forces pushing for corporate governance to be taken more seriously. The seven non-exhaustive duties of a director (see below) codify 300 years of common law in the Companies Act 2006. Will the government and the courts have the courage to apply them?”

The Seven Duties of Directors

Each director must bear these seven duties in mind in all their activities and obtain professional advice if unsure of what is required in any given situation:

  1. To act within the powers of the company and to exercise powers only for the purpose for which they were conferred
  2. To promote the success of the company and, in doing so, have regard to the likely consequences in the long-term and to the interests of the employees
  3. To exercise independent judgement
  4. To exercise the care, skill and diligence expected of a director with knowledge, skill and experience
  5. To avoid conflicts of interest
  6. Not to accept benefits from third parties
  7. To declare any interest in a proposed transaction or arrangement

Sir Peter Mason, Chairman of Thames Water and Senior Independent Director at BAE Systems believes the following about UK corporate governance: “Personally I like the UK approach to board structure – a unified board rather than the continental approach of the supervisory board and an executive board or the American approach, where they’re essentially all non-executives. I think the UK has it about right.

“As to the importance of corporate governance codes in the UK, I certainly can’t see that codes and regulations would inhibit boards and individual directors from performing their responsibilities properly. I like to think that boards and directors do what is right at any moment in time anyway.”

However, while a legal framework for boards is essential, it is possible that corporate governance regulations can become overbearing and thus inhibit performance. “I am worried that we will again over-react to the experiences of the last two years and forget that, in many respects, there were no failures of significance in the non-banking sector and I would worry we will burden industry with more law and process when the system has actually worked well,” says Bernard.

Directors

Although guidelines, regulations and laws exist, and boards must comply, the onus of success and failure really falls to the Directors themselves: their relationships, their diversity of experiences, their skills and their passion for the role. Mike Turner, Chairman of Babcock International Group plc says, “Whilst the UK Corporate Governance Code is a helpful guide, the real key to good corporate governance is having the right people, and the right mix of individuals, on the board – people who are keen to understand the business and its markets, and who are prepared to give their views in a challenging but collegial manner.”

So what does a ‘good and compliant’ board look like? Anthony Fry, the Chairman of Dairy Crest Group plc, says that “a well performing board is a bit like a camel: you know it when you see it, but it’s very hard to describe to anyone who doesn’t know what a camel looks like! A great board is made up of a lot of different elements… fundamentally, though, it is about relationships, so it’s not just about selecting the best people and putting them around a table and assuming it’s going to work brilliantly. Boards work well because of the relationships that are established around that table.”

He continues: “I also don’t think that the performance of a board is about regulation or corporate governance – although that plays into it, based on what is officially expected of a NED. I think it is more down to whether the board directors in question want to do their role. At the most extreme level, given all the regulatory requirements on a non-executive, you come to the ludicrous conclusion that someone in that role is effectively a quasi-executive and the only difference is that they are not paid in an equivalent way. Some people simply can’t believe that I’m prepared to be a NED on a plc. They say ‘you’re carrying massive legal responsibility, you’re paid absolutely nothing and you’re treated like dog meat by executives.’ People can be very negative about it.”

In contrast to the role of executive, a director’s role is bounded by law. As many directors are former executives, they come into the role with their ‘executive’ mindset with no regard for the tight boundaries and long-term legal duties of a director.  In his book, ‘The Fish Rots from the Head’, Bob writes that, at present, “we know very little about directors and their effectiveness. A deeper issue in getting any code to improve the quality of the board linked with the quality of business output, concerns the lack of rigorous selection, induction, development, appraisal and deselection of board members.” To his point, as there rarely is an induction programme for directors, many simply do not know the difference between the role of Executive and Director.

To combat this Bob argues that directors should be given a formal induction process to explain the different knowledge, skills and attitude required for the role. There should also be rigorous development for directors and a performance evaluation process. “Much more external help is required in the rigorous and regular appraisal of the board, its committees and each individual director.”

It is important for directors to develop a broader mindset with more diversity seen around the boardroom table. Professor Sir Andrew Likierman, board performance expert and the Dean of London Business School, considers the following to be a well-performing board: “You’ve got to get the basics right. You’ve got to get the right people on the board and then structure it properly. Secondly, you’ve got to get the way the board operates right – that’s to say, in terms of the way meetings function, the way in which people interact with each other, the way the committees work, and so on. Thirdly, you’ve got to have the right kind of coverage. Are you dealing with the right issues? You must be dealing with strategy and the big issues of the organisation. We all know of organisations that spend their time fiddling around with the things that don’t matter, and should be aware of the province of operational management –that is a poorly performing board. Finally, you’ve got to keep up with good practice to make sure that you don’t sink into complacency and just assume you’re doing a great job tomorrow, just because you’re doing a great job today.”

Boards need to address the necessary balances, competencies, evaluations and learning needed to ensure more healthy organisations in the future.

Sir Peter identifies communication as the vital factor in a properly functioning board. “In my view, the key ingredient to a good board is simply that is has a good chairman to lead, but not dominate it. I don’t like to see politics or tension between board members – the shareholders’ interests should come first. It may sound like I’m stating the obvious but, to make a board coherent, communication between executives and board members and chairman and board members is critical.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk