Strengthening the Executive Team

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

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

Here are some highlights from Day One of the Retreat:

Don’t Get Comfortable

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

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

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

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

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

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

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

Devise a New Purpose

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

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

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

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

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

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

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

Don’t Just Pay Lip Service to Succession

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

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

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

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

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

Put the Business First

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

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

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

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

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

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

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

Or, read about creating passion and purpose here.

The Problem with CEO Succession

The departure of a chief executive shouldn’t throw an organisation into a full-blown crisis and yet, on a regular basis, that’s exactly what happens. Panic spreads as stakeholders are gripped by the fear that a company is being run like a football club. Share prices often nosedive as a result.

This wouldn’t be the case if more boards talked openly about succession and senior executives were also prepared to have candid conversations about who might be next in line.

Chris Riquier, CEO for Asia Pacific at market research company TNS, comments: “If the CEO leaves and the business goes into a relatively quick decline, I see that as a reflection on them. To develop the talent within the business and build that level of succession, both for themselves personally and in all the other layers of the organisation, is a key role of the CEO.”

Mapping out a plan for succession across an organisation is a complex undertaking. Personal ambition and hubris become entangled with the immediate responsibilities of hitting targets and simply doing the day job.

From a leadership perspective, it’s a mistake to lose sight of why succession matters. Matthew Blagg, CEO of Criticaleye, says: “There is a worrying trend to recruit new CEOs externally. There absolutely needs to be more attention on promoting internally, so you’re bringing people through who understand the culture, the customers and can focus on creating sustainable success.

“There is also a perception that current executive teams ought to be shaken-up and a raft a changes made. Does that create better performance? I’m not so sure.”

Look within

Identifying future leaders can only result in better business performance over the long term. Ian Gibson, Criticaleye Board Mentor and former Chief Executive for the UK and Europe at Nissan Motor Company, advocates the idea of identifying and nurturing your own successor.

He adopted this point of view back at Nissan over two decades ago. “Every CEO since then, and there have been three, has come from within the business. Every production director – that’s the big operational job there – has come from within and most of the sales executives too,” Ian says.

“Probably the thing I feel most proud of is the way the business has been able to develop its own senior executives for the past 20-odd years and remain very successful.”

Culturally, Ian argues that developing from within sends the right message. “It’s an approach that, when it beds in, fosters not only good counselling, mentoring, career development and relationships, it also creates a degree of co-operative working across the organisation.

“It also strongly mitigates against working in silos, where each of the senior team are intent on improving their own performance instead of the company’s.”

Jane Griffiths, Company Group Chairman at pharmaceutical company Janssen EMEA, which has approximately 40,000 employees globally, explains that managing directors are expected to identify a number of candidates for their role. “The more people do that, the more it becomes the modus operandi and other people realise it’s important to grow your own successors,” she says.

Jane looks favourably on individuals who have nurtured others: “You should try to introduce a culture whereby it’s good to develop new people and, if they overtake you, so be it – it’s going to happen to us all at some point. I have specific goals for some people that in the next 12 months they must have identified a ready-now successor, or developed one for three years on.

“The philosophy, where possible, is one of build rather than buy, but we recognise the benefits of bringing talented people in from outside as well.”

Mike Cutt, Criticaleye Board Mentor and Non-executive Director of mobile phone retailer Svyaznoy, agrees with Jane’s ideas, saying that “every business I have worked in, I have told managers and leaders that one of their tasks was to have a successor for themselves”.

Uncertain times

It would be overly simplistic and wrong to suggest it’s always better to promote internally. Naturally, external talent will be brought in at various levels, including the very top.

Chris of TNS says: “There are different types of CEOs for different tasks and sometimes, when a dramatic turnaround or correction is required within a business, certain characteristics might be needed. Equally, once the business is back on the correct course you might once again need a completely different set of leadership skills to maintain that strategic direction and culture.

“Sometimes people are not that adaptable – you get a turnaround CEO versus one who is good at long-term stability and growth.”

The problem is when the board’s default setting is to look elsewhere for CEO and senior executive level hires, especially when the HR function lacks the capability and authority to create the right ecosystem for a diverse mix of talent.

A good chief executive, in conjunction with a strong board, should have the power to influence these things. As Matthew of Criticaleye says: “When you try to bring people through internally, there’s always the case that some won’t make it but I guarantee others will rise to the challenge. Succession can only be good for the business.”

By Mary-Anne Baldwin, Editor, Corporate

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

https://twitter.com/criticaleyeuk

Executive Decisions on Diversity

For the first time in the history of the London Stock Exchange, there are no all-male boards in the FTSE 100. This landmark improvement in gender diversity is both significant and encouraging, but the bigger, and worryingly overlooked, challenge is getting more women onto executive committees.

Indeed, of the 2,028 executive directors on FTSE 250 boards, only 25 are female. Lord Mervyn Davies of Abersoch, Vice Chairman of Corsair Capital and Non-executive Deputy Chairman of Letter One, who set the initial target of 25 per cent female representation on FTSE 100 boards by 2015, acknowledges “the debate has moved on very quickly to how we get more female representation at executive committee level”.

His latest goal is for at least 33 per cent of roles on all FTSE 350 boards to be held by women by 2020. To meet this target, and to make a genuinely positive impact on diversity, a greater gender balance must be sought at the executive level.

In fact, Lord Davies believes diversity should permeate right throughout all businesses. “Whether it be a major Plc or small SME, talent management and succession are two essentials,” he adds.

The ‘big E’ role

Every month, Jane Simpson, Chief Engineer at Network Rail, (whose board has three women, all of which are NEDs) gets a call from at least two headhunters asking her to apply for non-executive director roles, but what she really wants is an ExCo job.

“It’s frustrating because many women at my level can’t get that ‘big E’ role,” she continues. “A lot of women are saying that’s the glass ceiling now, yet we can all get NED jobs.”

A history of patriarchy has affected the views and values of men as much as it has women, whose confidence can be in short supply. “I look behind and there are some really good women coming through, but I have to invite them to apply for roles and sometimes really persuade them,” says Jane.

“The problem is often not a lack of talent but a lack of support in the ecosystem,” says Jamie Wilson, Managing Director at Criticaleye, who chairs the company’s Women in Leadership events both in the UK and Asia.

“How well the board and leadership team embrace and actively encourage diversity from the top-down will be reflected in the talent they are able to retain. The long-term success of a business hinges on this.”

Joëlle Warren, Executive Chairman of search firm Warren Partners, sees this issue play out in practice. She explains: “We haven’t got a problem getting 30 per cent of women for non-exec roles, we can do that. Yet we have a real problem getting 30 per cent of women on the shortlist for some ExCo roles, because the population of women in the level below is so small.

“That means we’ve got to persuade the CEO to appoint a woman from a smaller pool, or at least to look at women whose CVs look different to the men’s.”

Jane Griffiths, EMEA Company Group Chairman at Janssen, the pharmaceutical division of Johnson & Johnson, notes that appointing women to the board isn’t enough – a longer-term plan is needed and succession is a big part of that.

“Unless the women on the non-executive boards can do something about gender diversity throughout the company, the issue needs to be targeted at the executive level,” she reasons.

“It’s not as though it’s going to take on a life of its own. You have to keep on working at it – every team you put together, every training course must aim to have equal representation of men and women to get those numbers up.”

Clearing the path

The question of organisational support is an important one. Jo Whitfield, Vice President of general merchandise for Asda Money and Asda Mobile, and the most senior woman in trading at Asda, says: “In retail we have a great deal of women join us at a junior level but that gets less and less as they work up through the organisation. So we focus most of our women in leadership programmes around where in that pyramid it starts to leak; my reflection is that we have to start at the bottom.”

This is why Jo is an ambassador for the charity Girls Out Loud, which provides coaching and career advice to teenage girls, often from disadvantaged backgrounds.

While such programmes undoubtedly bring diversity to big businesses, the consensus is that significant change calls for a holistic approach. Laura Haynes, Chairman at brand consultancy Appetite and Co-Chair of the UN Women UK National Committee, says: “One of the challenges with trying to achieve greater gender equality is that it will not be solved simply by setting up a women’s network, so senior management can tick a box. You must go deeper to policies, processes and culture.”

Nonetheless, Laura is encouraged by the seriousness with which this is being viewed. “The question of gender is one that is really vexing the boardroom and executive committees everywhere now,” she says. “This topic is hitting my in-tray at an extraordinary rate.”

Liz Bingham OBE, Managing Partner of Talent for the UK & Ireland at EY, says she “hasn’t been aware of any glass ceilings other than those I put in place myself,” yet she agrees there’s plenty of work still to be done.

“It’s a real worry that we declare victory too soon,” Liz warns. “There is a perception that we’re there already, whereas research EY released at Davos at the beginning of the year says [gender equality] is going to take another 80 years at the current rate of progress.”

This is despite evidence that diversity is good for business. A review by EY of its own firm found just that. Liz explains: “We looked at 5,000 EY UK audit assignments and discovered that the audit teams that were gender balanced were more profitable projects; we had higher client satisfaction and team engagement scores.”

This proves that it pays to have a mixed team, but women must be seen as being there on merit, which itself is a complex issue. Joëlle says: “I think we all have to talk about what ‘on merit’ means. On whose scale? There is a tendency to over-value certain kinds of experiences. They then talk about fit. Fit with what? If it’s fit with the culture we’ve always had then nothing’s going to change.”

For Laura, the problem is not just getting women on boards, it’s about ensuring they’re heard. She illustrates her point by summarising a joke she recently heard: “There’s four people in a boardroom, three men and one woman. The chairman says: ‘That’s an excellent suggestion Miss Triggs. Perhaps one of the men here would like to make it.'”

It raised a knowing chuckle among her colleagues, yet the message is serious.

This article was inspired by Criticaleye’s recent Women in Leadership event, hosted by EY. 

Attend the next event, at which Laura Haynes, Chairman of Appetite and Co-Chair of the UN Women UK National Committee, will discuss the challenges of achieving gender equality targets in the workplace. This event will be hosted by Mel Rowlands, Deputy Group General Counsel and Company Secretary at Smiths Group.

By Mary-Anne Baldwin, Editor, Corporate

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

https://twitter.com/criticaleyeuk

 

Rethinking Your Business Strategy

Companies that have enjoyed success over a sustained period invariably have leadership teams that aren’t afraid to go into uncharted territory. Whether it’s the likes of Apple, Samsung or Virgin, there’s an appetite from the top team to recalibrate strategy so that they can take advantage of new market conditions.

High-quality leaders are defined by their ability to step back and understand why changes have to be made and how they can be executed. Vanda Murray, Criticaleye Board Mentor and Non-executive Director at distribution and outsourcing group Bunzl, says: “A strategy should be dynamic and constantly monitored to see what parts need to be adjusted to fit the marketplace, your customers’ needs and your competitors’ actions. It’s easy to say but quite hard to do in real time.”

Matthew Blagg, CEO of Criticalaye, comments: “From a leadership perspective, when seeking to improve performance it’s essential for CEOs to have the strategic ability to judge an organisation’s capacity for change. They should also be able to create a sense of trust and shared purpose among the senior executive team that enables them to outperform.

“By contrast, mistakes are made when change is pushed through too quickly. All too often, executives are traded in rather than supported, largely because tactical decisions are mistaken for strategic ones. Nearly all great companies take a longer-term view so that they invest and develop top talent throughout the organisation.”

Criticaleye spoke to a range of business leaders to look at how, in very different circumstances, they’ve set about making decisions that have led to an uplift in performance.

Paul McNamara
Group CEO
IFG Group
Until recently, IFG was quite a diverse company but it decided to refocus about 18 months ago. We changed the emphasis from international expansion to being really clear about our target market. By playing to our strengths and capabilities we’re growing profitably.

We had eight businesses where now we have two. We sold subsidiaries including an advisory arm in France, an employee benefits business in Ireland and a small insurance brokerage.

IFG is now very focused on UK high net-worth individuals. We give financial planning advice through our subsidiary, Saunderson House, and also wealth platforms through James Hay. We were able to demonstrate returns from our new strategic focus and in the six months ending June 2015, revenue from James Hay and Saunderson House were up 10 per cent to £34.5 million.

The important part was figuring out how to accelerate the plans and proposition for the two core businesses and understand what was critical to their success. For example, we needed to get James Hay’s infrastructure, IT and processes really fit for purpose and future-proofed. We also upgraded the whole leadership team other than the managing director.

While executives sometimes fear that shrinking business scope could lead to lower profits, we have shown that narrowing our focus has allowed us to increase our return to shareholders.

Howard Kerr
CEO
BSI Group
During my first 60 days as CEO of BSI Group, I realised that the company needed to change and that meant changing the leadership team.

The organisation was successful despite itself, rather than because of itself. It had a great legacy and customer loyalty but it was full of managers, not leaders, and offered jobs but not careers.

While everyone was very happy to take orders, when I looked around for people who could make a difference, I didn’t see them. I wanted to build a more collaborative, market-based organisation, which needed to be more open to taking business risks.
Over a period of 18 months, I changed almost all of my senior management team and they then changed a lot of their people.

A large part of my effort, and that of the HR Director I brought in, was leadership development. We set programmes to help people on their journey.
After three years of change and three more years of consolidation, we’re in good shape. We’ve invested heavily, made acquisitions and expanded geographically. We’ve had six years of continuous revenue growth and are heading towards another record profit this year.

But it took a lot longer than we expected. It takes time for people to warm up to the idea. Don’t assume that everybody is thinking the same and running at the same speed as you.

David Wingfield
Partner
Rutland Partners
One of our successful investments was CeDo, which sells household disposable products such as bin bags and tin foil. When we acquired the company in September 2009, it had a dysfunctional management team and no clear strategy. It was a market leading business, but there was significant scope for it to improve. We sold it last year and made 2.8x our original investment.

We worked closely with the UK MD, who was promoted to CEO, to develop the strategy. The main tenets were factory and operational improvements, the reduction of overhead costs and efficiency gains.

The lesson was to have clear alignment of the strategy and the right team to execute the plan. In this instance we made wholesale changes to the executive team. Getting the right people in place is critical, because that can cost you a lot of time otherwise.

We also had to be reactive. For example, we had a Chinese factory that was making some of the more labour intensive products, Chinese wage inflation went up considerably so we set up a new factory in Vietnam from scratch. That wasn’t in the original plan.

Vanda Murray
Criticaleye Board Mentor 
Portfolio NED 
I worked at a company that produced high-end security systems which it sold through distributors. We were getting stuck and couldn’t grow, so we decided to change the way we sold.

We moved away from trading exclusively through distributors to selling to the installers of our equipment as well. We had to put a lot of support in place to enable us to do that; much bigger and better customer services and technical support. It required total commitment from the whole team and everyone had to upskill.

We had a good strategic plan in place and that gave us the confidence to begin, but you also need the right people and an understanding of the business, its market and customers.

We tested our strategy with customers and knowledgeable people in our industry. We had a hit list of 100 installers that we wanted to work with. We talked generally with a few of them and had a day when we met them all, which changed the dynamic of the business completely.

We immediately improved the profitability and quadrupled it in three years. I started out as marketing director, led this change and then became managing director.

By Mary-Anne Baldwin, Editor, Corporate

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

https://twitter.com/criticaleyeuk

 

 

India’s Big Idea

Following last year’s election of Prime Minister, Narendra Modi, India has seen a raft of changes, including tax incentives, plans for privatisation and lower caps on foreign investment. It’s hoped that collectively, these pro-business measures will help to accelerate growth and cement the country’s position as an economic powerhouse. But one year on, how much has the market really changed?

“Modi knows he has no option but to make it interesting for foreign businesses to invest,” explains David Horlock, Managing Director for Asia Pacific at standards and training provider BSI Group. “I don’t think there’s any going back now. It’s just going to be a matter of time, of unwinding the bureaucracy and the red tape. There’s a political determination to get that done.”

According to the most recent World Investment Report, India received $34 billion of FDI in 2014, up 22 per cent on the previous year. By comparison, while investment flows into China only rose by four per cent, it still received just under four times as much FDI ($129 billion).

David sees Modi as a one-man army who must quash resistance from bureaucrats, even within his own team, the Bharatiya Janata Party (BJP). The challenge for India’s leader is whether he can embed regulatory changes fast enough to realise the country’s potential and successfully compete against China.

A burgeoning middle class and widening pool of talent suggests it can be done, but speed is another matter. Andy Dunkley, CEO of jeans brand Lee Cooper, says: “While the Government is putting through a lot of aspirational changes and it’s moving in the right direction, that’s not really filtering through into real business yet.”

The brightest sign is India’s economic growth, which is predicted to hit 7.5 per cent this year, yet few would understate the obstacles ahead. Crucially, there is the need for regulatory consistency across India’s 29 states, the lack of which is one reason why India sits so far down the World Bank’s Ease of Doing Business Index. Its latest assessment puts India at 142 out of 189 economies.

Understand your market

Inconsistency between India’s states means it pays to study the various regional characteristics. “Get to know the consumer,” suggests Arbinder Chatwal, Leader of Indian Advisory Services at BDO International. “Selling to Mumbai is very different to selling somewhere in Delhi and vice versa. So do that research up front and understand some of the smaller cultural nuances.”

Arbinder cites a motorbike manufacturer that had success in South but not North India. It didn’t realise the difference in consumer tastes: North Indians prefer a kick-start engine, which they perceive as masculine, but it sold a key-start motorbike. It’s a small detail that had a significant effect.

Going in with assumptions about how business is done can have serious repercussions. Shanthi Flynn, Criticaleye Board Mentor and former SVP for HR at Walmart Asia, explains: “India has lots of potential for businesses if they are willing to invest in the future and build at a steady pace. But companies that attempt to launch their brand in multiple states at the same time run much greater risks. The states have different laws and local politics and can vary in how much they support foreign businesses and certain business types.”

A joint venture (JV) with a domestic company can provide new entrants with the local insight needed to navigate through such issues. According to Lee Cooper Brands’ CEO Andy, whose business in India is worth $100 million − up from $20 million five-years ago, “Going in on the ground yourself is nigh on impossible”.

Yet such partnerships can add another layer of complexity, particularly when executive teams don’t fully understand the terms and conditions or set-out a clear break clause. “It’s easy to rush in and do a deal and then find you’re in bed with the wrong person; how you exit from that is very difficult,” he adds.

Additionally, JVs can leave you open to IP theft as regulation is lacking. Lee Cooper Brands protects its product by recording designs, using holograms and talking to customs officers to determine if their products are being illegally exported.

“When we do see counterfeits, which we do, we make a point of going to the end of the legal process, which can take years but there is a pain barrier in knocking off our product,” says Andy. “If you don’t go through that process, the knock-offs will multiply and you’ll lose control of the brand.”

One of the best ways to protect your business in India is to have the right local staff on the ground. Thankfully, one of India’s selling points is its talent, but sometimes aspiration outstrips experience.

“India has a lot of smart, English speaking talent. You’ll find more people who feel ready to be CEO here than anywhere else in Asia. The challenge is that the number of managers with broad experience are limited, so they’re expensive. Salaries at the leadership level don’t always match experience,” Shanthi explains.

Getting the right local talent is essential. “There’s no point flying an expat in to do these bits for you,” says Arbinder. “You need to have your own man on the ground who’s got your interests, wearing your logo; essentially, has got your interests at heart.”

According to Andrew Minton, Executive Director at Criticaleye: “One thing to bear in mind is how Indian employees expect to be led and inspired. India’s successful leaders often have a long-term, internal focus. This means a deep investment in people instead of looking first to the shareholders. Western leaders should bear this in mind when considering how they lead in the subcontinent.”

Indeed, longevity is the best approach. “India is a long-term, strategic play as opposed to a ‘get rich quick’ investment, so set your expectations,” instructs David.

Fast economic growth and increasing FDI suggest that may be starting to change. Executives, entrepreneurs and investors certainly hope so.

https://twitter.com/criticaleyeuk

By Mary-Anne Baldwin, Editor – Corporate

Turning Your Executives into a Team

Only the CEO can set the tone and tempo for the top team. If there are secrets, hidden agendas or delusions of grandeur, then you probably know who’s to blame. By contrast, if the senior executives support one another, are willing to share ideas and bound by a common goal beyond quarterly targets and personal ambition, there’s very little they won’t be able to achieve.

In some ways, the ultimate goal of a CEO should be to make themselves surplus to requirements. As steward of an organisation, their ideal legacy could be described as having forged a cohesive team that is relentless in its focus to do the best for its customers, employees and wider stakeholders. Plenty of barriers exist in terms of making this happen, such as:

• An over-riding fear of change, caused by insularity of thinking
• The senior leadership team failing to sufficiently challenge both each other and the CEO
• Executives ‘dropping down’ to address day-to-day issues, rather than thinking about the bigger picture
• Domineering, command and control style CEOs.

Susanna Dinnage, Executive Vice President and Managing Director for Discovery Networks UK & Ireland, comments: “Everyone needs to feel responsible and accountable. We should feel a sense of failure if someone says: ‘Well, this doesn’t involve my area, so I won’t provide input.’

“Executive teams are about collectively owning the direction and growth of the business. Responsibility for a functional area is a given – without the framework of a clear strategic direction you run the risk of silos, poor effectiveness and even dysfunction. A united and ambitious executive team is a huge competitive advantage.”

Steven Cooper, CEO for Personal Banking at Barclays, says: “If they don’t share the same goals and values, they won’t want to support each other, which is pretty unpleasant.

“If someone has strong values that aren’t aligned with the rest of the team then you probably need to remove them.”

Tom Beedham, Director of Programme Management at Criticaleye, says: “First and foremost comes the alignment of the executive team. They need that shared focus to motivate and bring them together.

“In the simplest terms, this will be to work together to deliver the strategy and achieve success for the business.”

The freedom to put across a different point of view cannot be underestimated. Paul Willis, Managing Director at Volkswagen Group UK, comments: “I’ve seen too many examples in businesses where people get wedded to their own ideas… They fall in love with them and nobody can say a bad word. That is not the sign of a high-performing team.”

There has to be two-way, open conversations. Beverley Eagle, Head of HR at Veolia Water Technologies, comments: “There are those who listen and those who wait to speak. You can see people who are desperate to get their point across and therefore they’re not really listening.

“People are put in an organisation because of their expertise and knowledge and therefore should be given the opportunity to express that. You need to utilise [everyone’s] skills and experience.”

Moral compass 

The CEO has an ongoing responsibility to keep their senior team honest, making sure they are collaborative, willing to learn and ‘right’ for the business. Paul Matthews, Chief Executive for the UK & Europe at Standard Life, says: “A team needs a CEO who is focused on humility and long-term delivery… it means sometimes taking a step back and letting other people lead.

“Other times, when things are difficult and no one wants to put their head above the parapet, that is when a good leader [steps up]… It’s also [important to be] open when you are wrong.”

Sir Brian Bender, Criticaleye Board Mentor and Chairman of the London Metal Exchange, says: “There’s an assumption that if you pick a group of highly-motivated people, they will just work together well but actually we’re all different… you need to invest time in building the team.”

It’s hard work and takes excellent interpersonal skills. Steven says: “It comes down to understanding what’s going on, supporting each other and also having a bit of social time; being open and candid with each other.

“If you don’t share what’s going on, you end up in situations where people go off doing their own thing and keep it hidden. It’s not great from a business perspective and it’s a really unhealthy dynamic.”

Ultimately, building and developing the executive team is a constant work in progress. Vanda Murray, Criticaleye Board Mentor, Senior Independent Director at manufacturing company Fenner and Non-executive Director at distribution and outsourcing group Bunzl, says: “Getting the right team to deliver the strategy is a prerequisite to a successful outcome… strategies change and evolve, so you might need new skills along the way. In fact, it’s probably certain that you do.”

If the leadership team is moving in the right direction, they will possess the ability to think about strategy and how the business can achieve its objectives faster.

In other words, what they’re supposed to do.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Unconscious Bias: The Enemy Within

Unconscious bias reinforces the inequalities that exist in organisations. From the wording of a job advert to choosing who gets a promotion or big project to manage, the opportunities for people to progress can be dramatically restricted due to unwitting assumptions. If senior executives are committed to creating diverse workforces, then steps need to be taken to increase awareness levels of the psychological shorthand individuals use to define others.

Jane Griffiths, Company Group Chairman for EMEA at Janssen, the pharmaceutical division of Johnson & Johnson, says: “The biggest threat to a business like ours is ‘group think’… Innovation is our life blood: if we don’t have the diversity of people, we won’t drive innovation, which ultimately affects our business’ success.”

In order to create the right mix of talent, board-level executives must lead by example. Jamie Wilson, Marketing & Innovation Director at Criticaleye and Head of Women in Leadership, comments: “Recognising and addressing the barriers that unconscious bias can place on an organisation’s ability to diversify its talent, from the top down, will be crucial if boards are serious about building fit-for-purpose, high-performing teams.”

It’s a case of thinking differently about the qualities required to lead successfully. Jane says: “People have a tendency to gravitate towards those who are like them or have common interests. I honestly believe much of this is unconscious but our role as leaders is to hold the mirror to ourselves and our teams to challenge that.”

Stuart Steele, Partner for Human Capital Advisory at professional services firm EY, argues that the first step has to be to ensure that everyone understands how their biases affect decision making: “Do I think we’ll change their behaviour for every minute of every day? No. However, if we can change their behaviour, or at least influence it, at a point in time when they’re making key decisions, particularly decisions which impact an employee’s progression or development… that’s a significant step forward.”

In practice, this means acknowledging that bias may exist around, among other things, class, gender and race. Naomi Gillies, Head of Future Planning and Sustainable Development for retail group the John Lewis Partnership, comments: “We have recognised that by focusing on unconscious bias… we can improve the performance of our company.

“As an organisation we run a number of development courses on unconscious bias which remind the senior leadership team of the role it plays in their daily decision making. Personally, when I’m recruiting, it reminds me of the importance of balance within the team.”

The trick, as ever, is to ensure that what’s discussed on training courses actually becomes reality within the business. Margaret Kett, Partner for Human Resources at executive search firm, Tyzack Partners, says: “It could be coaching, either one-to-one or group, but there needs to be something to embed the unconscious bias training into the organisation…

“It’s the same with diversity and inclusion, it can’t be a standalone agenda. It’s got to be embedded into the core of the organisation. Some are going so far as to link a proportion of bonus to the demonstration of inclusive behaviour.”

Taking a stand

In order to break what may have become a facsimile approach to recruitment, it makes sense to think beyond the standard job specs. Margaret comments: “You have to pose the thought-provoking question: does the new incumbent honestly need to have industry experience or could we look for candidates from further afield and develop them – really pushing organisational boundaries.

“Does the person we are seeking necessarily need to have an engineering degree? Because, by insisting that everybody does, you are excluding all these people who may well be superb at the role despite not having a degree in engineering.”

Anne Stevens, Board Trustee at UK children’s charity Over the Wall, recalls one particular multinational she worked for where she decided to hire a deaf candidate. “I can’t tell you how much pushback and questioning of my judgement I got when I hired him,” she comments.

“He turned out to be one of the most successful business analysts I ever recruited, but at that time it was seen as taking a real chance. It took a lot of courage because there’s pressure on leaders to try and get people who fit into the existing cultural norms. You’ve got to be a bit more innovative, creative and also courageous about this stuff.”

However, there’s no point addressing your recruitment strategy if you don’t have a culture which allows diversity to flourish. Jane Furniss, Criticaleye Board Mentor and Senior Independent Director of the Solicitors Regulation Authority (SRA) where she chairs the Equality and Diversity Committee, comments: “As a young woman I was often ‘complimented’ for thinking and behaving like a man. I didn’t want to be a pseudo man but to be accepted as a competent woman.

“It won’t make your organisation more diverse if you recruit some ‘square pegs’ and then proceed to shave the edges to make them fit your round holes. Companies need to embrace the differences and capitalise on how they can improve and develop as a result.”

Graham Maundrell, HR Director at specialty polymer chemical business The Vita Group, comments: “You need to create a platform for a diverse group of people to be effective and successful, otherwise all you do is create guaranteed failure.

“That, to me, comes back to the nature and the mix of the people at the top, and their commitment to building a diversified workforce.”

For Serge Colin, Group HR Director at Lafarge Tarmac, if this shift in culture is going to be achieved executives must be both role models and vocal proponents for change: “Executive leaders’ commitment… to developing an inclusiveness framework and work environment is essential; the crucial thing is for them to communicate it as a business case.”

And that business case, says Margaret, is crystal clear: “If you’ve got diversity high on the strategic agenda, and you allow that to be transferred to operational activity… then commercial benefits will inevitably follow.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeUK

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

www.twitter.com/criticaleyeuk

 

Leading a Management Buy-Out

A perfect storm is emerging for management buy-outs. Corporates are divesting, private equity firms have ample funds to invest and banks will lend meaningful sums provided the numbers add up. For talented executive teams, the time is right to step up and take control of a business.

Naturally, ambition alone won’t be enough when it comes to a management team successfully purchasing a company. “A failed MBO is very easy to achieve and dangerous to execute,” says Chris Herrmannsen, the Managing Director of recruitment specialist Ochre House, who led a buy-out from Trinity Mirror. “Clearly, if management doesn’t succeed in buying it, they are often angry and jilted and feel they can’t stay.”

Plenty can go wrong as management contend with vendors wanting to maximise a price and private equity firms seek to generate a suitable return on investment. Simon Howard, Executive Chairman of  Work Group, comments: “In many MBOs, the PE firm actually holds a lot of the cards these days, which makes them wiser and smarter about structuring deals.”

Those individuals who have ‘been there and done it’ often cite the following as essential when embarking on an MBO:

• Choose your own advisors
• Have more than one PE firm interested
• Show you can scale the business (and deliver)
• Get references
• Fully understand the Investor Agreement

Chris Crombie, who led the £100 million MBO of the arts and crafts company HobbyCraft, backed by international PE house Bridgepoint, describes appointing a set of advisors as a “masterstroke”. He explains: “We had somebody to look after our interests who wasn’t going to be increasingly diametrically opposed to what the vendor sought.”

It sounds like obvious step, but it’s surprising how many management teams make the mistake of not appointing an advisor. Mark Hunter, the CEO of Airclaims Holdings, comments: “We sort of caught on halfway through the process that we really needed to be represented a lot earlier and we needed to have our say.”

The Airclaims buy-out dragged on for 15 months, primarily because the management team became proactive and commercial in stating what they wanted from the deal. “Our advisors were very much on our side from day one and really helped to sway the process in our favour,” continues Mark.

It’s vital for the executives to stand their ground. Chris Crombie recalls: “At certain points, the vendor’s advisor wanted to help us find our own advisor; I felt very strongly that it should be somebody that I found. This was because I wanted the right fit and I didn’t want a patsy.”

Beauty parade

Although billed as a shared partnership of equals, a PE firm becomes, in-effect, the new employer of the management team, which means that a CEO needs to do the rounds and evaluate what the various financial sponsors can offer. Common sense dictates that the more PE houses proclaiming an interest the better, as then it’s easier to negotiate attractive terms and drive up the value of the deal.

Chris Herrmannsen says: “Taking references from previous or current PE portfolio companies is important. You wouldn’t hire somebody unless you had a reference from a person who has direct experience of that individual. When things are going well, PE firms are very supportive and warm and arms’ length. But when getting references, what you need to do is tease out how a firm behaves when things are not going so well.”

Simon observes that it’s vital to understand and negotiate hard with a financial sponsor when agreeing terms. “They always say that those agreements are filed away and never referred to, however, if it is you’re in trouble because it sets the limitations of management decision-making. You need the right sort of investment agreement as they can call you.”

The worst case scenario leaves executives with nothing. Mark Spinner, Partner and Head of Corporate at law firm Eversheds, confirms that ‘downside protection’ or ‘swamping rights’ are now much sterner than they were two to three years ago: “A financial sponsor will say that if you breach certain agreements and/or financial covenants, then they have the right to either appoint more directors to the board so they have control, or they can take members of the management team off the board.”

Heat of the Battle

Provided management do set their stall out, striking the right balance of being respectful to the vendor without being naïve, the foundations should be there to push the deal through. Mark Hunter says: “Things did become quite strained but the great thing was that by the time we got to the finishing line, I think relationships were pretty much back on track. We ended parting extremely amicably as we understood each other’s viewpoints.”

In theory, strong gamesmanship should be appreciated and respected (once the deal is done, at least). Chris Crombie states: “The relationship between myself and the vendor was maintained all the way through. We actually went up to London on the train together for the completion. That was important to me as I had worked for the chairman for 14 years.”

Again, advisors on both sides had a role to play here in taking the heat out of high-pressured negotiations. “It was made clear that the price was important,” recalls Chris, who left HobbyCraft at the beginning of the year. “We were on our mettle right from the outset; this was not going to be an altruistic handing over of the baton.”

He compliments the chairman for making the rather innovative decision to introduce a non-executive director to assist with negotiations. “The vendor appointed an independent NED primarily to look after his interests. However, it proved to be incredibly useful as, in practice, he was like an impartial advisor, which I’m not sure you can always say about corporate finance advisors. The management team met this person before he was appointed so, although he was acting in the vendor’s interest, he was an amazingly powerful catalyst for pushing the deal through.”

First Contact

Once that initial approach is made to the owner, there’s no going back. Simonstates: “The reality is that, from the time you have that conversation, assuming it’s initiated by you, it becomes a bit of a one way ticket. You need to have done a good deal of homework before that point – unless you have an incredibly understanding owner.”

If the bid is made in haste, the deal can fail before it’s even started. “The move from being a manager to becoming a buyer can happen too soon and lead to ill feeling; you have to be careful how you, as a management team, dare to go past the point of no return with the vendor,” say Chris Herrmannsen.

The general view seems to be that conditions are currently ripe for making the move from employee to owner. Although data from the Centre for Management Buyout Research (CMBOR) shows that European deals fell by two-fifths in the first quarter of 2011 to €11.7 billion, the UK continues to demonstrate impressive levels of activity. UK deal flow in the first quarter dominates the buy-out market in terms of value (€3.9 billion), with 44 deals accounting for 36 per cent of all European deal flow in that period.

Aleen Gulvanessian, Senior Corporate Partner for Eversheds, argues that a significant reason for this is the “large number of funds looking to deploy capital as there is an equity overhang from money raised in 2007”. For the PE firms, it’s genuinely a case of use it or lose it and that puts highly skilled management teams in a healthy bargaining position. “If I was an incumbent manager in a good business right now…, I’d certainly be trying to execute a buy-out,” she states.

Day In, Day Out

Ambition alone may not be enough to secure a great deal, but it’ll be a factor as negotiations inevitably go through rocky patches, maybe due to the last minute attentions of a trade buyer or yet another round of due diligence as doubts resurface over the business plan. An MBO will put enormous stress and pressure on executives as they carry on their day jobs and engage in talks that could have life changing outcomes.

Mark Hunter says: “It is extremely hard to do and it’s incredibly challenging for the key members of the team who are effectively doing two things at once – running operations and buying the business. Do not underestimate the personal strain it puts you under, but when you come through the other side it’s fantastically rewarding.”

Chris Herrmannsen states that the calculated returns have to be delivered on as there’s no use in promising the world to an investor if it’s inspired by pie-in-the-sky optimism: “If you don’t have a really detailed understanding of how to grow your business substantially, don’t do it. Under the rules of private equity, there are no prizes for standing still.”

There will never be a perfect MBO. That said, there are definitely principles to follow which can lessen the chances of a deal falling through or, perhaps worse, leading a buy-out and then becoming a hostage to investors because the terms and conditions weren’t fully grasped. For Chris Crombie, the focus throughout was on finding a backer that believed in the executive team and their vision and possessed the financial firepower to take the business forward, allied with genuine sector expertise.

“From the outset, we were clear about what management wanted,” he says. “We were proactive when we went to the PE firms and put together a comprehensive legal document. We then had the PE firms mark that up and comment accordingly and, by the time we reached the final rounds, it was difficult for any party to renege on what was being offered to management or on any of the other terms.”

The management team must be fixed on the endgame and make it abundantly clear that the value of the business lies ostensibly in their hands.

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