Listening to Tomorrow’s Leaders

The founders of Snapchat and Airbnb were aged 21 and 26 respectively when they launched their companies. This shows when it comes to disrupting a market − or creating entirely new ones − age is merely a number. What are corporates doing to capture the ideas of their outstanding young talent?

“We thought you could only get value from people after they’d been in the business for five to ten years, but we’re breaking down those perceptions,” says Dominic Samengo-Turner, CEO of Jardine Lloyd Thompson (JLT) Asia, a subsidiary of the JLT Group.

Reflecting on the way the company changed its approach to career development 12 months ago, Dominic continues: “We take our quality graduates after a year and put them with senior executives as an executive assistant. Their thinking and observations then start to influence the business in a more informal way.”

The success of this now means the company is taking it to another level. “We [then] put that generation in junior management positions of influence. We’re creating new management roles that didn’t exist before so that they can add value to the business,” he says.

This is hugely valuable to JLT which, as a legacy business, has a number of employees whose length of service spans two to three decades. Dominic explains: “We don’t need [millennials] to have deep, technical competence – the older generations have that. We need to help facilitate the operational running of the business. We feel we’ll move much faster than originally thought.”
Seeking new perspectives 

Different voices, views and generations need to be heard at board level; this is something John Brisco, Senior Vice President, Chief Information Office and Chief Operations Officer at Manulife Asia, welcomes.

“Many boards today have a very traditional make-up of constituents who quite rightly have thorough industry and career experience. However, the pace of change driven by data and digital innovation… means there may be a requirement for the make-up of a modern board to have a new mix,” he says.

“There may have to be a wider dispersion of board constituents, that may involve millennials but it could also involve 35 to 40 year olds, who I would say aren’t represented on boards that well. I would ask: ‘How can boards expand their thinking, what type of skillsets do they need and how can they make sure that age isn’t a barrier?’”

In light of this, John is currently exploring the advantages of an advisory board – made up of a range of individuals from millennials to entrepreneurs – to support Manulife’s Asia-based leadership team.

“It will independently challenge us on our ideas. Some will come from an entrepreneurial mindset, others from a consumer background or technology mindset. That will create a healthy tension,” he says.

Connecting with the customer

The notion of millennials on the board may be a step too far for some, especially in the context of a regulated environment.

Romana Abdin, CEO at diversified healthcare company Simplyhealth, says: “The role of a director in the boardroom is to challenge, critique and support; I don’t think many millennials would possess the experience and gravitas to make that kind of contribution unless they are supported through coaching and mentoring. It is our responsibility to develop the outstanding leaders of the future.”

Yet Romana agrees that the onus is on the board to seek a fresh perspective. “Our board spent a day being customers by visiting different retailers and bringing those experiences back into our organisation,” she comments. “It’s about understanding the aspirations and behaviours of all generations, including millennials… It is only by understanding customers and their lives that we can be valued and valuable.”

According to Charlie Wagstaff, Managing Director at Criticaleye: “Boards, executives and HR functions need to think about how to blend talent of all ages.” Indeed, the belief that all the best concepts come from the top of the organisation is outdated.

“Leaders need to ensure a company’s employees reflect the diverse customer base it’s targeting and welcome the fact that ideas can come from anywhere within the business,” Charlie notes. “Each organisation will have its unique set of challenges, but diversity of thought is hugely important.”

There’s no doubt that there are some supremely talented millennials out there. Evan Spiegel, CEO of mobile app Snapchat – estimated at a net worth of $2.1 billion – is just one of them. He knocked it out of the park early in his career but there are others waiting to make their impact.

Most millennials can’t be expected to lead a complex legacy business today, but they are the leaders of tomorrow. By giving them a voice, you can harness perspectives that better represent your customer base, allow you to innovate and and look to the future.

How are you bringing up the best talent in your business? If you have thoughts to share on this topic, please email dawn@criticaleye.com

This was inspired by Charlie Wagstaff’s blog on millennials – read it here

Don’t miss next week’s Community Update on how to successfully lead complex change.  

Getting NEDs Up-to-Speed

“As a new non-executive director there are so many things that you need to be involved with from day one; you need to hit the ground running. You should make sure you get up-to-speed as quickly as you can,” says Geraint Anderson, Non-executive Director at Premier Farnell.

“You’re not expected to know everything but you have to contribute. Every company has a different rhythm, pulse and way of communicating. You need to understand that to add value. Each chairman will run things differently as well.”

According to the UK Governance Code, the chair of listed companies should ensure that all directors receive an induction that is ‘full, formal and tailored’ when joining a board. Beyond that, there is a lack of practical advice on how to achieve this and room for interpretation.

Criticaleye spoke to non-executive directors and advisors in order to answer some of the questions about the NED induction process and reveal others’ experiences.

1) Why is it important to get the induction process right? 

Geraint Anderson, who is also a NED at manufacturing company Fenner, joined the board of electronic products and repair services Premier Farnell in November last year and is currently going through an induction process, which he says has been comprehensive.

“The induction process is very important. Going into that first board meeting with some sort of visibility of the business apart from what you can read, getting out and meeting as many of the team as possible, is hugely important – it gives you a much better perspective,” he explains.

“At the first board meeting I felt a lot more comfortable knowing a lot about the business, rather than just reading board papers – it helps to build context and enables you to contribute more.”

2) Which key colleagues should you build relationships with?  

In order to create the right boardroom dynamic, it’s vital to build relationships in those first few months. Julia Fearn, Director at executive search firm Warren Partners, says: “A NED will want to make an impact quickly, but they need to establish key relationships and earn respect before they jump in with both feet.”

Alison Carnwath, Chairman at FTSE 100 commercial property company Land Securities, notes some of the key relationships that need to be developed and the information that should be shared: “The company secretary should kick off proceedings by providing the legal framework. HR should provide the organisational and talent outline and, for those members of the remuneration committee, how these schemes work.

“The CFO should provide management accounts, medium-term plans and, for audit committee members, the key issues relating to the annual reporting cycles.”

A NED’s relationship with the chairman and CEO is fundamental. Looking at the role of each, Alison comments: “The chairman should provide details of succession plans for board members and executives, go through board effectiveness reviews and shareholder feedback, as well as critical strategic matters. They should also explain the workings of the board and set a warm, friendly, open tone.

“Then the chief executive should spend time answering questions and outline how they expect NEDs to contribute, both in and out of the boardroom.”

Geraint adds that it’s also important to approach to a variety of individuals: “Don’t just speak to the CEO, CFO and fellow board members. Spend time in the field talking to a wider group of executives.

“I enjoyed getting a different feel for the business from various individuals and now I understand how they can be of more benefit to board meetings. It was great to show you are a real person, with real experience and spend meaningful time with them.”

Tom Beedham, Director of Programme Management at Criticaleye, comments: “While it should be controlled by the chairman, all the other key non-execs and executives should be involved and take part.

“If you’re going to be an effective non-executive director you need to have a deep understanding of the business and the personalities within it, so you can ask the best questions, provide the best input and be trusted as a valued member of the team.”

3) How long should it last?

The larger and more complex the company, the more detailed and longer the induction will be. Tom notes:  “If the company is spread wide geographically, I would recommend that non-execs visit the key regions; that might take time and effort. The NED will have to get up-to-speed quickly, particularly if the company is heavily regulated, such as in financial services and the NED doesn’t come from that sector.”

Geraint says: “It could take six months or 12 months but I don’t think you should put a firm time on it. It will take a while to go through that process and no one should say that after a handful of meetings you’re fully inducted.

“My induction process is still ongoing at Premier Farnell. It will take a few more months – I have more people to meet and need to build a better picture. The first wave was helpful but I expect more to come over time.”

Alison echoes this point: “Businesses do this in different ways – some have sessions that are not board agenda items, such as training after meetings. The process should be relatively formal and the chairman should keep an eye on how it is going by checking in with the NED.”

4) What is the NED’s responsibility during the induction process? 

It’s as much up to the NED to help steer the induction process as it is the organisation to deliver it, according to Julia.

“NEDs should ensure that an appropriate induction programme is in place and need to be clear on what a good process looks like. They should build an external network in order to benchmark their induction against other organisations,” she comments.

Geraint adds: “It’s the NED’s responsibility to let the chairman know if there is anything they are uncomfortable with. If there are areas you want to see or people you want to meet, you need to make that happen.”

By Dawn Murden, Editor, Advisory

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

Paul Brennan, Chairman of cloud management software solution company OnApp, will share insights about his career at Criticaleye’s next Aspiring NED Dinner

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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

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How to Exit as a PE CEO

The key to planning a successful exit is to focus on the potential buyer, says Adam Hodges, former CEO of gaming company Playnation. He advises: “Work backwards. Ask who’s going to buy the business. What do they want it to look like? What would make it interesting to them?”

Adam should know. After conducting a private equity-backed management buy-out in 2013, he recently sold the business − which operates 20,000 amusement and entertainment machines over 1,700  UK sites − to Austrian gaming company Novomatic Group.

But like many PE-backed CEOs, during the two years before the sale, Adam had to rethink his exit strategy, draw up new plans and adapt as the circumstances for potential buyers changed.

It’s important to do your research. Assess whether a trade sale, secondary buyout or even an IPO are right for your business, but don’t be afraid to adapt if that alters.

Study the market 

Although the global IPO market cooled in 2015, exits via trade sales and secondaries remain strong. According to research by Big Four firm EY, PE houses have sold 625 companies via M&A this year, with an aggregate value of $262 billion (£174 billion), which is roughly in line with last year. Strategic M&A has been particularly active, accounting for 72 per cent of PE sales, the highest proportion in more than a decade.

Charlie Johnstone, Partner at PE firm ECI, notes: “There’s a lot of money globally and that’s feeding into higher prices across all sectors, from houses through to companies.” Unsurprisingly, he says the tech sector continues to attract the highest multiples and that the three tech businesses ECI sold in the last 18 months − CarTrawler, Fourth and Wireless Logic – each attracted a premium pricing of 17 to 20x their profit.

As ever, buyers want to see the magic combination of predictable income and scale. Ewa Bielecka Rigby, Investment Director at LDC, says: “Management needs to understand the size of their addressable market and where future growth will come from. A track record of sales and profit will be vital for potential buyers, together with predictable, high-recurring revenue and a forward pipeline of earnings, preferably backed by long-term contracts.”

Tell your growth story

When Roger Taylor took the CEO role at PE-backed Quadriga Worldwide in 2011, it was two years into the Great Recession, annual new contract signings had fallen from €120 million (£85 million) to €30 million (£21 million), and the business, which provides technology to hotels, had no product roadmap.

“We realised we had to come up with the growth story because my top line was falling away and the rationale for the product and business was dying,” Roger explains.

It was also his first operational role after a career in M&A advisory and PE investment. He recommends the first point in any exit strategy is to understand the reality of the business. In the case of Quadriga, this meant determining the company’s mission so that it could be easily communicated to staff, customers and potential buyers.

“If I were going into another situation, that would be the first thing I’d look to create. It’s the anchor by which you can align your vision with the board,” says Roger, who left when the company was sold earlier this year to software development and professional services organisation Exceptional Innovation.

Ewa agrees with his advice, adding: “In an exit situation, the same story delivered in a consistent way by different management team members builds trust with potential buyers, especially when backed by facts and a good track record for the delivery of results.”

Right-size the business

Adam had to go back to square one when he was told his initial exit route for Playnation was no longer viable. After assessing various options, he chose to make the strategic acquisition of FunHouse Leisure as it allowed the company to move into a new sector.

“We doubled the size of that business in 12 months,” he says, adding that it wasn’t just a cash grab. “It was about exposure into that market space, which meant that it was more scalable for an acquirer.”

Grand exit strategies won’t count for much if business performance drops. In such instances, raw pragmatism is required to get the company back on track.

This is something Criticaleye Board Mentor John Allbrook has experienced first-hand. Until recently, he was the Executive Chairman of Syscap, a PE-backed specialty finance company. After joining in 2010, John undertook a significant turnaround as revenue had fallen from around £160 million to £60 million per annum.

“We identified one market where we really felt there was an opportunity and that was providing bespoke lending facilities to smaller legal partnerships,” he explains. “This initiative proved hugely successful and was instrumental in our recovery plan as revenues once more climbed north of £150 million.

“Our situation was too challenged to say: ‘We won’t chase that opportunity because it doesn’t fit with the exit strategy.’ We needed to cut cost, redefine the growth strategy and quickly become cash-flow positive. But once the strategy started to work it became extremely clear who the buyers were likely to be, because they were the companies we were competing against.”

Build your team

Investing in the right employees and a strong succession plan can only benefit the business. “Don’t underestimate the value your staff holds,” says James Boot, Senior Relationship Manager at Criticaleye. “High employee retention rates, clear and functioning incentive plans and a positive workforce can be very attractive to the right buyer, perhaps to the extent of an extra multiple.”

A good team will mean the CEO can delegate operational responsibility as they devote more time to the exit strategy and deal itself.
Ewa recommends: “Plan for senior executives to be totally absorbed by the process, therefore the operational team needs to focus on keeping the results going, which is vital to good exit metrics.”

This is precisely what John did for the exit he led at Syscap. “The sale process was handled predominantly by myself and the CFO. Other members of the management team focused on the day-to-day running of the business. Of course we had to bring them into management presentations to prospective buyers and parts of the diligence process, but we kept it tightly managed to minimise distraction,” he explains.

Agree the equity spread  

Suspicion and sniping within the senior management team about the equity spread is in nobody’s interest.

As James notes: “Being clear to potential buyers about the management’s equity expectations is key. Therefore when writing the investment memorandum put the current equity spread, and who is set to make what type of return from the exit, on the first page.”

Similarly, it’s essential that when a management team originally takes on PE investment, they fully understand the terms of the transaction so they can remain incentivised. ECI’s Charlie warns: “If you’re going in with a high valuation it’s harder to generate returns and the management team, as the deliverer of that shareholder value, is under more pressure. But I’d say the biggest risk is taking on excess debt commensurate with the high price.

“If you can, steer the deal towards someone who is willing to pay the right price but still willing to put in less debt and be more collaborative with the team. There are some parties that will put their loan notes to rank ahead of management, put exit fees in and do all sorts of things that will be very detrimental to management teams.”

It’s one of the reasons why a CEO should take care when deciding which PE house to bring in. Adam spoke to about 15 PE houses before agreeing a sponsor for his MBO − it wasn’t the highest bid, but it was the best fit. He explains: “What was most important was that they [the sponsor allowed] me to get on and run the business myself; they wouldn’t micromanage me”.

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

Hear more on PE at the next Private Equity Breakfast, where Nicola Pattimore HR Director at Equniti will share her experiences of the company’s recent IPO.

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Managing Tomorrow’s Leaders

Having grown up with broadband, social media and smartphones, millennials expect instant results and are often turned off by rigid corporate structures and siloes. As the proportion of millennials in the workforce grows, leaders are having to rethink traditional organisational design and management styles.

“Millennials expect a far more open, networked and flatter organisation. They are looking to collaborate across different areas and crowdsource ideas irrespective of hierarchy,” says Payal Vasudeva, Managing Director, Talent & Organisation Lead and Strategy People Lead for the UK&I at Accenture.

“In return they want investment in their capabilities, proactive learning and development opportunities that build their skills. They have longer-term aspirations and it’s a life of jobs, not a job for life.”

Mark Nichols, Director of Customer Support at Skype, which is owned by Microsoft, recognises that career progression is no longer viewed in a linear manner and notes there is now an inclination towards ‘serial learning’.

“At Skype and Microsoft, while there is a very robust hierarchy, people do move around a lot more and spend time in other divisions. It may not look like there is progression to the next level but there will be accrued learning,” he says. “I don’t think the formal model of ‘complete modules one, two, three and then you’re competent’ stacks up.”

As a result, the weighting in job interviews has changed with candidates expecting to be sold to just as much as they pitch themselves. And according to Mark, millennials want to see “under the covers” of an organisation before they commit.

They want a job where they can add real value to an organisation. Erica Smart, Vice President of Developments for Brazil at BG Group, says: “They want to be doing something useful and see the value in the role they’re playing. The best outcomes are when they have work that is intimately tied to the main objectives of the group.”
This point is echoed by Alison Mills, Relationship Manager at Criticaleye: “It’s important to provide meaningful roles from day one of employment, rather than to expect that a promise of success and status at a later date will provide sufficient motivation.”

The millennial mindset 
With an affinity for digital technology, millennials are the first generation to grasp a key business tool more so than some senior workers – it can give millennials the edge.

“We have certain leadership teams within our organisation that actually have millennials in them – really high-performing individuals,” Payal says. “It’s about making it truly collaborative.”

Mark recognises that a younger workforce can offer insight into your future customers, including what they expect from your products and services and how they might use them.

He gives his experience of how interns at Skype are providing considerable value: “Some millennials use Skype but only to communicate with their parents; it’s the only user case they have. That’s starting to give us a different perspective on some of the core basics.

“Having a handful of people in their late 30s and 40s who have served their time in customer service doesn’t really pay off when we’re trying to understand the global position on what live chat and in-app support really means.”

It’s true that a fresh perspective can open up possibilities in any industry. Laura Haynes, Chairman at brand and design consultancy Appetite, comments: “The needs of businesses are changing, there are new markets, new channels and there’s a call for innovation. We are doing things today we didn’t even know existed five or 10 years ago, so new thinking is essential.

“Companies need to be more agile, they should be creative. While experience is still valuable, there is a requirement to bring diversity of thought into the way we work and approach things. That’s creating new business models and changing thoughts about business structure.”

Whichever way organisations look to engage and integrate the younger workforce, there is much to be learned from these future leaders that could benefit the entire workforce. “Some of the things millennials are demanding are actually things that all of us would like,” says Payal “It’s all about creating the millennial mindset.”

These comments were taken from a recent Criticaleye Global Conference Call, Millennials: Reshaping the Workplace, held in association with Accenture Strategy. 

By Dawn Murden, Editor, Advisory

Do you have a view on this subject? If you have an opinion you’d like to share, please email Dawn at: dawn@criticaleye.com

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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

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Where do CEOs Turn for Help?

Fractious board dynamics, disgruntled shareholders and poor performance will put enormous pressure on a CEO, especially if they’re new to the role. While solutions may not be easy to come by, it can be difficult for a leader to openly admit they don’t have the answers. That’s where a mentor can make a big difference.

A mentor can be particularly useful when starting a new role, says Matthew Wright, CEO of utility company Southern Water: “The value of a mentor is that you can draw on their experience in times of change. You might be entering a dysfunctional team, or the board might not be as supportive as you thought it would be.

“There are myriad issues that you can’t anticipate until you’re in the role. By speaking to someone who has been there, you can prepare yourself for what’s to come.”

Tom Taylor, and former Chief Executive of the Agriculture and Horticulture Development Board, says: “My mentor got me to realise that as a new CEO, it was not my job to solve every problem as I had first thought.

“She got me to understand there’s a huge difference between leadership and management, which I think is one of the most common issues facing a first-time CEO. You can manage a team but you need to lead an organisation.”

Lonely at the top

Tony Cowling, Criticaleye Board Mentor and former CEO and Chairman of market research company TNS, agrees that mentoring helps new CEOs develop essential skills for the role. “Chief executives are often anxious when they’re new because there’s nearly always a part of the business they know little, or less, about,” he says.

He explains that one of his mentees soon realised they required a wider skillset for the role: “They’d come up through finance… suddenly they were CEO and had responsibility for the company’s marketing, sales and online presence. They thought: ‘The company needs to change in these areas, so I need someone with experience that’s different to mine.’”

While some mentees have come to Tony for his specific expertise, which in his case includes marketing and international expansion, he says much of it is about having the freedom to speak openly to someone, which often you can’t do within the company.

Agreeing with this sentiment, Julia Robertson, Group CEO of outsourced HR services provider Impellam, explains: “I worked with a mentor when I was first promoted from Divisional to Group CEO. The job is lonely. You’re unsure of what you don’t know until you’re there, and sometimes you won’t want to explore that with your chairman.”

It’s for similar reasons that Tom’s chairman recommended he took a mentor: “She realised there was benefit in the independence of a mentor, recognising there is always a line management relationship between a CEO and chair.”

Tony illustrates the issue of relying solely on boardroom support when he describes helping two CEO mentees through difficult relationships with their chairmen. One, who was a first-time CEO, had to manage the chairman off the team. “We discussed it in his very first meeting and he came to the conclusion that he had to do something. He feels much more confident having resolved the issue.”

It’s something that cuts both ways. Sir Michael Lyons, Criticaleye Board Mentor and Chairman of the English Cities Fund and former Chairman of the BBC Trust, who has acted as a mentor both formally and in his role chairing a company, says: “It’s quite possible for a good chairman to provide challenging support to their CEO, but there are inevitably performance judgements to make and it’s critical that the chairman does not get so close to the CEO that they’re unable to identify a failure or act upon it.

“The mentoring role is quite separate. It gives the mentee a chance to explore things that could be difficult to discuss with immediate colleagues, or board members.”

Mentoring in action  

While mentoring can provide considerable support in managing these relationships, its benefits extend beyond the boardroom to cover other issues including shareholder expectations, performance, remuneration or change management.

Penny Hamer, Criticaleye Board Mentor and former Group Human Resources Director of telecommunications company Energis, explains how she has provided mentoring through the restructure of an executive team and encouraged a female MD to put herself forward as Group CEO. “Her appointment has been a great success,” she adds.

The issues will vary with each CEO, which is why the mentoring relationship should follow a pathway defined by the mentee.

“This is not a place for blueprints,” says Michael. “In some meetings people might want to discuss the challenges immediately in front of them, on other occasions they might want to look further forward, or may even discuss something completely outside their working life. Addressing the whole person is very important but doing that in a way that doesn’t feel artificial or pre-programmed is key.”

Highlighting the different approaches, Tom describes how his mentor shadowed him through a variety of meetings: “She pointed out how much I adjust my behaviour to different settings without realising it. ‘There is more than one Tom Taylor,’ was her phrase. I was doing this unconsciously but once I realised that I could develop this approach as a tool, it made me a better CEO.”

Another pivotal aspect is the relationship dynamic. “Finding the right match between mentor and mentee is essential,” says Tom Beedham, Director of Programme Management at Criticaleye. “There needs to be the right chemistry and respect so that conversations can be open. Also, mentoring sessions need to be prioritised during what is inevitably a busy time for a new CEO.”

Mentoring relationships should evolve with the mentee’s needs and it’s important to be fluid. For this reason, a mentee should not be reticent to move on, indeed their mentor will have benefited too.

What does the mentor gain? Penny explains: “Exposure to different business sectors, which helps keep me up-to-date with current business challenges. Plus there’s the buzz of seeing someone develop in a challenging role.”

By Mary-Anne Baldwin, Editor – Corporate

https://twitter.com/criticaleyeuk 

The First 72 Hours in a Turnaround

A company in crisis is like a ship with no sails. If tasked with navigating through a turnaround, it’ll take swift, decisive action to steer the company straight. Furthermore, you’ll need good communication with investors, suppliers and other stakeholders in order to chart a course to a secure future.

There’s no margin for error. “You need some really sound advice in the first 72 hours because you have to make some big calls,” said Richard Pennycook, CEO of The Co-operative Group, speaking at a recent Criticaleye Discussion Group on Effective Turnaround Strategies. He recommended bringing in a good lawyer and external advisors to analyse the company’s finances, culpability of the board and strength of the brand.

The event, held in association with Accenture, sought to benchmark best practice when an organisation falls into financial difficulty. Richard, a seasoned turnaround expert who has revived the fortunes of a number of troubled businesses – including motoring organisation RAC and fashion concern Laura Ashley – noted that a company’s demise is often the result of a broken brand, and that the trick is assessing whether it can be rebuilt. “Are your customers prepared to go with you on that journey and if not, what’s the reality of it?” he asked.

While Richard acknowledged that nostalgia alone will not save a company, he also said regarding The Co-op, that the “one thing that helped us believe we could turn it around was the huge amount of goodwill and the strong heritage the business has”.

So far, progress is being made and the organisation is again profitable after a £1.5 billion shortfall was revealed in 2013.

When the sharks circle 

Finding out what went wrong and why can be an arduous process. Stuart Laird, Group COO of construction company United Living Group, asked: “Is it because the market has fallen away, or because the management’s bad? You’ve got to drill down to find out what the real problem is and what you need initially is very good data.”

There will be bruised egos as people try to save their careers and reputations. Stuart asked: “Are the people in the senior management team capable of delivering? Nine times out of 10 you find that they’re not – certainly collectively they’re not. So you may have to get rid of a few people and bring in some interim expertise.”

Paul Cardoen, former Managing Director at the Bank of Tokyo-Mitsubishi UFJ, advised that you ask the CEO and CFO about the business on the ground and then compare it to your own findings. He also recommended three questions to ask non-executives:

  • What was the most difficult decision you made this year?
  • What’s the style of management and momentum of the board?
  • What’s the biggest strategic issue the business is facing?

“These will enable you to understand who can help execute the turnaround… And give you an idea about the trust, mutual understanding and effectiveness of the board,” he explained.

An indication of a toxic leadership team is an environment in which the NEDs are ‘too cosy’ with the executives. According to Richard: “Almost inevitably, the incumbent executive team whose watch it’s on are the primary culprits, but then non-execs can be a close second.”

Once you’ve cleaned up the top team, David Wingfield, Partner at UK private equity house Rutland Partners, advised that you over fill it with new executives and advisors, as it’s hard to bring in new people part way through the process: “At the beginning there’s an awful lot of ground to cover because you’ve got to manage the day-to-day business, as well as accelerate a number of projects and plans.”

Communicating your strategy will provide assurance to employees and other stakeholders, but it has to be done with skill. “You must have a combination of confidence with realism. If people think you don’t believe in the company you’ll lose them,” explained Graham Maundrell, HR Director at specialty polymer chemical business The Vita Group.

This sentiment was echoed by Andrew Minton, Executive Director at Criticaleye: “Communicate the way forward with clear, achievable objectives to get you there. You must be honest and don’t promise things you can’t deliver – to do otherwise would only breed further mistrust.”

It’s important to get that message to all stakeholders as quickly as possible. David said: “At Bernard Matthews, the Executive Chairman went round to all of the major supermarket suppliers and explained what was going on, where the business was and what they were doing. It bought us some time because obviously things aren’t going to fix themselves very quickly.”

It’s a painful process but one that can change the culture from lethal to lucrative – HR should be there to help. “More fool you as a leader if you go into a business charged with a turnaround agenda and you don’t quickly get your HR leader on board,” said Yetunde Hofmann, Non-executive Director at the Chartered Institute of Personnel and Development.

“They know the culture you’re coming into; they probably know where all the skeletons are, they know the strength of the leadership team and can tell you where the talent lies.”

When an organisation has returned to calm waters, it’s important that the senior executive and non-executive directors stay self-reflective. “A healthy paranoia in business − even when it’s seemingly going well – is valuable. If it isn’t present in the board, that’s very dangerous,” said Richard.

“The depressing feature of so many turnarounds is that intervention could have happened a lot earlier.”

By Mary-Anne Baldwin, Editor – Corporate

https://twitter.com/criticaleyeuk 

Creating Value in Private Equity

Not so long ago there was talk of the demise of private equity as an industry. It transpired that such predictions couldn’t have been further off the mark as PE houses, notably from Asia and North America, continue to raise substantial funds. They’re targeting a full range of assets, from infrastructure and utilities through to life sciences and tech start-ups run by entrepreneurs with a desire to change the world.

For those attending Criticaleye’s recent Private Equity Retreat, there were plenty of positives to take away in terms of understanding the global landscape for investments, fundraisings and exit options.

Here are the six key points to surface over the course of the 24-hours:

1) Global PE is Here to Stay

Investors like private equity again. Bridget Walsh, UK & Ireland Head of Private Equity and Head of UK&I Greater China Business Services at professional services firm EY, said: “A few years ago there were questions about private equity as an industry but it is back and it’s here to stay. LPs see PE is performing and want to invest more, not less….

“There is around $3.8 trillion under management globally in private equity… [It’s] a globally connected industry and at present the competition is high for good quality assets.”

PE firms from China are expected to compete more aggressively with US and European firms when it comes to bidding for large companies and assets. Bridget added: “The active presence of big international investors means there are more exit opportunities for PE-backed management teams. Given that is the case, they should be thinking about how to appeal to these different kinds of buyers… All arrows are pointing at Europe at the moment in terms of where investment is going.”

On the flipside, Tim Farazmand, Managing Director of private equity firm LDC and former Chairman of the British Private Equity and Venture Capital Association (BVCA), acknowledged that increasingly there will be opportunities for US and European companies to invest in China, but warned that joint ventures and partnering would be vital for success. “You need that insight and local understanding,” he said.

2) High-Performing Teams Create Great Businesses

It was agreed there needs to be alignment among the top team and a clear strategy for growth which everybody can buy into and articulate.

Andrew Miller joined Guardian Media Group (GMG) as CEO in 2009 and has been pivotal in leading its digital transformation. “It’s important to be open, honest and completely transparent about change,” he said. “It was about following the consumer and creating value and that meant really thinking about where journalism was going to be consumed in the future.”

Prior to GMG, Andrew was Group Chief Financial Officer of the Apax-backed Trader Media Group. The car sales specialist rebranded as Auto Trader in 2014 and listed on the London Stock Exchange earlier this year – it’s now achieved a market cap of £2.5 billion.

He said: “At Auto Trader it was more of a command and control style of management, whereas at The Guardian, with over half of our staff being creatives and journalists, it’s not like that… It’s about influence and taking people with you. With hindsight, I would have invested more time in that from the beginning – more time explaining and getting people to be involved in change.”

Steve Parkin, CEO of 3i-backed Mayborn, a manufacturer and distributor of baby and child products, noted how the company shifted its model substantially to be more international.

“We needed more diversity, and this means you have to work harder on cultural values and getting integration,” he said. “Conflict should be recommended as long as it is healthy and for the common benefit of the business.”

To achieve this, Steve had to reshape the top team: “In order to create a high-performing team we had to concentrate on inspirational leadership and competency to execute the business plan. We needed to build a global leadership team and blend old and new talent.”

By doing this, the business could move faster. Luke Broadhurst, Head of Private Equity at Criticaleye, said: “Trust is key to a team that outperforms. It’s about having that belief in the people around you, while also being able to provide a critique of one another and being able to challenge.”

Lucy Dimes, Chief Operating Officer at Advent-backed Equiniti, a provider of administration and payments solutions, explained how the past year had seen a renewed emphasis on integrating different parts of the organisation.

“Three of the most important things are choosing the right people; providing clarity of purpose and direction; communicating frequently and varying that by level – to create understanding, cohesion and momentum for change,” she said.

“You can’t do everything at once as time and capital are always limited, so it’s important to prioritise and focus on the opportunities that can create the greatest value.”

Luke added: “It’s not all about knowing your five-year strategy, it’s about knowing what the grey areas are and what steps you are taking to maintain that all-important momentum. After all, you can’t predict the future.”

3) Get Clarity on Incentive Schemes

In conjunction with communicating the strategy in a way that inspires and motivates people, it’s essential to be clear about incentives and how equity may be shared in a PE-backed business.

Stuart Coventry, Partner at Jamieson Corporate Finance, urged CEOs to be involved in discussions with sponsors from the outset: “Buy-in from management teams when devising an incentive scheme is crucial – ask yourself: ‘What are your returns in relation to the return profile [of] the PE house over time? What is the target pot for delivering your plan and how should it be allocated across the team?

“Everyone needs to be on the same page but it’s also important to take into account the personal circumstances of managers. For example, a blanket 50 per cent approach to a rollover process is not always the right way.”

Graham Love, Chairman of life sciences measurement and testing company LGC, which is backed by Bridgepoint, observed that the chairman certainly has a role to play in the incentives debate: “You need to ensure that when new equity becomes available it is going to those who contribute to the business, rather than simply giving it to people who have been there a long time.”

4) Be Prepared to Move Fast 

With an effective leadership team in place and backing from a sponsor, a company should be able to move at pace. Ian Edmondson, Chairman and Managing Director of Dunlop Aircraft Tyres, commented: “It’s important to react when an opportunity arises. We expanded into Asia five years ago and now it is 20 per cent of our business. Last year we expanded into the US…

“High expenditure may not be great, however, if you wait and do nothing that all important profit-making chance will slip through your fingers.”

Simon Calver, Chairman of Index-backed Moo.com and former CEO of LoveFilm, said that leaders must be brave: “You need to build a culture where you understand that not everything you attempt will work. Rewarding the people who try to do something different will inspire change.”

5) All Three Exit Routes are Open

The perennial question for management and sponsors is whether to choose between a trade sale, secondary buyout or to go down the public markets route. Ben Slatter, Partner at PE firm Rutland Partners, said that “it is important to get the business in shape as soon as possible so it is in a constant state of readiness for an exit at any point in the cycle.”

Others agreed, noting that running a dual or triple-track process should maximise interest in the business, creating that vital competitive tension among bidders. Trade buyers are definitely back in the market and, given the level of funds at the disposal of PE firms, secondary and tertiary deals are also there for the right kind of business.

Tom Attenborough, Head of UK Large Caps – Primary Markets at the London Stock Exchange, commented that while the IPO market may have slowed down in the first quarter of 2015, there remained interest from PE.

“Market conditions and valuations have vastly improved, driving a significant pick-up in PE-backed IPOs. There is also much better engagement with investors about assets a lot earlier, often six to 12 months in advance of an IPO,” he said, going on to add that “we have moved a long way from the days when the relationship between PE sellers and institutional buyers had broken down”.

6) Management Calls the Shots

If the executive team has a strong grip on the business and the numbers are good the company should, in many ways, sell itself. That said, the executives need to be thinking about the exit, what it means for the future of the business and them personally.

“At the end of the day, it’s the management team who sell the business,” said Graham. “It’s not the investors or the non-executive directors. Indeed, a lot of the time they have more ability to influence the exit process than they probably realise.”

The chairman should also be making a valid input at this stage, working as an intermediary between the various stakeholders. “PE houses want the management team to drive the business and decide where it is going,” commented Simon. “[But] if they don’t agree with your vision, they will challenge it.”

Carl Harring, Managing Director for the UK at private equity and investment concern HIG Capital, said: “When it comes to change, the hard discussions don’t get any easier. It’s really important to have an independent chairman in a PE-backed business. You need someone impartial who can sit between the PE firm and the management team.”
***
It’s natural for there to be points of contention during the lifecycle of an investment. The reality is that, by and large, the strength of the management team’s opinion will be dependent on the health of the business. Provided they’re hitting the numbers and have a plan that all parties buy into, the current set of market conditions seem ripe for seizing opportunities.

As Steve from Mayborn put it: “We needed an aligned strategy that worked at an executive level and across a global leadership team. It needed to be understood by everybody… Clarity of strategy is everything.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeUK

The Hidden Value of the COO

Comm update_26 NovemberChief Operating Officers (COOs) tend to be unsung heroes. By concentrating on the day-to-day running of an organisation, usually across a range of functions, the COO’s shape-shifting abilities creates time and space for a CEO to focus on strategy and their outward, public facing duties. In many ways, the role can be the ideal training ground for taking on the top job.

Giles Daubeney, COO at international recruitment consultancy Robert Walters, says: “The CEO primarily focuses on strategy and dealing with external stakeholders – shareholders, investors, the media and so on, whereas I am responsible for the management of all the Group’s operations worldwide. That said, we do work closely together on all aspects of the business.

“For example, when reporting to the City, I am there at the results presentations and, actually, the way it’s divvied up is that the CEO will do the higher level group strategy and I will talk in detail about the operations, explaining what’s happening across each of the Group’s regions.”

It is arguably the most situational role on the senior executive team. Mark Castle, Deputy COO at construction company Mace, says: “[There are those] who implement the CEO’s strategy and support the rest of the C-suite in running their parts of the business… Others see themselves as potential CEOs-in-waiting and that can create tension, not just with the incumbent CEO but other senior board colleagues who harbour similar ambitions.”

Caroline Brown, CFO and COO of engineering consultancy Penspen, says: “The role of a COO is akin to having the fluidity of mercury; you seep into the cracks that others aren’t occupying. What makes someone good at it is the ability to be agile and to go with the flow. Someone who takes on a number of different aspects of the role without being fazed by the ambiguity.”

Decision Time

Although the context will vary from company to company, the key priorities for COOs are ‘execution’ and ‘delivery’. “Often, you’re driving change as you execute company strategy and that’s hard because people don’t like change,” says Andrew Eldon, COO for Hong Kong-based online retailer StrawberryNet. “You need to communicate clearly with your teams about the company’s overall objectives and strategies so they understand the context of what they’re doing and why it’s important.”

Lucy Dimes, COO of business process services provider Equiniti and former UK & Ireland CEO of telecoms concern Alcatel-Lucent, says: “As COO, in a single day I could be involved in a strategic acquisition opportunity and a cost-cutting programme. I’m also doing a two-day offsite with my team to talk about our plans for 2015 and 2016. So you’ve got to deal with the here and now as a COO, but to do this effectively you also need to be focusing on the future.”

In many cases, the COO can be seen as the co-pilot to the CEO. Adrian Fawcett, Chairman of bed and mattress manufacturer Silentnight Group, and former COO of pub group Punch Taverns, says: “The speed of development in global organisations and the external challenges that go with this mean the COO’s role is becoming more exciting…  In a world where businesses need to respond to customer or market-related issues faster than ever, the COO needs to be the business planner and organiser; it’s a role that requires strong leadership.”

Markus Heinen, Managing Partner of EMEIA Strategy at professional services firm EY, says: “The COO will undoubtedly become more powerful and effective if he or she is able to be part of the board’s strategic discussion. If you don’t have a strategic perspective combined with operational excellence then you will struggle over a longer period of time…

“[Businesses are] becoming more agile and disruptive trends can significantly hit the operations of a business, so COOs need to be on top of this and not only develop their analytical capabilities and strengths, but also think a little bit more creatively.”

A similar point is made by Shaun Chilton, COO of pharmaceutical concern Clinigen Group: “There will be times when you are more operationally focused, but you need to have the ability to [predict] how the tactical decisions made today may affect the future direction of the business. Ultimately, having the dedication to always ask ‘why?’ and refusing to accept anything at face value that doesn’t feel right will lead you to make the right decisions.”

Given the potential for overlap between the COO and CEO, it’s generally agreed that regular communication between the two is important. Andrew Powell, CEO of careers education provider The Training Room and former COO of Colt Technology Services, comments: “The chemistry has to be bang on… Fundamentally, you must have clarity on what your accountability is and make sure that it is clearly understood by the rest of the executive team.”

Mark Pharoah, COO of ComplEat Food Group, a supplier of chilled foods, says that the relationship between the CEO and COO needs to be defined and agreed from the outset: “Once the core strengths of each have been identified and clear responsibilities set out, the operational and strategic input within the COO role should manifest itself with a greater degree of clarity.

“If the CEO is focused on big strategic initiatives, such as major transformational projects or a global growth initiative, then the COO tends to be more hands-on and operational.”

Lucy comments: “The CEO-COO relationship requires the greatest level of contact. It’s vital that you are 100 per cent aligned as you can’t afford for [anyone to feel there are inconsistencies]. The faster the pace you are driving, the more frequent contact needs to be – it might need to be several times a day if you need to discuss, decide and act quickly.

“The key discussions are around: ‘Is this working?’; ‘Are we achieving what we want to achieve?’; ‘What do the month’s results look like?’; ‘Are we on track?’; ‘Do we need to change and, if so, how and when?’”

Unlike the CFO or CMO, the COO is a difficult position to define and there are plenty of examples of companies choosing not to employ one. That said, given the increasing complexity faced by business leaders, there will be situations where bringing in a good COO to form a partnership with the CEO will enable a business to move faster.

Andrew Powell says: “Wherever there are opportunities to do things differently or better, that’s when the COO can really step in and help make the CEO even more successful.”

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk