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

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Coming Back from the Brink

Comm update_3 DecemberCool heads are required to reverse the fortunes of a business that has fallen on hard times. The priority for anybody coming in will be to stabilise the company by examining the balance sheet and communicating with all of the relevant stakeholders. After that, it’s a case of implementing a plan for recovery which has both internal and external buy-in.

“You’re focusing on the daily control of cash-flow [and engaging] with the various groups of stakeholders [to] understand what their positions are,” says Roger Bayly, Turnaround Partner at professional services firm KPMG.

The board might be unaware or simply in denial about the root causes of the problems, so it’s prudent to go deeper into the business for the answers. Stuart Laird, Group COO of construction company United Living Group, who formerly led the turnaround of support services giant Jarvis, says: “People might not understand the type of information that you require or simply don’t have the capability of getting hold of it. You want reliable financial and statistical operational information and you may find that there are people blocking you [from] getting it, perhaps because they wish to protect themselves from mistakes that have been made in the past.”

Lord Stuart Rose, Chairman of online grocer Ocado Group and former CEO and Chairman at retailer M&S, comments: “My technique would be to interview the top 20 people in the business and say, ‘Tell me what you think is working; tell me what you think isn’t working.’ At the end of that period… you’ll find they all tell you the same thing.”

It’s an approach which others also believe to be effective. Gary Favell, CEO of retail concern Bathstore, says: “You need to go down a couple layers, below the board and senior management team… [and] talk to the people who are actually doing the day job, because their perspectives on where the issues are will normally point you in the right direction.”

All of the main stakeholders need to be engaged. “The shareholders, lenders, employees, customers and suppliers, the pension fund, credit insurers can all get involved,” says Roger. “When you are in the critical period, any one of these groups can destabilise the process and trigger a terminal tailspin.

“Understanding the positions of the different stakeholders is key – you can have the best plan in the world in theory, but it’s worthless unless you can get sufficient support across the stakeholders, each of whom have different and often conflicting interests… Getting agreement around a sensible plan is a great balancing act.”

Pam Powell, Non-executive Director at Premier Foods, which earlier this year completed extensive refinancing, comments: “In our case the business was being strangled by debt; everything was about the balance sheet. It was probably one of the most complicated refinancings in history, because there were so many stakeholders to deal with – banks, equity investors, bond investors, pension trustees – and they were all contingent on each other. So we needed to have lots of conversations.”

Without that security around finance, discussions about recovery will be treated with scepticism. Stuart Laird says: “It’s a case of interrogating your plan to make sure it’s credible, communicating to other stakeholders, be they shareholders, banks, advisors or the City, and saying, ‘We want to come and tell you about our plan because we want your support in delivering it.’

“Certainly, if you’ve broken or are about to break some bank covenants, the bank’s main advisors will be demanding to know what it is you’re going to do to move the business forward.”

Onwards and upwards 

Once the most immediate threats to the business have been dealt with, the next step is to establish a longer-term strategy. Paul Cardoen, Managing Director of Bank of Tokyo-Mitsubishi UFJ, says: “You need to find and form a group of people that have enough power to lead the turnaround, you can call it a kind of guiding coalition. [Then] you have to remove from that group, or at least avoid having, blockers – people who may sabotage you during the process… It’s about finding trusted people that have the right skill-set and resources to help you.”

Neil Matthewman, CEO of the charity Community Integrated Care, says: “Restoring trust and confidence in the business is essential. Setting targets and being recognised for achieving them internally, as well as externally, creates a definite ‘can do’ culture and builds on tailored communications and good leadership.”

It will be important to celebrate where the business is changing for the better. Martin Hess, VP of Enterprise Services at IT concern Hewlett Packard, comments: “You’ve got to highlight the successes, point to heroes, hold them up and amplify them… You name the successes and talk about the impact on customers.”

Clodagh Murphy, MD of Eclipse Internet, which over the last five years, has moved from providing consumer broadband to technology services for small to medium-sized enterprises, explains that the emphasis for her has been on drawing up a “roadmap of what we’re trying to do and where we want to sit in the marketplace”.

For those brought in to conduct a turnaround, there will be harsh realities that must be dealt with head on. Then, as ever for any leadership team, the focus has to be on building confidence and inspiring others to see where the future of the business lies.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

5 Ways to Tackle Cyber Crime

Comm update_5 NovemberWhile organisations are spending significant amounts of money trying to keep cyber criminals at bay, financial investment alone won’t be enough to deter governments, hacktivists or nefarious gangs, nor will it prevent carelessness among employees. Increasingly, it’s apparent that senior executives need to step up and take the lead, and ensure everyone within the organisation knows the part they must play in creating a truly effective defence.
In other words, delegating responsibility to an IT specialist won’t be good enough. Unless boards and executives understand the extent of the risks, it’ll only be a matter of time before security weaknesses are exploited. Criticaleye spoke to a range of leaders and advisors to find out how organisations can beat cyber crime:

1) Scope Out the Risks

If security structures are to be successful, leaders need to identify where the cyber threats to their company originate and what’s being targeted. Malcolm Marshall, Global Head of Information Protection and Business Resilience at KPMG, comments: “You’ve got four key players: foreign governments typically [want] commercially valuable data… or intellectual property that they can pass on to one of their own country’s companies.

“Criminals are after any data that can be converted into financial benefit. Hacktivists [look for] information that suits their ideological beliefs, such as evidence that a particular company is evil or unethical, and the insider [is usually out for]… revenge or financial gain.”

Insulating yourself from every threat is impossible. Sue Kean, Chief Risk Officer at FTSE 100 financial conglomerate Old Mutual, explains: “It’s important to set a meaningful risk appetite. Step one is [prioritising] data and, for all but the most highly restricted items, a zero tolerance approach to cyber risk is just not going to be feasible. We have to accept that there could be occasional breaches.

“If there are breaches, we’ve [then] got to have good enough detection to pick it up and take corrective action quickly.”

Peter Shore, Chairman of Arqiva, a provider of television and radio broadcast infrastructure, says: “You need to prioritise your systems and put a defence around them according to how critical they are…

“In some cases what you try to do is entirely segregate a system from others which are more widespread and, by nature, less secure.”

2) Choose a Leader

Selecting the right person to lead the cyber security agenda is vital. Whether it’s the CRO, CIO, COO or CFO, the specific responsibilities will vary considerably depending on the organisation and how threat levels are perceived. What is clear is that they need to be constantly communicating with the executive committee and be thinking across the organisation, rather than about their own silo.

According to Malcolm, critical decisions can’t be left solely in the hands of the IT function. “Capable though they are, they do not have the full picture. They’ll often [prioritise] things that don’t necessarily need protecting and fail to identify those that a chief executive, COO or market-facing executive will understand to be critical to their collateral success or reputational integrity.”

A similar point is made by John Lewis, Chief Operating Officer at mobile communication provider Airwave Solutions: “Quite often you will get demands from the business to make things easier, which often means bringing in greater security risk. So, having someone who understands the risks in some detail but can then balance the risk-reward decision is important.”

Whoever takes the lead must clearly identify the key action points, communicate them to their executive colleagues and ensure they’re being executed. Gavin Walker, Chief Information Officer at air navigation service provider NATS comments: “My challenge is to make sure that those risks are owned by the business. I can create the right mechanisms, the right policies and the right standards to work to, but we need to be very clear that everyone takes responsibility for implementation.”

3) Engage the Board

According to Heather Savory, Independent Chair of the Open Data User Group, which advises the UK Government on the value of the data it collects, boards are being short-sighted if they fail to treat cyber security as a priority.

“Too many organisations have strong governance around financial risk – primarily because they are required to report their financial status publicly – but pay little attention to IT risks until disaster strikes,” she says.

Brian Stevenson, Criticaleye Board Mentor and Non-executive Director of the Agricultural Bank at China (UK), comments: “There has to be line of sight from the main board to wherever your key risks are located. It’s about having the ability to probe an organisation and to satisfy yourself that its defences are adequate.”

As with all fast-moving, specialist areas, organisations have a duty to ensure their non-executives are kept up-to-date. “We might get external speakers in to take the board through the wider national threats – that’s something I would certainly recommend,” says John.

For Peter, this is where the skills and experience of an IT executive can come in particularly handy. “Our board members can ask for a session with our CIO or chief IT guy if they feel it’s necessary to get up to speed and fulfil their obligations as a director.”

4) Educate Your Stakeholders

Employees are potentially a company’s biggest vulnerability when it comes to cyber security. However, for organisations that devote sufficient resource to informing them about the risks, staff can become a powerful asset.

“We’re having to raise the level of education that we provide to our staff,” says Alan Towndrow, Group Information Systems Director at international asset advisor, M&G Investments. “We’re making sure our employees are aware of phishing emails and the social engineering that takes place. This is just as true in their private lives as it is at work.”

Leaders need to communicate the security strategy and explain exactly why it’s central to a business’ success. John explains: “People get frustrated by the security measures because, naturally, they make things more difficult. Giving some exposure as to why… we have those processes in place helps make it real for them.”

As is often the case, actions speak louder than words. Gavin says: “The executives at NATS lead by example because they understand how big the risk is. If cyber crime isn’t being taken seriously by them, it’s unlikely it’ll stick with the rest of the organisation.”

According to Ruchir Rodrigues, Managing Director of Digital for Barclays’ Personal and Corporate Banking Group, UK and Europe, this education should extend beyond an organisation’s employees. “An area of concern for us is that fraudsters use different methods to get information from the customer themselves.

“We need to reach a point where certain behaviours and practices are ingrained in customers’ brains… so [if, for example, someone phones you] whoever is claiming to be on the call, do not give them any passwords [or sensitive bank details]. It’s that kind of awareness you have to drive.”

Collaborating with your competitors may be necessary for this because it’s a job too big for any single business to tackle alone. Ruchir continues: “Banks are coming together to agree certain principles or frameworks that we will all have in place… This has to be industry wide.”

5) Continually Reassess Your Position

Investment in cyber security should no longer be seen as a one-off, technical fix. Leaders have to regularly invest time and money into assessing the threats, their systems and cultural practices, or they’ll quickly find themselves at risk.

The proliferation of internet enabled devices and mobile working, as well as an increasing reliance on cloud technology, is raising a number of questions. Alan comments: “There’s a growing awareness that the infrastructure that businesses use can expose them to vulnerabilities, so work needs to be done to respond and to develop strategies that allow you to come up with higher levels of security.”

Gavin says: “This isn’t something you just pick up, put a bit of effort into and then put down again. It’s here forever and it’s just going to get worse or more complicated. So, it’s a journey… that all organisations are going to have to live with for a long time.”
***

 

Increasingly, companies rely on the integrity of their digital capability to maintain the way they operate and their reputation. That’s why time invested in understanding the macro issues and how your company is responding is never wasted.

As Malcolm says: “Security is not something [that should] get in the way of doing business but is something that enables you to do it more safely. Hopefully that means something to [you and] your customers.”

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Making it as a First-Time CEO

Comm update_29 October1All eyes are on you as a first-time CEO. No matter how experienced you think you are, there will be aspects of the role that take you by surprise. It’s why many new CEOs take the opportunity to assess the business, looking to build an accurate picture of performance by meeting different stakeholders. Once you’ve got to grips with the various realities, the pressure will be on to act decisively.

“On my first day, I was very conscious that when I walked into the office everybody was looking at me thinking, ‘Well, who is this guy?’” comments Howard Kerr, Chief Executive of standards and training provider BSI Group. “They were saying, ‘We’ve seen the company announcement and we’ve seen his CV, yet, from what we can tell, he’s got no obvious credentials for this job.’”

Mike Turner, Chairman of engineering concern GKN and former Group CEO of BAE Systems, comments: “What was new to me and surprised me the most was the rigour of the external communications with the shareholders. I thought you just went along with your finance director and that the focus would be on your earnings.

“Frankly, they’re not that interested in the past, they want to know about the future: where’s the growth coming from, do you have a clear strategy and, above all, are you delivering that strategy successfully?”

Often an adjustment period is needed to deal with the greater visibility and profile. Tony Cocker, Chief Executive of energy concern E.ON UK, says: “I’d been working for the company in Germany and it was completely out of the public spotlight. So, when I came back to the UK I was intellectually but not emotionally prepared for the pressure of dealing with the… perception of mistrust of energy companies from the media, some politicians, consumer organisations and many customers.”

Sarah Boyd, CEO of retail chain Guardian Health & Beauty, Singapore, which is owned by Asian retail group Dairy Farm, comments: “I was surprised by the sheer number of decisions that I was faced with. But it was more about the fact that the majority of those decisions were being made based on gut feel, rather than using good quality data and analytics.

“I was absolutely terrified because people were asking me to make decisions on things for which I had no frame of reference, and I found that incredibly uncomfortable for a while.”

First impressions

So, what should be on the agenda for those who are new to the role in those first 100 days? The most common pieces of advice fall into three areas:

  • Spend time assessing the business internally in order to separate fact from fiction;
  • Meet external stakeholders, such as customers, suppliers, analysts and advisors, to get an idea of how the company is perceived;
  • Once the period of assessment is over, be decisive.

A good starting point will be to sit down with the chairman. Lord Stuart Rose, Chairman of online grocer Ocado Group and former CEO and Chairman at retailer M&S, says: “The relationship between a CEO and Chairman is absolutely built on trust and mutual understanding. For example, when discussing my recovery plan for Marks & Spencer with the Chairman, he just said, ‘Right, well I’m backing you’. “It was about giving me time and keeping the board and the shareholders off my back, while I focused on getting the job done. Every chief executive must crave a hugely supportive chairman and every chief executive who is any good deserves one, until he proves [otherwise].”

Greg Morgan, Director at search firm Warren Partners, comments: “I think, crucially, you need to agree with the Chair on what your objectives for the first 100 days are going to be. [You then need to] establish, again, in consultation with the Chair and the board, what your strategic and operational priorities are… and work to define them so that everyone is [in agreement].”

What they say

Don’t underestimate the value of talking to people in the business during these early days. Sarah comments: “For a retail CEO, certainly, it’s about working in-store for a period of time and spending as much time as you can with the people on the ground who are actually delivering the results for you. After all, you can’t start adding value at a more senior level until you really understand what’s happening.

“If I’d come into this business and said, ‘Tell me how our stores are run,’ and I just sat in my office… I would have been so far from the truth of what actually happens in-store.”

Tony says: “You absolutely need to take the time… to meet and listen to colleagues at all levels, as well as customers, very early on. You’ve got to prioritise listening so you get a much better feel for the organisation in your first 30 days.”

Understanding external stakeholders is increasingly a key part of the CEO’s role. Greg comments: “Going the extra mile in terms of your due diligence is probably the distinguishing feature of people that do it well. The incoming CEO must talk to advisors to the business, people that are no longer with the company and, of course, customers, investors and analysts.”

Howard says that he did “an awful lot of travelling around” to make a concerted effort to speak with those on the frontline and to deal with customers: “In my case, because I was coming into a business and a new industry, I didn’t come with any preconceptions, so I came in being genuinely curious.”

It’s about absorbing as much information as possible and carefully choosing how to relay the messages you think will have the biggest impact. “You’ve got to prioritise listening to colleagues but then also listen to customers and other external stakeholders,” says Tony. “I remember the first newspaper I sat down with was The Sun [the UK’s most popular tabloid], which was a deliberate decision because many more of our customers read The Sun than the Financial Times.”

Lights, camera, action

Once a CEO has developed their own view on strategy, it’s time to ring the changes. Mike says: “Get your direct reports, your team right, and have your head of communications in attendance at your executive committee [meetings]. He or she has to know what’s going on in the business and [likewise] you can make sure the key messages are getting out to all employees, especially around the company strategy. It’s a real failure when employees say, ‘I don’t know what the company strategy is’.”

Howard comments: “[In my case] the executive team was, to a large extent, not really fit for purpose, so I had to replace the HRD, the legal director and the FD. I also had to move a couple of regional directors around, so there was quite a lot of change required…

“Basically, I didn’t have enough evangelists on my team to support me on the messages I wanted to convey and to help me execute the strategy.”

When speaking to former CEOs, a familiar refrain is that, in retrospect, decisions could have been made at a greater pace. Lord Rose says: “When I look back and assess the mistakes I’ve made, it’s always about not acting quickly enough. Whether that’s not firing somebody or not pushing a plan through forcefully enough, there’s always the question: could I have gone faster?”

Put simply, the spotlight will be on a new CEO to show real leadership. “You’ve really got to energise yourself, but triply energise the team who are working for you, because if you don’t [motivate] the team, you don’t get the job done,” adds Lord Rose.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

A Matter of Reputation

Comm update_8 OctoberConsistency goes a long way to building a strong corporate reputation. If a CEO waxes lyrical about the pride the company takes in putting customers first, or eulogises about how it supports communities and tries to ‘give something back’, then the business cannot be found to be doing the exact opposite. That’s a sure-fire way to attract a swarm of negative publicity.

From environmental disasters, to rogue pricing and bad customer service, there are plenty of examples of companies which have seen their once gilded brands fall into the gutter. Nick Barton, CEO of CityWest Homes, a provider of housing management services, says: “The crucial thing to think about is how it might break down if things start going wrong. That’s when your reputation is so fundamental, because when things become uncertain people will cling to what they are most comfortable with. Trust is the fundamental part of your reputation.

“People will go with you, even if things are going wrong, because they believe you’ll do the right thing and will fix it. If there’s no reputation and no trust, you will lose your audience, market, investors, bankers, whoever, very quickly.”

Over the years, a company’s character will invariably be defined by the way it has operated. Ian Wright, former Corporate Relations Director at alcoholic beverages concern Diageo, says: “First thing, and absolutely critical to any corporate reputation, is sustained strong business performance; you can’t expect to be a well-regarded company without being good at business and without having a strong track record of success.”

Pam Powell, Non-executive Director at Premier Foods, notes that building trust is increasingly hard among well-informed, sceptical stakeholders. She says it’s necessary to devise clear policies around things like sustainability and to be able to demonstrate that actions are being taken to improve performance, as this is critical for maintaining corporate integrity.

It’s a case of devising a watertight communications strategy. Samantha Barber, Non-executive Director at electricity company Iberdrola, comments: “To have an engagement strategy with stakeholders who are onside and supportive is actually quite straightforward. It’s a completely different kettle of fish when you are interacting with those who are openly and vocally hostile to your company and brand. To make it work, it requires very active and constructive listening… and to have a respectful dialogue on all sides.

“With a really hostile stakeholder group, you may never be able to win them over completely to your side and they may never be openly supportive of your company, but what you might be able to do, through greater understanding between your corporation and that group, is neutralise the negativity and hence its impact on your corporate reputation.”

Tone from the top

Employees should be under no illusion about what’s expected of them. On the flipside, they in turn must be confident that the senior leadership team is going to follow the same rules and codes of conduct.

For Ian, “it won’t succeed unless the CEO is absolutely committed, otherwise people figure it out quickly”. If a CEO has a passion for excellence in customer service, it has to be bought into by his/her “executive colleagues… and then it needs to be transferred and made into a real feature across the organisation, including the board itself”.

Without that buy-in, things will go awry. Tim Kiy, MD of Operations for Marketing, Communications, Citizenship and Public Affairs at Barclays Africa Group, says: “Reputation is something that’s owned by every single person in the organisation but the tone is set from the top, primarily by the board and the executive committee.

“They have to understand exactly what it is they want in terms of both a culture for the organisation and the relationship with their customers, and that should be imbued in both the brand and the brand positioning.”

Tony Cocker, Chief Executive of energy company E.ON UK, comments: “It has got to start from the most senior levels then be nurtured and fostered at every level. To do that you’ve got to have the right behaviours; you need simple, clear strategies and people at the local level… need to feel empowered to do the right thing for the customers.”

Certainly, the external messaging has to be equally transparent and it pays to be on the front foot. Andrew McCallum, Director of Corporate Affairs and Business Support for oil and gas company Dana Petroleum, says: “Stakeholders, whether they’re customers or suppliers, governments, policymakers or campaigning groups, have become ever more powerful in influencing the reputation of companies and, in turn, their ability to deliver their strategies and goals.”

One of the main reasons for this, he continues, is that they are now able to communicate much more readily about issues. They’re able to do so pretty much in real time, through social media in particular, and “they can have quite a big bearing, these different audiences, on the level of trust that any company, brand, or government for that matter, enjoys”.

Earlier this year, E.ON UK was heavily penalised by the energy industry regulator, Ofgem, for mis-selling to customers. Tony explains that, when any organisation is under intense scrutiny, showing yourself to be accountable is crucial: “From a personal point of view, as the CEO, you have to represent the organisation and if you make mistakes, in my view you have to stand up and apologise for them personally, as we have done.

“Clearly, in this day and age you have to go on the television… in our case you also go in front of select committees which, again, is televised. You’re in front of a stakeholder and you’re talking to customers, so you are very much representing the company and I think your values, therefore, will have to be very true to the values of the company.”

Clarity, conviction and consistency, as ever, make all the difference, and when things inevitably do go wrong, it certainly helps to be able to own up to mistakes. “The critical thing is to ‘be’ – to behave identically to your desired reputation, not simply to state it,” says Pam. “Trust must be earned through consistent behaviour across millions of touchpoints, large and small alike.”

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

How to Achieve Community Engagement

Comm update_25 June

Social responsibility and strategic goals are not mutually exclusive. The more enlightened directors sitting on the boards of corporates understand that there is a moral imperative to engage with local communities, plus other stakeholders, before embarking on projects which have the potential to disrupt lives. It’s a pity that far too many businesses around the world continue to struggle with this basic concept.

For some, it’s a classic case of prioritising profits above everything else; for others it’s a lack of awareness about how to plan and then communicate appropriately. Anne Stevens, Vice President for People and Organisation at Rio Tinto Copper, says: “Before you’ve even applied for permits or licences of any kind, you need to engage the full range of affected parties at the earliest opportunity.

“That means consulting with the local community, local and national government, NGOs and all of the other key stakeholders… Where there is lack of early engagement and less of what I would call ‘a collaborative approach’, there is an increased risk of local resistance and we have even seen examples of community outrage within the mining industry.”

Sandy Stash, Group Vice President of Safety, Sustainability and External Affairs at Tullow Oil, comments: “A common error is assuming that government speaks for all the stakeholders. Clearly, you need to do your homework and look at every dimension of how you can engage with everyone, including government, as early as possible. This needs to start with the planning process – you can’t wait until implementation.”

A company shouldn’t be too prescriptive in its approach if it wants to know what makes a local community tick, especially when operating in different countries. Anne says: “A common mistake made by leaders is to go in with their own mindset and… apply the same recipe or approach that was successful before in a different [place], without really engaging and understanding the requirements of the local environment.”

Face Time

If trust is to be gained – or at least a workable compromise found – then leaders within the business need to be on the ground and talking to the relevant parties. Luke Wilde, founder and CEO at business consultancy twentyfifty, says: “Communities need time to get to know the company and face to face communication is going to be critical in that.

“It’s unlikely that any CEO is going to be able to give that sort of time, [so it would be] better for a senior local manager to give the company a ‘human face’, to demonstrate the time and willingness to listen and to be available for the community to raise concerns with at any time.”

Sandy comments: “The CEO needs to foster a culture where people are interested in and engage with the communities where the organisation has an impact, but the local business managers need to take responsibility and be the sponsors for making community engagement work.”

Without that interaction, tensions can quickly bubble to the surface. Kevin Craven, CEO of the Services division at infrastructure provider Balfour Beatty, says: “We have found, to our cost, that if our local management is not really attuned to the local community’s needs, then you do get problems.

“For instance, although I’ve done about eight street lighting PFIs [private finance initiatives], there was one location… where we hit a road bump because the local community was very particular [about the aesthetics of the lighting]… so we decided to put somebody in as a dedicated community officer and arranged town hall meetings with residents.”

Business leaders shouldn’t underestimate the importance of delivering on promises that were made in order to receive the green light for a project. Bob Davies, a portfolio NED and former CEO of Renold and GE Druck, both manufacturers, comments: “Mistakes are often made where expectations are set incorrectly. There are so many different conversations with different entities—local governments, local unions, local newspapers—that a false image can be created of what you’re actually trying to do, so it’s vital that the CEO ensures absolute clarity of what is planned.

“This might not be a big issue on day one but two years down the line, when the local government was expecting you to employ 400 people and your plan was always 40, can be where the angst starts to give rise.”

Community engagement forms one part of what’s required to be a socially responsible organisation as it feeds into employment law, health and safety, corporate governance, supply chains and the environment. While few get it completely right, the intense spotlight on companies means none can afford to pay lip service to the notion of behaving in a way which shows respect to others.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Growing Pains for Private Equity

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With growth resolutely back on the agenda, many financial sponsors are rethinking how they should be supporting portfolio companies in an increasingly complex, global landscape. For attendees at Criticaleye’s recent Private Equity Retreat, assistance in the form of new contacts and forging a route to market are to be welcomed, but there was a strong push-back on firms interfering with how management teams look to execute on strategy.

Ian Stuart, Chairman of four mid-market PE-backed companies, including manufacturing concern Aspen Pumps, says: “The job of private equity is to back management and every so often intelligently challenge. But the point where PE sets out the strategy for growth, even though they are not the ones actually running the business is, I think, dangerous.”

While a fine line needs to be walked, there is an aspect to this which is cyclical. Keith Holdt, Investment Director at LDC, comments that over the past two years the firm has used more generalist managers to assist management teams, but “the ideal investment is one where the management is not only competent but knows what it needs to do to grow the business”.

Carl Harring, MD of HIG Capital, makes the point that as a company looks to evolve and develop, new personnel may well need to be brought in. “We always look at a portfolio company and ask: ‘What will the business look like when we’ve gone through a period of change with it?’

“A different style… [and] new blood may be needed in the management team as a business changes focus from cost saving to pursuing a growth agenda.”

Brighter outlook

The mood among attendees at the Retreat was noticeably upbeat in terms of businesses investing for growth and increased exit opportunities, not only via trade and secondaries but also through IPOs.

Glen Moreno, Chairman of media company Pearson and Non-executive Director of Fidelity International, says: “[There are] record levels of unrealised returns; many LPs are at their asset allocation levels and will want to see distributed gains in their portfolios…

“The exit potential is improving… The underlying demand is there for corporates to buy PE-backed companies. Secondaries remain important but don’t have the same positive impact as trade sales and IPOs on the PE environment.”

According to Thomas Kalaris, Distinguished Executive in Residence at the University of Chicago Booth School of Business, sponsors and businesses are emerging from the “mess of 2008” but there are also wider adjustments that need to be made. “Changes in demographics, geography and technology are fundamentally reshaping the global economy and financial markets,” he observes.

Understandably, if companies are to flourish in such an environment then the executive team must be able to candidly evaluate the skill-mix within an organisation and, particularly in a PE-backed entity, be focused on succession so that the next tier of leaders is seen to be coming through.

Bill Ronald, Chairman of ComplEat Food Group, a supplier of chilled foods, says: “Senior executives must regularly take time out to get together and debate where the business is in relation to its marketplace. You need to get to the stage where the strategy is simple enough that everyone around the table can explain it in two minutes…

“Never be complacent about people. You need to be rigorous about filling the roles that are required to develop the business for the next three to five years.”

A similar point is made by Tania Howarth, COO of frozen foods company Iglo: “Incentivising the ‘mighty middle’ is a key challenge because they effectively do most of the work in the business without the pay-off at exit, and the last thing you want is divisiveness in this group.”

It puts pressures on leaders to create a long-term vision through which staff and investors alike can identify. Rob Crossland, CEO of employment services company Optionis, says: “There’s always an equalising pressure on short-term results in PE, but having a business centred on a goal and incentivising the workforce and other stakeholders to achieve it is something that I’ve found PE will buy into.

“We’ve been fortunate in that our investors have allowed us to try different things in order to move the business forward… [and] that relative freedom to experiment has created a positive environment within the management team.”

Unquestionably, the real problem facing both PE firms and management teams is around international expansion and globalisation. For PE, it’s a case of developing the know-how and reach to be able to make a difference as executives are faced with the need to form partnerships, make acquisitions, develop distribution channels and obtain licenses, on top of getting to grips with the regulatory and cultural unknowns (indeed, it was suggested that PE firms themselves may need to start looking to a more diverse pool of talent to meet these needs).

Building scale remains imperative for a company heading towards an exit.Glen says: “The key challenge for all of us [in business] is growth, both in economies and customer revenues. Management teams that can shift the business into high-growth markets, and new customer groups, will be rewarded.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Can Banks Win Back Trust?

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The banking industry faces a huge task ahead if it is to restore trust and credibility. While it’s understandable that much anger and suspicion is directed towards ‘bankers’ for their role in the financial crisis, it has always been too simplistic to blame this group entirely for what happened. It’s time to move on, not least because a strong banking system is in everyone’s interests if the economic recovery is to gain momentum.

Getting there is another matter. The measures taken by regulators, such as the introduction of the Dodd-Frank Act in the US and Basel III in Europe, are necessary to reduce some of the remarkable risks that were being taken with unwitting customers’ money. There does need to be a limit, however, so that the political necessity to be seen to act in order to satiate public opprobrium, combined with a very rational need to reduce alarming behaviours, does not result in throwing the proverbial baby out with the bathwater.

Brian Stevenson, Non-executive Director of Agricultural Bank of China and former Chairman of Global Transaction Services for The Royal Bank of Scotland, says: “If you look at the new regulation that’s being put in place in Europe and the US, together with the FSA in the UK and the new authorities being given to the Bank of England under the new structure of regulation, when you add all of that together, you could legitimately argue that in combination it is going too far. If you’re a large international bank operating in a lot of countries around the world, you’re currently facing a multiplicity of new regulations and new regulators, and they’re not the same.”

The lack of standardisation around the world is a problem, creating a serious competitive disadvantage for some international banks, whereas at least the country-focused banks know they’re competing on a level playing field. “For domestic banks in the UK, it is very difficult to argue that the regulations have gone too far,” adds Brian, citing the issues around payment protection, liquidity and capital planning, to name but three.

Within this, there is also the question of the false sense of security that can occur in the clamour for safeguards and buffers. Steve Pateman, Head of UK Banking at Santander, says: “I may be wrong, but I don’t see that capital and liquidity management in isolation will effectively prevent another banking collapse. It has to be seen in combination with risk management. Anglo Irish would have gone bust with 30 per cent Tier 1 capital, so let’s not kid ourselves that if you’ve got Tier 1 capital of 10 per cent, you won’t go bust.”

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Tone at the top

Risk management has to be right – it’s no use, for example, having a well diversified mortgage book if there’s a massive concentration of exposure in highly leveraged corporate entities, as HBOS discovered to its cost. Omar Ali, Partner and UK Banking & Capital Markets Leader at Ernst & Young, says: “In terms of the issues we’ve had since 2007, fundamentally it comes down to a few critical questions; what is the organisation’s attitude to risk?; its culture?; how does it operate? Because, let’s be clear, all banks had rules and policies and regulation was in place already – regulation by itself is not the answer.”

Mary Jo Jacobi, Criticaleye Associate, former MD of Lehman Bros and advisor to the board of HSBC Holdings, says: “The banks need to clean up their own act and demonstrate that they are capable of occupying a position of public trust and of managing their own affairs responsibly. That doesn’t necessarily mean chasing huge profits through highly risky ventures. Of course, one of the reasons we got into the current situation was because the banks were coming up with more and more complex instruments to make money out of basically repackaging the same things. I’m a capitalist and I believe in the profit motive, but I also believe that businesses have a responsibility to understand what they are doing and address the potential consequences of what they are doing.”

Rebuilding faith in the competence of banks will not be easy. According to research from E&Y, some 40 per cent of banking customers globally have lost trust in the industry over the past year; customers are also becoming less loyal and increasing the number of banks they use, with a third of them now dealing with three or more banks.

At least banks now realise they actually need customers and success depends on winning back their trust. Paul Staples, Head of Corporate Finance at BNP Paribas, says: “Regaining public confidence in the provision of banking services will require progressive, visible changes in how we deliver value to our clients. The pursuit of shareholder returns must be blended intelligently with a tangible commitment to social responsibility.

“The project has begun and the next stage is genuine engagement with stakeholders to ensure that key initiatives are better designed through proper consultation. Clarity of communication is essential to regain credibility and to rebuild progressively an enduring trust.”

Over time, banks have been the most ruthlessly profit-focused of businesses. It’s now time for them to reconnect with customers and get back to basics, which means looking at how to provide the best possible service with transparency, such as being clearer about pricing and charges. Whether that is going to occur can be debated long and hard, as the aforementioned cultures within many organisations is entrenched, but given the public’s cynicism towards the industry, those banks that do respond will be at a distinct advantage.

“When you boil it down, banks only really do five things,” says Brian. “They provide a vehicle for customers to make investments; finance for customers; move money from A to B; risk management services; and information and advice on all of those services.

“So, in each category, they have to be careful enough to make sure that what they’re actually providing for their customers is ultimately what they want and there isn’t any form of grand deception or sleight of hand involved in the process.”

Helping first-time buyers, supporting businesses, making services quick and accessible across a variety of channels, that’s what people want to see and, if done in the right way, banks should not be pilloried for making profits. “The most important task we as an industry have ahead of us is to show that banking done well is a good thing, but it’s not a battle we’ve done a particularly good job with so far,” says Steve.

Omar suggests that it should be an enormous wake-up call for banks to appreciate the role they have to play in society: “This could create an industry that is better for everyone. Better for shareholders, taxpayers, regulators, customers, the overall economy and the country we live in. I think we have a unique opportunity to improve banking for all stakeholders and I just hope there is the collective will to do so.”

Blood, Sweat and Turnarounds

Most reversals of fortune in business are not the result of a magic bullet. Successful turnarounds demand hard work, compromise, a razor-sharp understanding of the financials, decisive leadership and a relentlessly communicated action plan. When the pressure is on and reputations and livelihoods are on the line, that can be a tough ask, but it’s usually the difference between recovery and an accelerated decline.

Turnaround experts speaking to Criticaleye identify the following as crucial when stepping into an embattled business:

  • Steady the finances
  • Identify real sources of revenue and ways to release capital
  • Communicate – externally and internally
  • Identify the weak links in the company
  • Act quickly and be decisive

Naturally, it’s always easier said than done. Claudia Zeisberger, Criticaleye Thought Leader and Academic Co-Director of the Global Private Equity Initiative at INSEAD, says: “Even with turnaround professionals who are in that space all the time, one point is clear: however much due diligence you may be doing prior to accepting the task, it’s always worse than you expect.”

Getting the facts straight amid the chaos of a failing business is guaranteed to be a huge challenge. Steve Brown, Executive Chairman of bathroom fittings business Croydex, says: “Quite often in these situations, what you are told isn’t quite what you discover because people have been under pressure and perhaps haven’t got their eye fully on the ball.”

It’s a race against time as creditors close in. Kevin Freeguard, who has experience of turnarounds in previous roles and is now Managing Director at banknote printer De La Rue, says: “There will always be strategy documents available, but it’s important to talk to customers, key partners and industry experts. You also have to look at the sales pipeline and see where the demand is coming from. Only then can you work out reasonably quickly what is worth keeping because, in many cases, you have got to maximise what you’ve got in front of you.”

Martyn Fisher, Executive Vice-President for Industrial Europe at the resurgent Veolia Water Solutions & Technologies, adds that identifying what is dragging performance down means more than just securing cashflow and analysing the financial metrics. “I generally start by talking to customers and suppliers about the business,” he says. “There’ll be plenty of information in the financials, but you need to do your own research and get soundings from people, as that tends to catch more of the emotion of the situation.

“People tend to argue away the financials by saying: ‘It’s the economy. It’s competitors. It’s not our fault, what do you expect?’ That’s usually an indication of the changes you’ll have to make in that team, and I’ve found it’s the managers that are generally at fault… They’re either people who don’t want to change, or they need help to see a new way forward.”

Once the issues have been identified by the leader, that’s when the real work starts. Roger Bayly, Turnaround Partner at professional services firm KPMG, says: “Working out what course of action to take is approximately 20 per cent of the challenge… The big deal is then working out how you get a diverse group of stakeholders, including shareholders, lenders and management, to agree to the plan and consistently support the turnaround. The stakeholder picture, plus the challenge of funding the business, often means that you don’t take the most obvious path to value.”

Reality bites

Once a way forward has been identified, there’s the small matter of trying to get the business moving in that direction. This is where the CEO, chairman or executive chairman really start to earn their stripes.

Steve says: “I sit down with the team and create a rolling list of ten priority actions… and I run very detailed, weekly workshops, making sure they have allocated the appropriate actions and managed them accordingly. It’s very important that they understand clearly the real situation of the business, which might be better or worse than the people who [hired you] understood at the time.”

This is where you begin to see the difference between ‘people power’ and ‘people problems’. Jon Moulton, Chairman of turnaround investor Better Capital, argues that “you can rarely rely on using existing management as if they were good enough why would the company be in such a mess?” He also questions putting your faith in a miraculous revival in sales as, in his view, time is of the essence and “you can’t depend on sales growth, as it almost never happens quickly enough”.

It’s about taking emergency actions to save an organisation from going under, which is something that existing senior management can be unwilling to accept because of pride, genuine emotional attachment, plain ignorance or just denial. Mark Cole, Non-executive Director at fund management business Hamilton Capital Partners, finds that “cutting out unproductive costs and under-performing or change-resistant staff must be done if you are to demonstrate a serious commitment to change”.

Once the pieces are in place, it’s about communicating both within the business and externally to revive confidence so that people really do believe that positive changes are underway. Claudia says: “Turnaround situations require crystal clear communication to both internal and external stakeholders. Senior management and the board must be aware of any actions to be taken and upcoming changes in the performance – both good and bad. Once you reach the point where a turnaround is needed it’s time to be completely honest, as there can be no surprises.”

Rob Woodward, who has led a successful turnaround as CEO of media concern STV Group (formerly SMG), says: “One of the best things I did was set out a very clear set of KPIs that were beyond all the financial metrics. We communicated these absolutely relentlessly to rebuild trust… A key principle I have is to ensure a relentless pace of change, and just keep the momentum so that we’re constantly making progress. You need to be able to spot and celebrate winning cultures; in a business that saw itself as failing, I can’t tell you how important that is.”

There are businesses that have had their day and can’t be saved, which is exactly how it should be. However, with the right controls, insights and leadership, there are also plenty of companies that can – and are – being nursed back to health and are set to prosper again.

How to Handle a Crisis

As everyone knows, not owning up to a mistake only makes matters worse in the long run. When big businesses try to deflect blame or don’t recognise the gravity of a situation, the damage and fallout can be catastrophic. There are plenty of examples where businesses still don’t get this basic truth, opting instead to insult people’s intelligence with delusory PR and buck passing.

Mary Jo Jacobi is a Criticaleye Associate who has worked on reputation management issues for some of the world’s biggest companies, including BP after the Gulf of Mexico oil spill, Royal Dutch Shell during the reserves miscategorisation and HSBC during the Asian financial crisis. She says: “It is absolutely true that it takes 20 years to build a reputation and 20 minutes to destroy it. You have to be prepared and if a crisis comes, take it seriously and have the available resources to manage it.”

Denial and delay only compound issues, especially when the media sniffs blood and anarchic hearsay is loosed upon the web. Andrew Griffin, Chief Executive of reputation management specialist Regester Larkin, says: “The important thing is to acknowledge failings and mistakes, visibly demonstrating the steps that are being taken to fix them.”

Ian Ryder, Deputy CEO of BCS [British Computer Society], the Chartered Institute for IT, confirms that speed is the name of the game. “Failures occur when organisations aren’t quick enough or open enough. They have ill-prepared or poorly equipped spokespeople, which ignores reality and the level of potential damage,” he says, noting that some businesses will be beyond salvation (think Enron, WorldCom, Ratners et al).

During the oil reserves crisis at Shell, Mary says that the critical factor was the board’s willingness to accept changes were needed and fast: “Shell realised that wholesale reorganisation was essential,” she says. “It restructured by completing the merger of Royal Dutch Petroleum and Shell Transport and Trading, creating Royal Dutch Shell with its single head office in the Hague.”

If alacrity is a must, so is demonstrating that the root problems are rectified. Furthermore, the overall situation should be seen as an opportunity to, as Royal Dutch Shell did, make improvements. Andrew says: “It’s a case of tying reputation to a long-term business strategy: what do you want to achieve and how can you build a reputation that will help achieve it?”

It will take time. News Corporation’s decision to end the News of the World may have been swift and dramatic, but it did very little to regain public trust in terms of the ethics and trustworthiness of the group and the UK sub-division of the organisation. Andrew continues: “Evidently, this is an organisation which needs to rebuild [its reputation]. In order to do this, it needs to understand how it was seen before the crisis. Was it seen as responsible or ruthless? Respected or tolerated? Which stakeholders were supportive and likely to remain so through thick and thin?”

A good impression

Lord Browne of Madingley, the former Chief Executive Officer of BP, observes that it is vital to appreciate the link between the image and standing of an organisation and its ability to deliver impressive financial results: “There is a growing realisation that reputation is a long-term asset that requires strategic thinking in order to drive real value for shareholders.

“They now see that reputations are built on trust created over time and this comes from the performance, behaviour and values of a business. Having a good reputation can see an organisation through the bad times, when others with more fragile reputations may flounder.”

There is no foolproof contingency plan. The best governance won’t be able to stop determined fraudsters or rogue directors and, for global organisations, it’s inevitable that something will go wrong. In the public sector too, there are failings and mistakes which attract the worst kind of attention. Genie Turton, a Criticaleye Associate and former senior civil servant, says that the “front line of government and of some large companies is enormously long and complex and it is impossible to prevent things and events happening that may blow up into a crisis”.

That’s not to suggest various scenarios and contingency plans shouldn’t be drawn up so an organisation isn’t the proverbial rabbit in the headlights. Mary comments: “It has to be seen as an opportunity rather than treating it as a nuisance that must be endured. Intelligent companies think the unthinkable. They prepare for the worst while expecting the best. They listen to their people and use social media. Crucially, they are willing to hear bad news and act upon it before a crisis can occur.”

For Genie, this has to be the right approach: “Just as, in the safety area, we now try to spot and report ‘near misses’, analysing the most frequent causes of accidents, so it is worth investing in some analysis of what did not happen and what type of issue has the potential to grow into a crisis. The response to a complaint can be more important than the thing that went wrong. It is worth analysing how a response is handled too.”

Mary reveals that a disaster can be guaranteed when companies take shortcuts to wriggle out of a crisis. “They don’t tackle the root causes or honestly assess the wider implications of what went wrong. Some try to move on too quickly, creating the perception that it is in denial about the importance and impact of the crisis for the stakeholders.

“Reputation and brand exist in the perceptions of the stakeholders and smart companies recognise the importance of those perceptions. The crisis is over when the stakeholders say it is, not when the company decides it’s over.”

If communication is sloppy and an organisation is seen to be reluctant to accept responsibility, then it can soon be seen as dishonest. Then it really does have problems. Boards and CEOs now need to realise that the expectations of stakeholders and the public are higher than in days gone by, so they have to be smarter and switched on when the worst comes to pass.

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