The Highs and Lows of a Leader

Comm update_25 FebrYou’ve navigated the floods to make the 06:30 flight to LA, then 24-hours later you’re hot-footing it to snowy New York to hammer out the details of a new acquisition. By Thursday you’re back in London for a video link-up with the European heads before sticking on your black tie for that dinner speech to your industry peers. Welcome to the high pressure world of the senior executive.

“It’s fairly relentless,” admits Martin Grieve, Senior Vice President of Corporate Business Planning at FTSE 100 consumer goods company Reckitt Benckiser. “We’re always on our toes having to think agilely and there is a lot of pressure that goes with that. But it also means I’m always doing something different.”

Those who don’t enjoy a little pressure need not apply. Richard Prosser, Chairman of car rental distribution provider CarTrawler, who was a divisional CEO at TUI Travel until 2010, comments: “I find that pressure creates momentum and it’s a characteristic of most of the types of businesses I’ve enjoyed being in… If you look at the world of sport, music, business, anywhere where there are high achievers, you tend to find all these people thrive on pressure.”

Andy Blundell, Chief Executive at outsourced customer marketing supplier Communisis, says: “However pressured you feel you must always appear calm and in control, because as soon as you appear panicked or stressed then that is a very bad message to send out across the organisation…

“I’m going to spend quite a lot of the next 24 hours in a shop floor environment and later… I’ll spend time with one of our top investors. So, you’ve got to be comfortable with a guy on a machine versus a guy who owns a substantial shareholding in the business, and everything in between.”

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If you’re going to thrive in a leadership role, then communication is increasingly regarded as a key skill. Brendan Walsh, Senior Vice-President of American Express’s Global Corporate Payments division in Europe, says: “Each week I spend a good amount of time talking to and meeting with our customers. There is a great deal to be said for meeting face to face. I learn more from a half hour meeting with a customer than I can from ten hours reviewing customer satisfaction scores on a Powerpoint deck.”

Added to this, is the need to know when to let others do the heavy lifting. Martin comments: “When I’m working on potential acquisitions it will take priority over most other things, so I’m then into quite brutal delegation… In December, for instance, I had to delegate [to my team] even more to give the right attention to a big acquisition project.”

The constant travelling is something that takes getting used to. Daniele Sacco, Chief Operating Officer for HR at mining concern Rio Tinto, says: “The tricky thing with this job is coping with the time zones. Being a global job and having fifty per cent of the business in Australia, it means when you have to do global video calls you have eight plus hours to Perth, while on the other side of the world you have Montreal and Salt Lake City.

“It’s very difficult to combine the two things and requires calls at tough hours of the night or day. There’s a lot to juggle and I’d say it’s more of an art than a science. It’s about choosing what to prioritise.”

Sue Kean, Chief Risk Officer at FTSE 100 financial conglomerate Old Mutual, which operates in South Africa, Europe and the US, comments:  “As we’ve moved into new territories, the nature of the risks around business conduct and regulation are different at the coal face, and they are often a bit more difficult to aggregate than, say, the financial risks… [so] I’ve needed to monitor how regulatory issues are evolving globally by using my wider network, in order to really understand the context.”

Pragmatism and a sense of humour will certainly help. Paul Hearn, NED at financial provider Orbian and formerly CEO of European investment bank Mizuho International, comments: “On my first day as a CEO I made a speech where I said I had three mantras: teamwork, honesty and fun. I’ve always been of the belief that you’ve got to laugh in the face of adversity… [of course] in the financial services industry, where regulatory and other pressures are so enormous, it’s been a bit harder to laugh one’s way through things.”

Tom Taylor, Chief Executive of the Agriculture and Horticulture Development Board, comments: “[Pressure] is not something that really bothers me and given that I currently hold down all three roles as a chairman, a chief executive and a non-executive director it would be impossible if it did. My GP recently asked me to undertake a twenty-four hour blood pressure monitoring test and he could not believe it when it [turned out to be fine], despite all the pressures.”

If you’re going to keep control of multiple deadlines and the fact that everyone will be looking to you for answers, the general view from those speaking to Criticaleye is that you need to be ruthless about time management, have a good PA and be disciplined enough to actually relax.

Paul says: “I was always a great believer in getting into the office early because if you get in at half six, by the time the world starts to whir into motion at about eight thirty you’ve already done a day’s work. That helps you deal with any unforeseen events that crop up and therefore you can manage the pressures of the day.”

According to Daniele, he’s never lost one night sleep in his life because of work. “I’m quite able to switch it off because the weekend must be devoted to family and friends,” he says. “A good friend of mine at HP [Hewlett Packard] once told me that there’s always more work than you can do, and so it’s important that you set up some boundaries and form some rules.”

Andy comments: “The real key is to be able to switch off from what you’re doing very quickly. So, for example, I might work from seven to nine on Sunday morning but after nine o’clock I then have a completely normal Sunday. I think when people have issues [it’s when] they can’t define that boundary and therefore the whole thing becomes merged.

“So, people would say to me jovially, ‘You’re a workaholic.’ I don’t accept that because I think workaholic has got a negative connotation, whereas I absolutely love what I do.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

5 Ways to Cement a Leader’s Legacy

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The decisions made by CEOs will ultimately define the legacy they leave behind. Richard Branson is the inspired entrepreneur. Steve Jobs the genius who changed our relationship with technology, while Jack Welch is famed for his no-nonsense management style. So what plans should a business leader be putting in place to ensure their long-term reputation is synonymous with a company’s success?

Firstly, it’s a case of accepting that the average CEO doesn’t have the time in charge afforded to the likes of Branson, Jobs and Welch. Kai Peters, CEO of Ashridge Business School and a Criticaleye Thought Leader, says: “A lot of CEOs aren’t in the job long enough to leave much of a legacy. Tenure is less than five years on average and declining… and research indicates that to make a significant change in an organisation it takes a little bit longer than that.”

So, from day one, you’ll be under pressure, balancing short-term priorities with long-term strategic goals. Criticaleye spoke to a range of business leaders to find out the five steps that need to be taken in order to make the right kind of impression as a CEO.

1)  Know Your Purpose

A leader who fails to articulate a compelling vision for a business will not last long. Andrew Heath, President of Energy at engine maker Rolls-Royce, says: “It’s about focusing on what really matters and finding that in the business that you’re running. You’ve got a responsibility to be the architect for the future of the business… [so] it’s a matter of focusing on that sense of higher purpose, the direction you’re trying to take it in and it’s about getting strategic coherence across the organisation.”

Colin Hatfield, Senior Partner and Founder of Visible Leaders, a consultancy that specialises in leadership communication, says: “I always get a little worried when I hear leaders saying that their ‘going in’ position is to build a legacy. I think they should start by saying: ‘I’ve got to do what I think is the right thing for this organisation’… Leadership generally is about making change happen and the CEO is the epitome of that.”

2) Be Realistic

Only so much can be achieved by a CEO at any given moment in time, particularly in the early days. Matthew Wright, Chief Executive of Southern Water, comments: “Whether it’s a cultural legacy; a [track record] of under-spending on asset maintenance or whatever, there is often a period where you’re trying to dig yourself out from under a legacy that isn’t entirely positive.”

Howard Kerr, Chief Executive at standards and training provider BSI, says: “As an incoming CEO, you’re always very conscious of what your predecessor leaves you. When I leave there will be something that my successor will have to work on that I haven’t necessarily addressed effectively. You’ve got to be very honest about what… you are leaving behind and recognise that no CEO or organisation is perfect.”

3) Get the Team Behind You

Teams will perform to a much higher level if they believe in what they’re doing. Peter Horrocks, Director of BBC Global News and World Service, comments: “The key is to convince people that the changes you want to make during your period in charge are not contrary to the central values of the organisation, but that they will help to sustain it and to make it more successful in the future… You can get into a situation where people see that someone is changing things in such a way or to such an extent that they react against it.”

Matthew comments: “We go on the road, meet all our employees and talk about how they can start to influence the direction of the company… [we’re] very clear about why we’re here, what our vision and mission are and what roles people have within that so that they can connect with the organisation and its objectives.”

4) Cast a Shadow

“If they don’t notice when you arrive, they’re unlikely to notice when you leave,” says Lucy Dimes, Non-executive Director at textile services company Berendsen and former UK & Ireland CEO of telecoms concern Alcatel-Lucent.

Andrew comments: “I try and put my personal mark on things, so I do a weekly blog in which I talk about the key strategic themes and priorities, such as health and safety, and the values we have around ethics and compliance. I talk about what I see is going well and where I see things not going so well, reinforcing positive behaviour and recognising individuals who portray the right values and who are being highly supportive of executing the strategy.”

For Lucy, a leader must be capable of engaging. “Did people remember it as a good era, a time when things changed and when the leader touched their lives rather than just operating aloofly over the organisation?’

“The leader sets a tone and casts a long shadow on the organisation, so you’ve got to make a personal impact. At the same time you want to create things that everybody agrees are right for the organisation and not just the way that [you] do things, so that when you leave they are seen as changes that everybody has played a part in creating.”

5) Build Long-Term Value

Sam Ferguson, Group CEO and President of EDM, an information management provider, says: “There is a short-termism in business… which means, instead of investing to create the right business for the future, many people end up maximising profits now so that the chief exec can get his bonus… I think there’s a bit of that in the UK that needs to be rectified, so that [CEOs] are more focused on building businesses with the long-term future in mind.”

When it comes to creating value, a CEO will make a lasting impression by getting good financial results and by leaving behind a capable team. Kai comments: “You should be investing for the long term. You bring talent in and you make sure you facilitate the capacity for people to talk to each other without you having to be the omniscient one in the middle. Between bringing in some new faces and getting people to talk to each other, hopefully you generate some intellectual property.”

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In the final analysis, a CEO should realise that their role requires them to be a steward, serving the company to the best of their ability before moving on. “No one individual is bigger than any organisation, whether they’re the chief executive or in any other position,” says Howard. “The company’s interests always trump those of the CEO.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

 

Five Steps to Achieve High Growth

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

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

1) Working capital and finance

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

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

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

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

2) Listening to the customer

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

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

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3) Evolving management & culture

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

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

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

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

4) The case for partnerships

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

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

5) International expansion

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

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

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

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

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

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

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

And who wants that?

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

Three Golden Rules for Aspiring NEDs

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Those executives who have gone on to build solid portfolio careers for themselves consistently cite the need to network feverishly, a willingness to learn and the ability to master their own ego. These three pillars are essential for success, especially as the weight of expectation and the competition for roles have increased considerably in recent years.

Unfortunately, directors are often surprised to find they’re not inundated with offers for NED positions once they’ve called an end to their executive careers. They shouldn’t be. It’s just not that easy anymore, which is why those who have made the transition freely admit to working hard to gain that first role.

Here are some tips on how to go plural from those who have done it:

1) Raise Your Profile

You must put the time in to network. Shyness is no excuse. Neither is arrogance. You have to start planning ahead – 18 months to two years as a rule of thumb – and spread the word that you’re interested in a NED role and you really do have something to offer. Cheryl Black, Non-executive Director of Southern Water, says: “Start to actively build your network before you leave your executive role. You need to let your network know that you are seeking NED roles… Once you come out of your day job, as it were, it’s much more difficult to get that first NED role and the first one is all important.”

Alastair Lyons, Chairman of outsourcing company Serco, says: “The biggest challenge is to get your first appointment. There is no alternative to working hard at getting oneself known and seeking to keep one’s options as open as possible. Alongside this, the other big challenge is knowing whether or not to take something that is offered if it isn’t quite what one wants.”

For John Ormerod, Non-executive Director at ITV, there is a growing tendency for boards to appoint the people they know have the necessary experience, which certainly makes it tougher to land that first role. “This often means people will need to draw on their previous experience to be able to capture their first opportunity,” he says. “It helps therefore if you can build a big network of contacts because people who know you more easily recognise the skills and experience that you do have.”

Alan Giles, Chairman of clothing retailer Fat Face, makes a similar point. “It’s easier to be appointed as NED in a listed company if you have current or previous experience as an executive director in another listed company. Many employers will allow you to take on one NED role, so you are best placed to begin acquiring some NED experience while in a full-time executive role. Although do bear in mind that it is quite time consuming, particularly when you are first appointed and becoming familiar with an organisation’s activities.”

2) Keep Learning

Clearly, if you’re at the top of your game as an executive then you’re no fool, but that shouldn’t lead to complacency about what it takes to be an exemplary NED. John says: “The role has got a lot more demanding since I started more than a decade ago and therefore requires people to be more skilful and experienced. Even back then, one of the things I did do was look for a charity that had perhaps a less demanding environment compared to a public company, but that had people on the board who were very experienced with governance and how boards operate, so I was able to learn from them.”

Bob Beveridge, Non-executive Director at mobile communications concern InternetQ, says you can’t underestimate the importance of standing out from the crowd in terms of knowledge, skills and experience. “You need to develop up-to-date opinions on the key issues in the NED world, such as on diversity, governance, board evaluations, ethics and so on.”

Cheryl comments: “You mustn’t think that getting one of these roles is simply a rubber stamp and you just turn up at board meetings and drink tea. It genuinely isn’t like that in my experience… There’s much more active involvement in the business being asked of NEDs, getting to know the senior team and spending time in the business.

“Currently, I see a lot of people seeking regulatory experience from NEDs but it’s more than that as, in difficult times, boards are looking for NEDs to come up with different ways of approaching business problems, whether that’s seeking to grow internationally or diversifying into a different sector. The role of the non-exec is always to encourage the executive team to think more broadly.”

3) Know Your Place

An effective NED understands when to keep their counsel and when to challenge forcefully. It requires a degree of self-control that may not come naturally to those who have been used to making decisions and calling the shots for a number of years. Nevertheless, it’s a skill that needs to be learned.

Alastair says: “A high level of emotional intelligence is needed… A good NED is typically low ego: happy to contribute only when he or she has something worth saying, with experience relevant to the role and business and who is willing to work hard, both inside and outside the boardroom.”

According to Alan, the principal quality to be a successful NED is to balance being collegiate and supportive with constructive and rigorous challenge. “It’s not easy to get this balance right, but it becomes easier with confidence and experience, and with thorough preparation,” he says.

Iain Robinson, Managing Partner of consultancy AMG and former Chairman of business travel company Reed & Mackay, comments: “A NED has to be truly relevant to the board they are part of and recognised by others – not just those on the board – as adding value that couldn’t be provided by someone else. In addition to this, a NED also has to recognise that they aren’t just there to offer opinions on an ad-hoc basis, but to be able to see further ahead than those tasked with running the business and to come into discussions with prepared opinions.”

Lines can be blurred when a NED still hankers for an executive position. “For anyone making the transition from executive to plural, it’s important that you no longer want to be an executive,” insists Neville Davis, Chairman of software and IT services company Amor Group. “If you do, you will be frustrated and will not be very effective in your job. It’s not your duty to tell the execs what to do or to second guess them. Your job is to advise, support, challenge and stimulate them.

“It’s important that non-execs understand that they’re not just there as policemen – their primary function is to ensure the business is as successful as it can be, then their secondary responsibility is in ensuring governance is correct and inappropriate risks are not taken.”

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In certain quarters, the expectations placed on NEDs have a negative connotation. That’s the wrong way of looking at it. The duty to the organisation and stakeholders should always be high – frankly, it’s a great time to take on a non-executive role as you can be a key influencer in aiding a business to reach its goals.

The competition for positions may be fierce but why should companies be looking for anything other than the very best candidates?

It’s a case of demonstrating you deserve your place on the board.

Five Reasons to Plan for CEO Succession

Earmarking successors for the role of CEO should never be something that’s left to the last minute and boards that persist in skirting around the issue are failing in their duties to stakeholders. Likewise, CEOs who are passionate about a business should be fast tracking the brightest talent so ready-made replacements exist when the time comes to move on.

The reasons for having a CEO succession plan are simple:

The tenure of the CEO is getting shorter;
It better prepares a business to communicate change at the top;
This is now a key part of the chairman’s role;
Done properly, it harnesses talent and promotes ambition;
It is in the long-term interests of the business.
In short, this is not something to be ignored or put on the back burner. Brendan Hynes, CEO of the soft drinks business Nichols, says: “This is one of the most critical issues on the board agenda, particularly for public companies. For a Plc, how well succession is handled can significantly impact on the investment decision for existing and potential shareholders.”

The responsibility for finding a successor falls squarely on the shoulders of the chairman. If the board has enough confidence in the CEO, then they too can be involved in the process, in an advisory capacity, as they know the role better than anybody else and it should be in their interests for their heir apparent to take an organisation forward.

Mike Tye, CEO of Spirit Pub Company, says: “It is a critical role for the chairman, but almost more so for the CEO to be creating their own successor. Part of the measure of the incumbent CEO is their ability to employ great talent that is good enough to succeed them… [and it requires] having a really high calibre executive board team and, just as importantly, the level below that too.”

That approach is also supported by Ian Toal, CEO of the cheese company Adams Foods, a division of the Irish Dairy Board which functions as a co-operative and therefore does not have a traditional chairman. An expert in turnarounds, Ian joined in July last year and has had to use his experience to streamline operations, cutting some £5 million of costs out of the business to put it on a profitable footing.

“When I leave in a year or so, the business will be in a very different situation as it will be fairly stable, and it will need someone to manage [operations] rather than to create masses of change,” he says, adding that his focus is very much on trying to groom internal candidates, each of which possesses different skills and styles, so they have a chance of taking on the CEO role once he departs.

Time and effort

Succession matters for both public and private companies. As everyone knows, the shelf life of CEOs is decreasing (and good ones are being poached) so the other side of this is that possessing a plan B falls under plain old best practice. Sir Brian Bender, Chairman of the London Metal Exchange, says: “A good company board will review HR issues periodically, perhaps even once a year, including recruitment, retention and succession planning for the most senior posts.”

Yvonne Sell, Director and Head of Leadership and Talent at consultancy firm Hay Group, says: “A CEO’s tenure is getting shorter while more regulation is demanding that boards keep closer tabs on performance. People know CEOs change but if you do treat it as business-as-usual, and you have planned for succession, with a CEO elect working closely with the incumbent some 18 months before the handover, it shouldn’t be too disruptive. If events do call for a rapid change, you need communication around why you are doing it.”

This is where it’s easy to make mistakes. Brendan says: “My view on succession planning is that it needs handling very carefully indeed. A regime change at the CEO level sends a very important signal to the market and it is vital that the correct message is conveyed when announcing a change. Ideally, this should be planned well in advance, with the reasons for the change clearly spelled out.”

There are no hard and fast rules about whether a candidate should be internal or external. Richard Ackroyd, Chief Executive of Scottish Water, says: “The important thing is that for every key role in an organisation you’ve got some possibilities for succession and ideally you’d like a good proportion of those to be internal, but there’s nothing wrong with external succession at the right time and in the right context.”

The primary driver is to find the best person for the job, but within the business there will be ambitious and talented individuals who expect a shot at the title. This is where diplomacy and tact is required because it’s easy to lose good people at this stage as, like Yvonne warns,“something has gone wrong internally when you have the scenario of the CFO assuming they’ll get the job and then they don’t”.

Ian says that, for him, continuity in the organisation matters for his succession planning at Adams. “The candidates are all ambitious and very good at their functional roles; I haven’t set them against each other. I’ve made [the process] competitive but not political or divisive. I’ve been quite deliberate in making sure that they are very close and that they interact with each other, but I’ve been clear that I haven’t made my mind up about which way this could go. There isn’t a timescale for my departure, which also generates a bit of hunger.”

According to Mike, it presents a great opportunity to shake things up. “Disruption can be a natural consequence of the succession process. Done the right way, highlighting possible successors can create healthy competition and high-charged performance. By contrast, if done in an insensitive way it can be potentially destructive.

“It’s important to be very straight with each candidate therefore and stress that their behaviour, in the way they vie for the top job, is critical. If you have a set of leadership behaviours they should be adhered to – either get it right or count yourself out of the race. You can’t avoid the internal challenge, but there is constructive and destructive competition.”

Alison Carnwath, Chairman of Land Securities Group, comments: “You should always do a job spec and discuss this with the nominations committee. The most important quality is leadership and a proven verifiable track record; a candidate should have a great desire to listen and learn as well as preach and direct.

“Integrity and hard work are always staple requirements, as is a stable home environment. If possible, a pleasant personality and appropriate board experience should also be sought as they will help to smooth the integration process – at least initially.”

There are no excuses for allowing a leadership vacuum to exist in a business. Besides, as Brendan says, “succession planning should be a core process for the whole business, not just the CEO role”.

Mike adds: “You can’t start this process too early either. If it’s planned succession, it should be anywhere between 18 and 24 months. Sadly, it can’t always be planned, so it’s a mistake to be unaware of the succession issues on an ongoing basis.

“And while one can’t always have an instant successor, to have identified who the successors are internally, and to have development plans for at least a couple of people, seems sensible.”

The way circumstances change so swiftly in business today, anything else would be reckless.

The Smart Money in Private Equity

If you bring private equity investors into your business, the contract you’re entering demands sustained high performance and good returns. Given that anything else will be deemed a failure, it’s surprising how many management teams accept PE backing without understanding how these investors operate and whether they are the right partner for delivering success.

The financial firepower that PE carries does matter, but there’s a whole lot more to it when it comes to growing a company. Nicola Mendelsohn, Executive Chairman of Karmarama, part of the PE-backed Karma Communications Group, explains: “It’s a really good model, if you get the right partners. It allows you to dream big and accelerate the ambitions you have and that can only be a good thing. But it comes down to doing your homework in the early days to make sure that the company and the people are the sort that you want to be tied to for quite a long time.”

In other words, the due diligence has to be done by management on potential PE investors and not just the other way around. There are questions to be asked about the lifecycle of a fund a PE firm may be drawing on to invest in a business, sector expertise and it never hurts to get references from portfolio companies (not necessarily those recommended by the PE firm).

Geoff Brady, Chairman and Non-executive Director of Harvey Jones Kitchens and until recently Chairman of Robert Dyas, says: “Probably half of the time, the board that is going out to get private equity investment does not necessarily understand the PE market. So [they don’t understand the need for] questioning what their normal churn lifecycles are, what fund it’s coming out of or when that fund is due for repayment, or the chemistry and whether you can work with these people… You need to talk to people they’ve done deals with before.”

According to Chris Hurley, UK Portfolio Managing Director at PE firm LDC, it is important for the management team to scope out how an investor responds when KPIs aren’t being met and dreams are turning to nightmares, as can happen in any business. “I’d want to know how a private equity house would deal with bad news. Would they be supportive if things got tough? If you ring someone up as a reference, and they’ve made five times their money on an exit, they’re going to say nice things.

“The best references, and the ones we give, are from people where things haven’t gone quite according to plan, but we’ve been supportive. It’s those companies, where we’ve seen them through the tough times, that we always use as the best references because they’re real.”

Iain Robinson, Managing Partner at consultancy AMG and former Chairman of business travel company Reed & Mackay during its sale to ECI Equity Partners, says: “A key question to ask the PE firm is around the specific experience and contributions made in successful investments with identical or similar businesses, and what criteria they are using to judge ‘similar or identical.’”

Launch pad

Once both parties are satisfied, the hard work can begin in scaling a business. Nicola says: “There’s no question that PE does bring a lot of strategic advice and support as well as the financial side. Obviously the money is a driver, but there is huge value in people that do this on a daily basis. I found their desire to make us more ambitious to be absolutely brilliant.”

The elements for achieving ultimate success (i.e. a lucrative exit) are the same as for building any good business. Chris comments that, certainly when evaluating a business to work with, there has to be a compelling profit story, a robust business model, a respectable market position and for management to possess both a strong track record and to be highly motivated going forward.

Tim Irish, Non-executive Director at the venture capital-backed healthcare concern Nexstim, comments: “There aren’t many young businesses with strong cash flow, and debt obviously increases the risks for your business, so patient investors who want a dividend or a crystallised sale at a later stage [are attractive]. You also get access to experts and networks, and a good PE or VC name backing you ups the interest in your company tremendously.”

In terms of exit timelines, market conditions in recent years have made trade sales or secondary buyouts harder to come by. Geoff says: “PE houses are taking a longer view. Whereas it used to be three to four years, I think now most of them have had to extend their investments because they’re waiting for some GDP growth and better news in the economy before selling.”

Horror stories do exist where businesses have been bought or invested in by PE houses at too high a price. As a result, they’re over leveraged and management and investors are simply running to stand still, unwilling to take the inevitable haircut.

Chris states that this must be watched carefully. “The business has to have the capital and cash resources to enhance its strategic journey by investing in people, products, plant and equipment or whatever it is the business needs. It can’t be about ripping every last penny out of the business to repay interest and to stay on the right side of banking covenants. It’s crucial you have a capital structure in place that doesn’t strangle the business and its strategy for growth.”

Again, the management team needs to take responsibility here when terms and conditions are being agreed to at the beginning. It’s all too easy to be blinded by year-on-year double-digit growth predictions and champagne visions of a wealthy post-exit lifestyle.

John Allbrook, Executive Chairman of IT financiers Syscap, comments: “People that I’ve spoken to very often find that the reality of private equity ownership is somewhat different to what they were expecting, so you need to go in with your eyes open. This isn’t just free access to capital.”

The rewards are there, provided you’re not blasé about the risks. “You can’t lock everything down before signing as the world doesn’t work like that, but there are more bases that you can cover than perhaps you think of,” says John. “The value creation strategy needs to be agreed, the board composition needs to be discussed early, alignment of interests needs to be determined and the exit strategy needs to be planned.”

If something doesn’t seem right, then walk away and look elsewhere as high-growth businesses will get backing given the money that a number of PE firms still have to invest. Paul Brennan, Chairman of cloud storage provider OnApp, says: “Go after the smart money. If they have limited experience in your sector, then they’re not going to help you very much [with the] industry experience and connections that could open doors… Just having good financial people inside the PE house is not enough.”

Derek Neil, Corporate Finance Director at professional services firm BDO, says: “They should bring more than just money to the table. Sector expertise is interesting as if they happen to have had a successful exit in the same industry, then they’re likely to understand it and the business you’re selling. Likewise, if you’re a retailer with five outlets and want to take it nationwide or international, then a PE house with a track record of going through that is likely to add value along the way.”

PE continues to be an effective accelerant for companies that are serious about achieving scale and growth, be that organically, acquisitively or a blend of both. From the perspective of management, it may be flattering to know that an investor is interested in the business, but you have to understand that, in the final analysis, the route to exit is what matters.

As Nicola puts it: “Your choice depends on how interested they are in your business. You want to know that they care about the opportunity as well as the very important question of whether or not they do really have the money.”

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