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November 2006
Succession: maintaining shareholder trust
 Boards of large companies perform because of the complementary skills each member brings to the table. A major change of skillset or personality can scare shareholders, so succession requires meticulous planning. To find out more, we spoke to Jeff Harris. Jeff’s career began at Ernst & Young, from where, via Deloitte’s, he became Chief Accountant, then Chief Executive and finally Chairman of Unichem, including steering the company through the merger which created Alliance Unichem (now AllianceBoots).
“Shareholders want to know that if a senior executive retires, adequate provision has been made to fill the void. As a CEO or CFO in a quoted company, a very large proportion of your working year is carved out in communicating with the City so that they get to know and trust you. Unless your shareholders have that contact and confidence, you’re not going to get it reflected in your share price.” The City has very specific expectations, and can respond over-dramatically to surprises; the same mentality justifiably applies in privately held companies too.
Not only is the succession issue sometimes left too late, but the cult of the infallible personality CEO is dangerous. Says Harris “I think every Chief Executive goes off the boil. After a time you feel that you have less and less in the way of new ideas to bring to the business, and you must question yourself as to whether you’re the right person to take the company forward into the next five or ten years.”
“For a FTSE company, the average CEO stays in position for perhaps six years or so; there’s perhaps a broader variance for other board members. For a company’s share price, it is essential that the period of changeover, especially for the CEO or Chairman, is meticulously planned. For a matter of months if not years beforehand, the board must ask: ‘who can we bring through from elsewhere in the organisation, or from outside, who can grow through to take these jobs?’”
Often, of course, it’s an existing member of the management team who will fill a vacant role- but this too can be a personally challenging process. “I found the move from CEO to Chairman the hardest”, says Harris. “As CEO, you have all the levers of power- and you’re used to using them. Moving aside to a Chairman’s role, you must be prepared to relinquish that control and allow your successor the breathing space to make their own decisions, secure in their own authority. Nobody likes having a hawk on their shoulder at any level of business, and that’s true at the top, too.”
Harris sees interim managers as a useful solution to the succession problem. “Interims are hugely useful when you have a succession problem; for example where at the head of country, division or operating unit level you have nobody who can be immediately switched into the role. That may be due to a lack of immediate talent, but more likely (if the issue of succession has been tackled early enough) because the internal candidate needs a little more mentoring or time to grow into the job. Interims are usually very highly qualified for the jobs they come in to do, so they bring broad experience to the team, an external perspective, and often a useful industry insight. The team responds well because they know that the posting is short-term and the interim has no ongoing agenda.
Harris believes that non-executive directors also come into their own during such times of change. “Most importantly, a non-exec will have a perspective on strategy. They bring proven experience of strategic development in the businesses in which they have been involved, which generates stability. Non-execs are also adept team-workers; they collaborate and compromise.”
So boards do have a well-stocked armoury of talent to call on when a member bows out. Apart from truly unexpected personal circumstances, there is no excuse for a management team to find itself under-powered. But, like a fire-drill, succession needs planning and regular revision to ensure that first-choice candidates are nurtured into position long before they are actually required.
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