Press Coverage
Grey hairs make good heirs
Business NewsXtra - 2002-04-26
Top-level jobs are no longer the preserve of young turks, says Neasa MacErlean. Recession-hit businesses are now seeking the safety of more experienced candidates
Sunday February 17, 2002
The Observer
Expect to see a few older and safer pairs of hands being appointed to the top jobs this year. The type of people being picked to run businesses in 2002 is likely to be significantly different to those who were recruited a year ago. Companies are less enthusiastic about the young go-getters, opting instead for wiser and - in many cases - older heads.
The headhunters are quite clear that there has been a change. 'There is more of a demand for sensible people with grey hairs,' says Zena Everett of Perriam & Everett. Since May or June last year there has been more demand for people who have worked in this environment before - and who have got the ability to maintain the vision and introduce cuts but without slashing the research and development budget.'
The sort of person who is now in demand is more in the mould of Allan Leighton, the 48-year old former chief executive of Asda who has just been appointed to the hot seat of chairman at embattled Consignia. Leighton is also chair of Lastminute.com and a member of many other boards.
'It's tougher to manage in a downturn than in an upturn,' says Donald Macleod of Korn/Ferry. 'We're looking at types with a pretty strong financial acumen rather than the visionary, business-building acumen.'
Companies become far more interested in the type of people they are recruiting and promoting at top levels in difficult times, says Steve Newall of human resources consultancy Development Dimensions International. 'We always see an upsurge in demand for our assessment services in times of recession,' he says - pointing to a 200 per cent increase in this field compared to 12 months ago. 'Companies start to focus much more on the quality of the people they are keeping.'
But, for many organisations, the selection of the top people is a serious weak spot. Shares at UBS, Europe's third largest bank, dipped nearly 5 per cent in December at the news that the heir apparent, Luqman Arnold had been pushed out by the chairman, Michael Ospel.
BT's shares lost 2 per cent in value in the same month as the City registered its lack of enthusiasm for Ben Verwaayen's appointment as chief executive this month. Many of the troubles at Marks & Spencer and Sainsbury's over the last few years can be attributed to their inability to deal successfully with issues of succession.
Recruiting the wrong person or having a rough transition to a new chief executive can be enormously costly. 'The average first-year cost of a new senior executive is in the vicinity of $750,000 [about £500,000]', according to US research from Development Dimensions.
This cost includes their pay, recruitment costs, headhunting fees and training and relocation costs. But there are also less obvious costs - the time it takes them to learn about the new business and, as often happens, the salary costs for the other people they bring in with them. And these costs look even higher when taking into account the likely length of their tenure. Senior executives are lasting an average of 4.7 years in a post in 2001 - compared to eight years in 1991, according to US outplacement consultancy Challenger, Gray and Christmas. And that's an average - as Everett points out, this means that much of the time these people are only holding the jobs for a couple of years.'
Caroline Swain of outplacement consultancy Lee Hecht Harrison says that the managers are themselves getting tired of their traditional roles: 'More senior managers are saying no thank you to corporate life and going into interim management.'
An obvious solution is for companies to spend more time on succession management. By grooming potential high-fliers in their twenties and thirties, organisations can have a wide choice of able leaders in their forties and fifties.
Indeed, consultancies such as Development Dimensions International are heavily promoting their own succession services - helping companies pick out the people with potential and then coaching them, over several years, for the top.
As Steve Newall suggests, it is easy for a chief executive to spot the talent of his finance director but harder to see the abilities of the third in command at the Newcastle site: 'It can be very difficult to decide what constitutes talent in a global organisation: there are so many blind spots. In many organisations, when you are a little bit away from the centre, the top people haven't a clue what talent you've got.'
The best road to promotion in most large businesses is to sit close to the centre - to belong to the Institute of Chartered Accountants in England and Wales, for instance, whose members regularly become chief executives and who hold 56 of the FTSE 100 finance director posts.
But if the solution is so easy, why do so few companies handle their succession issues well? Businesses such as Unilever, Cadbury and Boots, where succession has generally gone smoothly and effectively, are not in the majority.
The answer may be that chief executives and boards - who have prime responsibility for succession - are often reluctant to make the selection and grooming process more transparent and scientific.
Just as Baroness Thatcher expressed her wish to remain the back seat driver through John Major's premiership, so some chief executives will hope to maintain some sort of power through their successor. And the more Machiavellian chief executives will feel that they maintain more control over the other executives if they can offer or remove the promise of succession.
Political commentator and former Conservative MEP Brendan Donnelly sees a parallel, on the succession issue, between senior politicians and captains of industry: 'They may prefer to leave the people underneath them squabbling. Sometimes they cannot face up to their own mortality. And sometimes they think that the people below them are simply not as good as they are,' he says.
'It also takes an unusually philosophical and self-confident person to appoint someone as a number two who is very bright and will always be compared to them.'
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