Michael Critelli

Dave Lewis' Tesco woes: Are we all turnaround CEOs now?

FROM THE ARCHIVE: With the shortening of CEO tenures to an average of 18 to 24 months, the skills increasingly required in the role are effectively those of a turnaround CEO.

by Business Strategy Review
Last Updated: 02 Oct 2014

Originally published on March 15th 2007. As the scandal of Tesco overstating its profits by £250m unfolds and the retailer's share price sinks to barely more than half what it was a year ago, we offer new CEO Dave Lewis a few tips on what every turnaround titan needs to know.

Investors are putting greater pressure on new CEOs to achieve results quickly. But unlike the traditional turnaround specialist, who comes in with all guns blazing, cutting costs and restructuring, the modern CEO has the tougher job of delivering sustained growth as well.

The turnaround-plus CEO has to get a grip on costs while driving up revenues. This begins with understanding the company process, which can be something akin to a rollercoaster ride for the newcomer. The first 90 days of a new CEO's tenure is usually a honeymoon period, although this phase is shortening.

They first have to get to know the business, the people and the management team - exploration. This can mean a lot of pressure on the CEO to get it right at the beginning and deliver. Research suggests the roots of failure can often be traced to what happens in the first 15 days. The price of failure for the company is high - the cost of a failed hire can be four times salary and bonus.

Phase two, from three to 14 months, is the building phase. A team has been assembled and the focus moves to delivery. This can actually be experienced as an emotional low after the adrenaline rush of the exploration phase. Then there is the contribution phase after 14 months when results need to be delivered, when the pressure from the board is most acute.

As a new CEO the danger of isolation is very high. This can be made more complicated if the company founder remains chairman, as in the example of William Perez, who was brought in as Nike's CEO by founder Phil Knight. He only lasted 13 months (leaving with a $10.6m pay off). There are many such examples.

CEOs will need a handful of people they can trust from inside and outside the organisation. Some new CEOs bring a former colleague to help, like Home Depot's Bob Nardelli, who brought in Denis Donovan as head of human reosources.

The question of morale in an organisation must be tackled, as it impacts heavily on performance. In order to overcome resistance to change and improve morale, CEOs should remember that most people want to be on the winning team, and above all they want meaningful, enjoyable work at least as much as financial reward.

Telling the right story, or finding the good news, helps. Harvard Business School's Rosabeth Moss Kanter, who has studied the skills needed for successful turnarounds, says: "In turnarounds it is quite striking how much fresh leadership can accomplish by unlocking talent and potential which was already there but was stifled by rules, regulations and bureaucracy."

The modern CEO needs to balance their analytical skills with their emotional skills, and employ each at the right times. Michael Critelli, CEO of US company Pitney Bowes, says: "You can't be a dictator or someone who listens to everyone. You have to balance stakeholders and make independent judgements. People put you in the job to represent the collective will of the organisation, not to respond to every fad and fashion of the moment."

Rob Goffee and Gareth Jones, professors at London Business School, in their book Why Should Anyone be Led by You?, argue that leaders have to preserve a distance in order to see the full picture. They say: "When establishing goals, objectives and the rules of the game, distance is essential. Norms, values and standards need to be communicated as non-negotiable. These are the bedrocks on which operations are built." That requires "as much distance and formality as possible".

Communication is at the heart of the CEO role in dealing with day-to-day problems and particularly important in times of crisis. In terms of allocating time, Critelli of Pitney Bowles broke his down as follows: 5% on board and corporate governance matters; 25-30% on staff and annual one to one meetings with employees; 5-10% meeting industry officials, politicians and regulators; 10-15% on interactions with customers, plus around five days a year talking to shareholders, rating agencies and analysts. That means Critelli used more than half of his time communicating.

CEOs need to write their own legends to show that a new broom has arrived. While it is hard to make an immediate difference to the performance of the organisation, there are symbolic acts that show what matters to them. One of Greg Dyke's first actions as new director-general of the BBC was to get rid of chauffeur-driven cars for senior executives. Kanter says that changing a culture does not necessarily require elaborate programmes. "Someone like Greg Dyke at the BBC started with the behaviour of the 18 people who reported to him. The quality of the way people treat each other starts with the team at the top."

Rollercoaster Leadership by Kevin Kelly, Business Strategy Review Spring 200 - review by Joe Gill

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