UK: Heller on Management - No excuse for room at the top.

UK: Heller on Management - No excuse for room at the top. - Leaving the running of a company in the hands of the chief executive may be a recipe for disaster. Teamwork is the only way forward for firms looking to the future.

Last Updated: 31 Aug 2010

Leaving the running of a company in the hands of the chief executive may be a recipe for disaster. Teamwork is the only way forward for firms looking to the future.

In the temple of teamwork, it seems the chief executive remains the highest of priests. At Marks & Spencer and Barclays, anguish over this supreme post has reared its ugly head in ways that should never have been possible. A well-regulated company never runs out of successors at any level, let alone at the top.

The success of a company should never revolve around the abilities, supposed or real, of one person. A smoothly functioning team of executive peers, whose chief is primus inter pares (first among equals), runs the show. If one departs, it scarcely matters who rises into the vacancy.

In real life, high priests such as M&S's Sir Richard Greenbury are notably more primus than pares. The pole position of these high priests is often reinforced and symbolised by their doubling up as chairman and chief executive. This duality is one that any expert in corporate governance (such as Greenbury himself) should rightly reject.

You could argue that, by splitting the roles and choosing between two apparently able insiders, M&S achieved a textbook result, except for the public messiness of the climax. At Barclays, nobody had prepared for Martin Taylor's departure at all, even though hoped-for wonders had not materialised and Taylor and his colleagues sometimes saw less eye-to-eye than eyeball-to-eyeball.

Neither company faced the succession issue squarely. Few boards do. Most are disinclined to drop the corporate pilot and, so, avert their collective eye from evidence of fallibility. Some chief executives dominate their boards with their experience and personality and won't let major (or minor) decisions pass against their wishes - including the choice and timing of their replacement.

This is wholly wrong in theory and practice. It raises fundamental questions. What is the proper role for the top echelon? Within that group, what part should the chief play? What about non-executives? Should they alone pick the leader? Should they recruit from insiders or spread the net wide to catch outsiders, such as Taylor?

Insiders can trump any outsider, however good. GE's richest reward for its famous succession policies has been Jack Welch's massive addition to market value. BP, after a boardroom putsch, found one excellent insider after another. You generally appoint outsiders only in one of two circumstances. First, nobody on the premises measures up. Second, a threatened company needs radical discontinuity.

In either case, the board has failed. Good recruitment, succession and development policies generate prime candidates a-plenty. In turbulent times, you want leaders who forestall threats by continuous change. You reject managers wedded to the status quo: people who are more interested in the glorious past than present harsh realities and inadequately concerned with what lies ahead.

Retailing and banking are united by a common threat: new competition that endangers organisations owning significant amounts of fixed assets. In future, either M&S wholeheartedly joins the e-commerce revolution (in which Greenbury is no believer) or it risks owning much unprofitable real estate. Either Barclays dives deeply into internet banking or its high-street logos may become tombstones. There are rivals (some as yet unborn) who will ride the electronic boom. Turning these strategic threats into opportunities is a prime responsibility of top executives. They are not paid to take operational decisions or second-guess the actual operators. Their role is to guide companies towards futures that stretch well beyond the end of their own careers.

Most British firms have failed in that task, judging by research from consultants AT Kearney. The numbers show that, in 1997, the real revenues of FTSE-100 companies were almost identical to those of 1982. Profits rose sharply, thanks to the one-off benefits of cost-cutting, but that isn't strategy. Strategy is about building long-term, repeatable, organic growth.

Non-executives are charged with seeing that all senior executives understand present realities and have ambitious future plans. They must be sure there is a workable, working plan for bridging the gap between present and future.

Only in rare cases, such as Rupert Murdoch, can this master strategy safely be left to one master. Otherwise, strategy is best formed collectively, and not monopolised by the senior executives on the board either. As for their chiefs, they should neither dominate the executive, nor vote on their own succession. There are precedents. They don't vote on their pay and perks (though you wouldn't know it from the rewards). Their advice on the qualities of internal candidates may or may not be valuable, but should be taken. That's all.

The bonus for those rare companies with genuine strategic leadership extending down through the company is that their operations breed good internal candidates wedded to change and growth. That makes it easier to produce progressive, timely and tidy transitions. Do otherwise and, very likely, the successor will never succeed.

Robert Heller was founding editor of Management Today.

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