UK: We have the men for management but not the system.

UK: We have the men for management but not the system. - It's the way companies are run that stifles British top talent, writes Robert Heller.

Last Updated: 31 Aug 2010

It's the way companies are run that stifles British top talent, writes Robert Heller.

"Why are there so few professional managers in Britain considered capable of running a large industrial company?" Thus demanded The Times after the ousting of Professor Sir Roland Smith, calling its question "the most troubling" of the many raised by events at British Aerospace. How troubling it is depends on how far you accept its premise: that the nation does suffer from a grievous shortage of high-class management talent.

The difficulty in replacing Smith is actually far less convincing evidence than some full-time appointments of recent years: like those of Americans Bob Baumann and Eugene Anderson at Beecham and Johnson Matthey (the latter is now in the fire at Ferranti). Smith belongs to a dwindling breed that has seldom been particularly successful - the non-executive chairman whose talents are spread widely (or thinly, according to taste) across several boardrooms.

Few have the personality, track record and juggling skills to move easily from chair to chair. With few exceptions, the great business success stories, from Marks and Spencer to Glaxo, from IBM to WalMart, have been written by leading figures who worked full-time for their companies. The oddity about Smith wasn't his disappointment, but his appointment: could so complex a company with so problematical a future, be led by a part-timer inexperienced in its many businesses?

Smith has tremendous experience of business in general, of course: and these skills can transfer - neither Baumann nor Anderson came from the industries they joined. But their head-hunting was an indictment of the previous managements. Either they hadn't recruited people of sufficient calibre or hadn't developed the talents and opportunities of insiders until they were obvious candidates for command. The second failure is by far the likeliest explanation. When Baumann and Anderson were heading East, they were, metaphorically if not actually, passing many Britons going West.

Great American businesses - A and P, the supermarket chain, the Pillsbury food giant (after takeover by GrandMet) and now the beleaguered ex-King of Wall Street, Salomon Brothers - have turned (or been turned) to British top executive talent. As at Beecham and Johnson Matthey, these expatriates were thrown to the top in times of trouble. To quote one of the century's greatest entrepreneurs, Konosuke Matsushita, "Unsuccessful business employs a wrong management. You should not find its causes in bad fortune, unfavourable surroundings, or wrong timing."

That being so, the only cure for failure is to replace the wrong management by the right. In Matsushita's country, and in Germany, as The Times rightly points out, "It is almost unheard of for new leaders to be parachuted into large companies from outside." But, then, "wrong management" isn't so common. When Japanese giants slip, as in the current stock market and banking scandals, the faults are generally ethical rather than executive: like the Salomon bosses, their managements did, no doubt quite well, what should never have been done.

In Germany, conspicuous large company failure has been slightly more frequent, and replacements sometimes from without - Carl Hahn, parachuted into the top spot at Volkswagen from the tyre industry. A key difference between the Anglo-Saxon cultures and those of Germany and Japan is the thoroughness with which the latter's best companies nurture management and ensure good succession.

That thoroughness, applied to every other aspect of the business, also explains the lesser need for outside rescue. The Times wrongly links BAe's difficulties with a different cultural gap - that between a supposed sea-change in attitudes to industrial management created in the Thatcher years and the arrival of its younger beneficiaries at the top. There's little truth in the idea that the defence and car industries suffered alike from the same deficiency as the shipbuilders - over-dependence on government, and thus on managers good mainly at handling civil servants and ministers.

That particular criticism hardly applies to GEC, for example. As for the car makers, their decline (like that of the shipbuilders), preceded and precipitated the fateful mixing of their management with Whitehall. Much of that failure resulted, not from nurturing new managers who walked the shopfloor with less assurance than the corridors of power, but from far too little nurture. The talent was (and is) there - a classic proof being Rolls-Royce Motors, where a sitting management created a stunning rise from dismal to smashing performance, once free of the bankruptcy of its aerospace parent.

The besetting sin of all these businesses was that fatal product orientation which begins with worthy pursuit of engineering excellence and ends with unworthy blindness to the market. Why else did the civil aviation components of BAe produce excellent planes (VC10, Trident, 1-11, etc) that missed by miles almost every market save the semi-captive one of BEA and BOAC?

Behind this systemic failure lies a weakness in the system. In Germany, the two-tier separation between Vorsichstrat and Aufstand draws a formal line between supervision and operational management. In Japan, the separation is informal, but clearly drawn: the late Soichiro Honda, when he retired from Honda's chair, noted that neither he nor his long-time partner, Takeo Fujisawa, had seen any operational documents for years: Japanese leaders concentrate on future strategy, not present detail.

In neither Germany nor Japan is there any pretence, as in Britain, that the board can manage the company; nor in the US, either, since boards are customarily small and stacked with non-executives. But the American board has been fatally weakened by vesting its leadership and that of the operating management in the same pair of overpaid hands. Whoever invented the term "chief executive officer" (CEO) has much to answer for: it implies total supremacy and constant interference - a complete contrast to the obviously more effective Japanese system.

ICI has just moved, sensibly, to correct the similar fault in British arrangements by appointing a managing director to take over operational responsibility from chairman, Sir Denys Henderson. In the same way, many US companies now have a "chief operating officer" to back up the CEO. That marks a return to the good old days, when the full-time chairman was customarily the ex-president: his key duty was to keep a highly informed, experienced eye on his successor, who ran the company, not through the board, but through an executive committee.

The sea-change since those days, is the realisation that success can only come through pushing power much further down - where GE's Jack Welch (another Brit by birth, incidentally) is now forcing the pace in an ambitious attempt to change hierarchical, command management into the collaborative, facilitating variety. That process throws up the abler, younger managers and allows them to prove and improve their ability. Do that, and the supposed shortage of "professional managers capable of running a large industrial company" will be revealed for what it is: not a failure of supply but of the system by which such companies are run.

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