Long reads

The generation game

6 Feb 2003 By Jane Simms

Matt Barrett, the Canadian chief executive of Barclays, says that if he doesn’t appoint a Barclays insider to succeed him when he retires in two years, he will have failed

The bank has suffered an unusual and unfortunate string of succession problems over the past decade. First, two senior executives who were in line for top jobs died suddenly within months of each other.

Then Martin Taylor, former head of Courtaulds and writer of the Financial Times Lex column, lasted five years as chief executive before leaving in 1998 after a rumoured disagreement with the board over strategy.

In the middle of 1999, American Michael O’Neill spent only one day at the helm before resigning for health reasons. The following October, Barrett, former chief executive of the Bank of Montreal, was parachuted in.

You can understand why Barrett is so concerned about fostering the continuity and stability that’s implicit in an inside appointment – particularly in a climate of growing concern that many blue-chip companies – particularly banks – are poor at nurturing their top talent.

A survey conducted last year by executive search firm Heidrick & Struggles found that many European companies were facing succession crises because, according to senior partner Peter Breen, they were “unprepared to cope with the sudden loss of their chief executive”.

When such a crisis strikes, companies tend to panic and make the wrong – usually external – appointment, with disastrous consequences. The new incumbent doesn’t make the grade, investors call for his or her head and the downward spiral continues.

“Most chief executive assignments conducted by headhunters are done in a climate of crisis,” Breen says. “Time is of the essence, because a leaderless company – especially one that’s in trouble – is potentially in play. But no one, including the search industry, gives their best under time pressure.”

The average tenure of a chief executive is now less than four years and falling. The result can be chaotic short-termism: each new leader makes changes and moves on before the full consequences become obvious, often leaving a trail of devastation and demoralisation in their wake.

The problems associated with external appointments can be exacerbated when the newcomer is from overseas.

There is a steady creep of “foreign” chief executives running our top companies, with 10 per cent of FTSE-100 chief executive posts held by non-UK nationals, compared with 2 per cent a decade ago.

Examples include Rod Eddington, an Australian, at British Airways; Ben Verwaayen, a Dutchman, at BT; Marjorie Scardino, an American, at Pearson; and Carlos Criado-Perez, an Argentinian, at Safeway. More recently we’ve seen American Todd Stitzer go to Cadbury Schweppes and fellow countryman Arin Sarun installed at Vodafone.

Of course, “foreign” doesn’t necessarily mean “failing”, and the trend may be a consequence of increasing globalisation. But some analysts see it as an indictment of the UK’s ability to grow its own talent or firms’ misguided faith in an exotic solution.

Given the fact that outsiders last for a shorter time than insiders – a trend presumably compounded when that outsider also has to adjust to the culture of a different country – such appointments need to be made with extreme care.

The case for inside knowledge

Some of the most successful companies, on the other hand, have strong management continuity and succession. Tesco’s chief executive, Terry Leahy, for example, started at the supermarket chain as a graduate trainee and was a protégé of its former chairman, Lord McLaurin.

Other board members have also been with the company for many years. And in the US Jack Welch, one of the most admired business leaders in the world, was chief executive of General Electric for two decades.

Welch was a company man who rose through the ranks of the organisation and continued many of the traditions of his equally long-serving predecessors stretching back nearly a century. His successor, Jeffery Immelt, is also a homegrown talent.

More than 90 per cent of the “great” companies that Jim Collins and Jerry Porras have identified in Good to Great (HarperCollins, 2001) are run by chief executives who, like Welch and Leahy, have worked their way up through the organisation.

“When they need a new chief executive, boards tend to panic, lurch and bring in a ‘saviour’,” Collins says. “This rarely works. You need executives who have ambitions for the company rather than for themselves.

These people tend to be insiders, rather than outsiders who can be bought. What’s more, you need to determine who should be in the business and in what seats before you decide where to drive, so the insider has a head start here too.”

In order to nurture this homegrown talent, companies need good succession planning. One of the reasons companies have had to look outside for chief executives in recent years is that succession planning went out of fashion in the early 1990s.

Wendy Hirsh, associate fellow in the Institute for Employment Studies at Sussex University, describes the traditional model as a process of identifying successors – both immediate and long term for key posts – and of planning their career paths accordingly.

This model was designed to operate in a stable business environment where structures were fixed and career paths were long term.

But, given the development of leaner corporate structures in the 1990s, combined with rapid change, strong competition and individual responsibility for career planning, many organisations felt that the old system of putting ticks in boxes was outmoded.

Coca-Cola threw out its succession plan when it realised that executives spent 250,000 hours a year filling out the forms in a system that was only 20 per cent successful. The problem was that many companies didn’t replace the system with anything better.

Succession planning may now be trickier, Hirsh admits, “but it was never easy. ICI set up its system just after the second world war – a time of enormous change.

Yes, increasing fluidity in the labour market means that succession management is more complex now, but because there is much more dialogue it’s also a lot more feasible. Today’s environment for succession management is actually quite exciting and dynamic.”

If press advertisements for heads of “talent management” are anything to go by, companies are starting to take succession management seriously again.

Steve Newhall, managing director of HR consultancy DDI UK, cites a survey that his company conducted in April: it found that succession management was the top business concern for the first time.

And, in the financial sector, succession management has been imposed by the Financial Services Authority as a regulatory requirement and the practice is now seen as a mark of good corporate governance.

Newhall says that increasing numbers of organisations are assessing their senior executive talent and turning to coaching companies to help them develop it. The emphasis has switched from old-fashioned replacement planning towards developing talent pools at different leadership levels in organisations.

“In the past, the HR function did have too much of a silo mentality here,” admits Roy Yates, director of management planning for pharmaceutical giant AstraZeneca. “But we are now taking a more holistic view and managing senior management talent to ensure we have people who can run the business in five years’ time.”

Other examples include GKN and, of course, Barclays (see below). Both companies seem to be taking note of Newhall’s dictum that 80 per cent of organisations with above-average financial performance have strong succession management systems.

But, while there are pockets of excellence, according to Hirsh, succession management is generally inconsistent because of the lack of continuity at the top that good succession management would help to rectify. “The battle for the argument for good succession management is won, but the practice has not kept up,” she says.

While succession management tends to focus on fast-track schemes for younger recruits, good practice isn’t only about nurturing graduates.

According to John Weston, head of director development at the Institute of Directors, it is a part of strategic HR management that’s about developing strategies to ensure you have the right people with the right skills in the right place at the right time to meet the company’s corporate objectives.

The appliance of scions

Chris Brewster, professor of international HRM at South Bank University, thinks “clever and careful” succession planning entails bringing in outsiders at level three or four and grafting them into the organisation.

“Most organisations do need a leavening of new blood at all levels of the hierarchy,” Brewster says. “But plucking someone from the outside and bringing them in as number one is short-termism of the worst kind.”

Others argue that there are times when it makes sense to bring in your chief executive and other directors from outside, as long as the process is thought through carefully. Outsiders entering middle management and above can bring with them new skills in HR, finance, IT and marketing, for example.

“In such cases companies are not only buying in one person; they are also using them to develop others – a way to accelerate functional capability, if you like,” Hirsh says.

A new chief executive might have expertise in cutting costs, or in mergers and acquisitions. What’s more, the outsiders’ objectivity can help them to make changes without being constrained by historical baggage.

Companies need to benchmark their internal talent against what’s available outside. Armed with sufficient objective evidence, they can justify any top appointment they make to both internal and external stakeholders.

While many companies have started to emphasise developing their own people, AstraZeneca is among those concerned about overdoing it. “The turnover in our top talent pool of about 1,000 people is only around 2 per cent,” Yates says. “We want to increase the diversity of our senior leadership population in order to unleash creativity.”

Similarly, the John Lewis Partnership, populated for many years by long-serving former civil servants and military staff, has been at pains to replenish its talent pool by hiring some more entrepreneurial and commercial directors from the likes of Sainsbury’s and Buy.com.

Although Hirsh believes many companies are working hard to redress the balance between their internal and external talent – a ratio of between 80:20 and 60:40 being the generally agreed optimum – it seems that some firms are still ignoring the value that’s under their noses while others are too intent on promoting from within.

The lack of strategic vision in this field is highlighted by a survey conducted by Nigel Nicholson, professor of organisational behaviour at London Business School. This has indicated that individuals who change companies regularly advance faster than those who remain loyal to their organisations.

“The best way to progress is to threaten to leave,” Nicholson says. “There is clearly something wrong with this state of affairs.”

Companies need to start living by their claims that their people are their greatest asset. And, as Newhall says: “If organisations spent half the amount they spend paying off failed chief executives on ensuring they get the right talent in the first place, we would have better-performing companies with better relationships with their staff and shareholders.”

Moving the goalposts

In English football there have been few examples of successful succession management over recent years. Most clubs, particularly those in the lucrative premier league, favour bringing in fresh blood and new ideas in times of crisis, rather than promoting internally.

Liverpool have the longest tradition of appointing managers from within. In 1959 the new Liverpool boss Bill Shankly appointed a strong back-room team to help him.

The group of four – Bob Paisley, Joe Fagan, Ronnie Moran and Roy Evans – all went on to manage the club during their domination of English football throughout the 1970s and 1980s.

Liverpool finally broke their long tradition of appointing former Liverpool players as managers in 1998 when they replaced Evans with a Frenchman, Gérard Houllier.

More recently, only Leeds United have successfully promoted a manager from within the club. David O’Leary, a Leeds player and coach, was groomed to take over the role of manager by his predecessor, George Graham.

O’Leary led the club through a financially lucrative period, but was sent packing as the result of a dispute with the board in 2001.

In the late 1990s Manchester United’s assistant manager, Brian Kidd, was widely tipped to take the helm once Sir Alex Ferguson retired. But, seeing no sign that Ferguson would leave the post soon, Kidd left to manage premiership rivals Blackburn Rovers.

Blackburn were subsequently relegated and Kidd was dismissed. United replaced him with Steve McLaren. But one of the problems of succession management is that people can lose patience waiting for the top post to become available. McLaren would soon also leave to manage Middlesbrough.

Hardly any clubs are benefiting from internal appointments to the role of manager. Of the 20 managers in charge of the English premiership clubs, only West Ham United’s Glenn Roeder was promoted from within. And only two clubs have managers that previously played for them: West Ham and Tottenham Hotspur, with Glenn Hoddle.

Football doesn’t seem to reflect the trend for internally promoted managers to be more successful than outsiders – as this issue went to press, Roeder’s job was in jeopardy as the result of his club’s dismal form this season. 

Jon Watkins

GKN gears up its golden group

GKN is an engineering company with operations in 30 countries. Over the past eight years it has adopted a more systematic and rigorous approach to management appraisal and development, a trend given renewed impetus by the recruitment of *** Etches, former head of HR at Grand Metropolitan, as its global HR director.

“We were concerned that, although we had a strong graduate recruitment programme, lots of good people were simply disappearing,” Etches says. As a result, GKN was recruiting too many people from the outside to fill vacancies higher up in the organisation.

"While you do need a leavening of outsiders to bring a different perspective and stop you becoming introspective, in a knowledge-based business such as engineering you need people who really understand the organisation and the technology,” he points outs.

GKN also wanted to develop people who could move across international and divisional boundaries. Working closely with line managers, the HR function identified 75 key roles, the skills needed for those roles and a talent pool of around 200 potential successors. This involved discussing high-flyers and opportunities to develop and motivate them.

The talent pool stretches down into the organisation and covers roles such as divisional sales directors, plant managers, quality managers, IT directors and operations directors in each of the different divisions.

Then, about a year ago, GKN started to identify “emerging leaders” – people at the top of the talent pool who were best prepared for a move. The company put about 25 of these through an assessment and development programme with HR consultancy DDI and will do the same with 40 more this year.

This group also went through a week-long Columbia Business School programme called “Emerging leaders”.

“You must be quite selective, because you have to be able to deliver advancement against the expectations you create,” says Etches, who adds that his challenge now is to help these high-flyers progress through the organisation.

Further down the hierarchy GKN has always been good at tracking its graduate intake, but, as Etches says: “The trick is to identify people who also have a lot of potential but aren’t graduates, and to pull them through the organisation too.”

The formal development process is augmented by informal networks and mentoring. A “buddy system” encourages people to stay in touch with others in different divisions. And each of the six executive committee members actively mentors three or four people in the company – a system that is cascaded further down the organisation. All graduates and fast-trackers have a mentor and “we are starting to build a mentoring culture,” Etches says.

While graduate retention in most companies is typically 50 to 55 per cent after five years, GKN’s record is closer to two-thirds and it is aiming for 75 per cent. Among its 200-strong team of executives, the ratio between homegrown and bought-in talent is approaching 80:20.

Adding interest to the talent bank

Matt Barrett, chief executive of Barclays, believes one of his key “deliverables” is to “unmask talent in the workplace, liberate it and give the board a chance to look at it”. When he retires he wants the board to be able to choose from three or four good candidates.

Historically the bank has had many programmes designed to nurture and develop talent from within. But, in common with many organisations, it moved away from this strategy in an effort to encourage people to manage their own career progression and make their own decisions.

This change of approach was in part a conscious attempt to get away from the classic “old-boys’ network” method of progression in favour of a fairer system based on an individuals’ merit, capability and willingness to put themselves forward for challenges.

But it led to “a vagueness” in people’s minds about what they should do if they wanted to progress in the organisation, according to Parvita Walker, talent director.

“People were unclear about the routes to the top, what skills and experiences they needed and the kind of people – in terms of diversity and qualifications – the bank was looking for,” she says.

A year ago Walker was appointed to identify the top positions in Barclays and focus on finding and nurturing talent to take on those roles. She and her team identified 100 key roles, and a pool of 300 that would feed those top positions.

“We are aiming to fill 75 per cent of these senior positions internally, but we also have to bring skills into the organisation to help us build the required talent,” she says.

The bank is also defining what “talent” means at different levels of the organisation. “Within the top 100 the definition is: energising, being exceptional and having ‘edge’,” Walker explains. “There are 10 descriptors under each of those headings.

For example, people need to be strong performers, have a strong track record and ‘live’ the culture. But they need something extra as well: the drive, energy and ambition to get to the top.”

Barclays is also working to spot talent further down in the organisation. “We were bad at that in the past,” Walker admits. So now new graduates, call centre staff, branch staff or people who joined the bank in their late twenties who are bright, streetwise and willing to learn are given the opportunity to get on the fast track.

“It’s about letting anyone put their hand up and say: ‘I’d like to be considered. What do I have to do to progress?’” Walker says. Once they register an interest they are steered online for an initial assessment.

At this stage the assessors know nothing about their sex, ethnic background or any other factor on which value judgments have traditionally been made. As people fast-track through the company, they can take advantage of networking and mentoring (formal and informal) that’s designed to steer them towards the right experiences.

Barclays runs a series of “talent panels” exposing fast-trackers to the most senior managers. “It is empowering rather than paternalistic,” says Walker, who is also conscious that the company mustn’t fast-track people too fast. “We want people to do good, solid jobs for two or three years before they move on.”

Progress so far has been encouraging, she says. The top 100 people are highly supportive towards the next tier of talent, while the 300 “value-creators in waiting have shown a huge appetite” for the opportunities open to them.

Further information

Jane Simms is a freelance journalist and the former editor of Financial Director and Marketing Business

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