Great companies should train their own for the top

Anthony Hilton
22 Jun 2009

In what was a typical weekend, the three main stories in one Sunday newspaper were about the succession in some of our best-known companies.

At Sainsbury's, the battle to succeed Sir Philip Hampton as chairman seems to be coming down to a two-horse race between Niall FitzGerald, the ex-Reuters chief who is currently deputy chairman of Thomson Reuters, and John Pearce, acting chairman of Standard Chartered but better-known for his years in retailing, and particularly with GUS from which indirectly he came to be chairman of Burberry.

The second company was ITV where the suggestion was that Tony Ball, the one-time boss of Sky, had failed to get on to the short list in spite of - or perhaps because of- strong support from Legal & General and Fidelity.

Time will tell as other papers had him still firmly in the running, and he certainly seems the most charismatic of a rather motley bunch.

The background to this of course is that executive chairman Michael Grade is looking for a chief executive so he can step back from day-to-day responsibilities, and he may well leave the company altogether once a successor is in place.

Third, the perennial story about who will follow Sir Stuart Rose as chief executive of Marks & Spencer got another outing.

No new names are in the frame here - just about anyone who has survived more than five minutes at the head of another retailer seems to be someone's favourite - but apparently the search will begin at the end of summer, with an appointment early next year, paving the way for Sir Stuart to step back to a quieter life.

With the possible exception of Sainsbury's - where the chairman's job suddenly became vacant because Sir Philip was the Government's choice to be chairman of the Royal Bank of Scotland - the other vacancies were predictable.

That means that the board should have planned for them and identified internal candidates who were suitable successors.

It always used to be said that the key responsibility of non-executive directors was to ensure an orderly transfer of power from one executive team to the next.

These days, however - perhaps with all the other stuff non-execs are supposed to do - there seems much less emphasis on grooming internal candidates so the right one is suitably prepared to be brought forward at the right time.

Instead, the task of replacing a chief executive is tossed to headhunters, who have to bring in an outsider if only to justify their existence and fees.

This candidate has the advantage of being a novelty compared with internal rivals - which will appeal to boards who want to appear radical and innovative - and also of costing far more, which is attractive to headhunters on commission.

But it rarely serves the company as well as a properly planned internal appointment would have done.

There is also something unseemly about great companies like Marks & Spencer or ITV having to scrabble around looking for someone to run them.

It ought to be the case that the successor to a chief executive is an internal candidate unless there are very exceptional reasons to look outside, because only an internal candidate can really understand the business and how it works.

The businesses with a track record to die for - Tesco being the obvious current example but also less high-profile businesses such as National Grid, and Rolls-Royce and of course Marks & Spencer itself up until the retirement of Sir Richard Greenbury - promoted internal candidates as a matter of course because they understood the need to have someone steeped in their culture.

There were many others who also thought this the obvious way to ensure continuity and competence at the top.

Transplants from outside may know how to manage but it takes them a long time really to understand the ethos of what they are running and they frequently make very silly and costly mistakes before they have got that far.

Others never understand - which is why so many in the FTSE 250 have such undistinguished leadership.

Headhunters and those boards who appoint them because they have failed to put in place a proper succession policy have a lot to answer for.

Keep speculative money off our oil

The Government seems to have woken up to the danger to the economy of a steadily rising oil price.

Last week, the price went up to $72, less than half the peak of last summer but nevertheless significantly above the $40 it breached in the low point earlier this year.

The Government is surely right to be concerned because the last thing the global economy needs in its current fragile state is an energy-price shock.

Jim O'Neill, the Goldman Sachs economist, has often pointed out that when oil hit its peak, the effect across the world was in many ways as severe as that caused by the credit crunch. Likewise, when oil fell, it delivered a massive boost - but that is being rapidly dissipated as it climbs back up again.

Yet it is hard to see what the Government can do about it, because though the Saudi-led Opec is painted as the villain for seeking to curb production, it is hard to believe these curbs are driving the price, given the high stock levels everywhere.

It seems far more likely that some of the world's speculative hot money is on the move again. Speculation drove oil to its peak last year, and nothing in the world has changed to stop it happening again.