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Hard act to follow: the importance of succession planning - 20/11/14

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Succession planning is an essential part of building a business, but when should you start thinking about it? What measures should you put in place to support key team members, and is it always healthy to promote from within?

We talk to Warren East CBE, technologist and former CEO of ARM Holdings plc, and Richard Vellacott, CFO at Horizon Discovery Group plc.

Warren East joined ARM in 1994 to establish the company’s consulting business and later became VP of business operations. Within three years he was appointed to the Board as COO, before taking over as CEO in 2001. During 12 years at the helm, Warren built ARM into one of the world’s most successful technology companies.  He retired from ARM in 2013, appointing Simon Segars as CEO.  Warren is currently on the board of Dyson, De La Rue, Micron, BT and Rolls-Royce.

Richard Vellacott has been CFO of leading life science company Horizon Discovery since 2012 and was instrumental in the company’s IPO on AIM earlier this year.  Prior to joining Horizon, Richard was Vice President, Finance at CSR plc, with worldwide responsibility for finance – making significant contributions to the transformational acquisition and integration of NASDAQ listed Zoran Corp, product portfolio management, R&D budgeting and business investment / divestment decisions.

Warren, you are a great example of working your way up through a company to take the CEO role.  Is this something that you are keen to encourage & implement with members of your team?

Warren “It is a case of horses for courses.  It happened to work for me.  It was a combination of luck and being in the right place at the right time.  I always wanted to run a business. I was very keen to pursue that as a career path and I saw the role I initially went to at ARM as a stepping stone to do that.

If it is right for the individual, then yes. One of the problems is that there is only one CEO in a company, so the opportunities are limited.”

At what point in a company’s growth cycle should you start to think about succession planning?

Richard “Succession planning begins as soon you know that the business leader either stands in the way of future growth or that there will be significant disruption if they leave.  This can happen at any stage of a company’s growth cycle, but is emphasised at certain inflection points such as the transition from venture backed private to public company, expansion into new markets or at a time of M&A.  The demands of a business are constantly changing, and it takes a great deal of self-awareness for a leader to understand whether, as a business evolves, they continue to be an enabler or an inhibitor of growth – and a great deal of self-confidence to do something about it! 

The strategy for dealing with each situation is different.  Preventing disruption typically requires a plan for like-for-like replacement and can usually be handled by the business leader themselves.  Recruiting a successor to deliver future growth requires a different set of skills from that of the existing leader and is likely to require third party support.  Where a leader has become a bottleneck for activities, they should recruit teams below them that allow delegation of activities and scaling of the business.”

Warren “All the text books say that you must think about succession planning immediately.  When you are in the CEO role, succession planning is the last thing that you want to think about as you are completely swamped with the day-to-day running of the business. 

Within reason, however, the text books are correct. You do need to think about succession planning, but you need to be careful that you don’t set unrealistic expectations.  It is possible to create a nightmare of HR issues when you should be concentrating on running the business, so it is important to retain a common sense approach.”  

Are you influenced by the quality of the team that you have in place?

Warren “Yes, totally. One of the CEO’s jobs is to work on the team.  If you inherit a team that you can’t work with then you make changes.  As far as succession planning is concerned, if there is no succession there, you need to address whether the team is good enough to do the job in the first place.  If you have the right team, succession should suggest itself.”

Richard “Hugely, both in setting the vision of the company and then the ability to achieve it.  A company’s success is determined by the ability of the leadership team to give meaning to the company, envision its place in the world and then to build teams throughout the organisation who are trusted and capable of delivering.  Success in business is largely about good decision making and good execution, and high quality teams are required if you want to achieve this.  The ability of teams and individuals to adapt and learn is critical to growing an organisation – great teams are self-organising and able to reinvent themselves throughout a company’s growth cycle.”

What internal measures, if any, should you put in place to support key team members?

Warren “It depends on the individual.  Are there areas you need to address, in conjunction with your board or HR specialist?  What is the ideal?  Where are the gaps and how big are they?  Can we close those gaps or can we live with them?  It is almost like developing a product to fit a market opportunity.

One of the most important gaps for a CEO is leadership, so creating an opportunity for potential individuals to lead is key.  They can do everything absolutely right by the book – they are brilliant strategists, marketing & sales people.  But if they don’t tick the boxes with leadership then it is not going to work.”

Richard “Both personal and professional development are important to leaders of growing organisations.  Whilst enhanced technical skills are important as roles change, it is personal development that has the potential to deliver transformational change.  These conversations can be challenging but the potential rewards, whilst elusive, can create a step change in thinking about the business.  To achieve this, we have used internal feedback and external mentoring and really backed people who are prepared to put themselves on the line.”

Can you give an example of when promoting from within has worked well.

Richard “Horizon has often promoted people internally based on their personal qualities and potential rather than purely on experience and, by giving talented people early responsibility, they can achieve more than they ever thought possible.”

Warren “I was promoted internally, as was my successor Simon Segars.  ARM is a well-respected company, so we were not short of people interested in being CEO.  When we promoted Simon, the process was run in a way that satisfied the expectations of a company high up the FTSE, benchmarking against the best the global semiconductor industry could offer.” 

Is it always healthy to promote from within?

Richard “Business is always about trade offs and there is a balance between the benefits of promoting people that you already know versus the access to new skills by recruiting externally.  Recruiting externally brings the benefit of rapidly accessing new capabilities, challenging the status quo and bringing in people who have been there and done it – but there is always a personal risk associated with external hires.  Internal promotions have the benefit of already knowing the person, and the key is to back the people who have proven their ability to take responsibility, adapt, learn and deliver regardless of their role.  However, the downside is that the individual nearly always needs to learn new skills for the new role.”

Warren “It is company and circumstance specific.  If everything is going well, the business is stable and in a good place then you have to be fairly careful about bringing in someone new. If the business is in a mess, promoting from within is likely to perpetuate that.  It is important to get new blood into the leadership team but not to ‘throw the baby out with the bath water’.  You need to balance bringing in a fresh perspective with retaining what has made the business successful.  Common sense goes a long way.” 

Bailey Fisher Executive Search is an independent executive search firm specialising in technology and life sciences.  The company operates internationally from offices in Cambridge and London.  www.baileyfisher.com

This article appears in the December 2014 issue of Cambridge Business Magazine, p 56-59.

 

 

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