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London - Many of the world's biggest companies are failing
to devise solid succession plans for the brand heroes seen as the engines
behind their businesses, investors say.
With Apple shareholders still reeling from last week's
resignation of Steve Jobs, fund managers are worried scores of other firms lack
the contingency plans to cope if scandal, illness or sudden retirement robbed
them of their corporate compasses, arresting growth as a result.
"Inevitably, if you are having to do things at speed
because of a crisis, you are not necessarily going to be able to get the right
or best person for the job," Emma Howard Boyd, head of corporate
governance at Jupiter Asset Management, said.
"From my view, it is important to have forward-planning
conversations on those issues when things are stable... because only then are
investors going to become better informed when a company finds itself in these
difficulties," she said.
Shareholders in Deutsche Bank and News Corp have recently
seen their shares wobble amid uncertainty over leadership, prompting calls for
clearer succession planning in an economy that punishes weak or uncommitted
management.
Recognising the potential damage power vacuums can inflict
on staff morale, the Association of British Insurers (ABI) is backing a
campaign to push detailed succession planning higher up the corporate agenda.
"An effective corporate governance regime sets out a
framework of behaviour that encourages a long-term attitude in company
management and among shareholders," the ABI said in its response to the
European Commission Green Paper on Corporate Governance.
"Europe's corporate governance standards can - if
rightly framed - make a contribution to financing economic recovery."
Simon Wong, a partner at investment manager Governance for
Owners, is one of a growing band of activist investors keen to see greater
public dialogue on future or emergency board structures, which can snap into
place when required with minimal disruption to strategy or brand.
Retailer Marks & Spencer missed this kind of detailed
preparation when a replacement CEO for chairperson-elect Stuart Rose could not
be found and investors paid the price, Wong said.
"Management appeared less able as a result of the
shufflings and reshufflings to pay as much attention to the business and this
hurt the bottom line," Wong said. "2008 was a difficult time for all
but they underperformed in marketing, there were reported product missteps and
the upset seemed to trickle through the group.
Failing to impress
"For me, succession planning is one of a board's key
responsibilities, but one which most actually fulfil rather poorly... While
they may review it periodically, say once a year, I don't think many of them
really take charge of it the way they should."
But even those companies dealing with succession issues in
good time may be failing to impress.
Deutsche Bank's cumbersome plan to replace retiring CEO
Josef Ackermann with dual CEOs Anshu Jain and Juergen Fitschen is seen by some
analysts as likely to sow discord at one of Europe's most important financial
institutions.
Wilco van Heteren, a senior engagement specialist in the
responsible investing team at Robeco, said his company was increasingly
involved in talks with companies with opaque succession plans to remind them of
the importance of clarity when filling senior vacancies.
"The research we have done shows quite clearly that the
level of employee satisfaction relating to the way succession is organised is
highly correlated with financial performance in the longer term," Van
Heteren said.
"It is crucial that companies make succession planning
a priority, that involves junior managers so they can grow into those executive
roles. Because if they don't, companies risk losing their own human
capital," he said.
HSBC Holdings, Europe's largest bank, is also no stranger to
trouble at the top. Last September it was forced to deny press reports that
former CEO Michael Geoghegan - who championed the bank's crucial Asian
expansion - had threatened to quit unless he was named successor to
ex-chairperson Stephen Green.
Delta Lloyd Asset Management Portfolio Manager Angus Steel
said international companies often struggle to give minority investors regular
executive access in the same way smaller firms can, and minor stakeholders tend
to be among the last to know when a management problem crops up.
Until this changes, Steel intends to put his clients' money
into a tight batch of under-researched, small cap companies led by individuals
who thrive on sparring partner relationships with their investors.
"It is difficult to predict the future in terms of
people and there does need to be more than one important person, but above all
you want a highly motivated and passionate CEO who is the leader and visionary
of the business," said Steel.
"If he or she is doing the job correctly, they will be
empowering and mentoring people and bringing all the relevant stakeholders with
them. That is a battle that requires much more transparency," he said.
