FTSE 100 companies face scrutiny on succession planning

Key investors have been told to press Britain's leading companies to explain how they would cope with the departure of their chief executive or other senior boardroom figures.

The National Association of Pension Funds (NAPF) has recommended that its members, who oversee about £900bn of investments, check boards' leadership and succession plans, especially at complicated companies with long-serving chief executives.

The call came as Lord Harris, the founder of Carpetright, said he would stay on as chairman of the struggling retailer until a successor was found, reversing his earlier plan to step down in September.

Leadership questions are also hanging over about 10% of companies in the FTSE 100, including some of its biggest names, such as British Gas owner Centrica, Prudential and Tesco. The NAPF has already highlighted such succession questions at Centrica and BG Group, the oil explorer.

Centrica has been hit by a series of departures, including chief executive Sam Laidlaw, who is set to leave by the end of the year. BG has been looking for a new boss since Chris Finlayson left in April after just over a year in the job.

Will Pomroy, policy lead on stewardship and corporate governance at the NAPF, said: "With many companies becoming ever more global and complex, management succession is a primary shareholder risk in a number of circumstances.

"The development of detailed succession plans, including an internal pipeline of talent, coupled with strong independent boards is vital in ensuring smooth transition. There is an increasing desire for greater reassurance to be provided via transparent reporting and open dialogue."

Other companies on investors' lists include Prudential, Britain's biggest insurer by market value, and WPP, the world's biggest advertising company. Tidjane Thiam, Prudential's chief executive, has been in the job for more than five years, which is roughly the average tenure for a top chief executive.

Thiam's career has spanned politics and business and in 2012 he turned down the chance to run the private sector arm of the World Bank, the International Finance Corporation. Christine Lagarde, the head of the International Monetary Fund, has said she intends to serve out her term until 2016 but Thiam is seen as a potential replacement. He is also in demand on the international business circuit after shaking off a rocky start to oversee rapid growth at Prudential's Asian business.

A fund manager with a large investment in Pru said: "I suspect it [the IMF] is probably not imminent now but I don't think he will be short of offers in the commercial world, either. That is why this [succession planning] has got to be kept under review. I think it would be good practice for all industries but it would be a requirement in the financial industry."

A Prudential spokesman declined to comment.

Sir Martin Sorrell has been the boss of WPP since 1985, building the company almost from scratch through a series of acquisitions. There is no sign of Sorrell, who is 70 next year, resigning. But with WPP still doing multiple deals, investors are concerned a successor could struggle to run the company, even though that will not stop some voicing criticism over Sorrell's pay packet at its annual meeting on Wednesday.

WPP's annual report said it reviewed 100 of its top people last year as part of its succession planning.

Shareholders in Standard Chartered question whether the bank is prepared for when Peter Sands stands down. Richard Meddings, the finance director and long-time heir apparent, leaves at the end of this month.

In the struggling grocery sector, Morrisons chairman, Sir Ian Gibson, has said he will leave within a year, raising questions over the future of his chief executive Dalton Philips.

Philip Clarke at Tesco faces questions about his future after what some investors think was a badly handled passing of responsibility from Sir Terry Leahy. Marks & Spencer's Marc Bolland needs his three years of heavy investment to start showing returns.

Tim O'Toole, the chief executive of FirstGroup, is also under pressure after John McFarlane, his new chairman, criticised the transport company's past strategy.

Investors are wrestling with demands from Mike Ashley, the founder of Sports Direct, to be paid a multimillion-pound bonus. Ashley is deputy chairman of the retailer but he is behind its strategy, and the board has indicated it needs to pay him more to keep him.

Lack of leadership planning can cause chaos. HSBC erupted into civil war in 2010 when the board refused to promote Michael Geoghegan from chief executive to chairman.

Shareholders are applying greater scrutiny after what some see as questionable decisions in recent handovers when long-serving chief executives have stood down.

At Burberry, Christopher Bailey, the chief creative officer, took over as chief executive last month with no previous boardroom experience. He replaced Angela Ahrendts, who had been in place for eight years.

Experian, the credit checking company, went against governance guidelines by deciding to elevate Don Robert to chairman after more than seven years as chief executive.

Robert will take over next month from Sir John Peace. Shareholders were unhappy that Peace was the chairman of Experian, Standard Chartered and Burberry.

The NAPF wants more long-term thinking at companies so that departing bosses do not leave their replacements with problems that should have been addressed before.

Clarke's defenders say he has had to deal with Sir Terry's legacy of neglecting Tesco's UK business while expanding abroad. Philips at Morrisons has refused to blame his predecessor, M&S's Bolland, but has said Morrisons had no online business or convenience stores when he joined.

Bolland has claimed that investment in M&S's stores and online operation was long overdue when he replaced Sir Stuart Rose.

Pomroy said: "As recent examples have demonstrated, the impact of management decisions often come to light post-departure. Ensuring executives are focused on creating a sustainable legacy is vital."

Powered by Guardian.co.ukThis article was written by Sean Farrell, for The Guardian on Tuesday 24th June 2014 17.41 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


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