In the current economic climate there is an increasing tendency to turn to internal candidates in the search for a new CEO. They will have already have proved themselves in a senior executive role, will have a strong understanding of the complexities of the business, and be able to provide continuity in maintaining the company’s culture, often making it more cost-effective and less disruptive than appointing an external candidate.
In recent months we have seen this trend with a number of high profile internal appointments to the CEO position, including Burberry’s Christopher Bailey, Sainsbury’s Mike Coupe and Dixons Carphone Group’s Andrew Harrison.
It seems of the top internal positions, COO offers the best starting point for becoming CEO. According to a recent Forbes report, some three quarters of today’s Fortune 500 CEOs were appointed internally, of which more than half were promoted from COO. This is supported by research from EY which reports that 40% of COOs see themselves in a CEO or MD role within five years while 53% of their C-Suite peers believe their current COO is likely to lead the company in that timeframe.
Michael Cairns, former COO and now CEO of Publishing Technology plc, the leading provider of world-class software and services to the global publishing industry, shares his approach to preparing for and succeeding at the CEO role.
1. COO / CEO relationship
Your relationship with the CEO is the most important one you will develop within the company and you will need to get this right. If you cannot win the CEO’s trust and endorsement, the route to the top will be short. This relationship can be a hugely powerful when functioning at its optimum. By working closely together you can learn from the CEO from the outset which will allow you to identify where your skills need to be developed and work at improving these under his or her leadership. By setting out different roles and responsibilities early on you will quickly recognize how your skill set complements those of the CEO.
2. Thinking strategically
As a COO you are focused on the day to day issues of the business. Whenever possible you should find the opportunity to demonstrate your ability to think strategically. By supporting the CEO and advising on whether a strategy can be implemented at the operational level, you are helping them to define the approach that underpins their vision. More importantly, you are demonstrating your understanding of and ability to contribute to these strategic discussions, which, according to recent reports [actually by EY], some 70% of C-Suite executives consider to be an essential skill for the top role.
By thinking in this strategic way you will be more accustomed to establishing the long-term agenda and key target milestones of the business, helping you to instil the confidence of the Board once you are appointed.
3. Communicating externally
The operations role is traditionally viewed as internal, rather than client or stakeholder facing, however the increasingly competitive and tough economic business environment means that communicating operational excellence is becoming a requirement for many companies. The result is that today’s COOs need establish themselves as more than just an operations specialist, they also need to take on visible leadership roles and effectively manage client and key stakeholder relationships to perform their job effectively.
By developing these skills you will be prepared for the challenge of becoming the public face of the company when you will be required to communicate with and manage a far wider group of stakeholders, including investors. A recent report by the School for CEOs, which provides the practical tools for senior executives in the move to the CEO position, cited exposure to investors and external management and communication as the two aspects of the CEO role that required most preparation.
4. Avoiding micromanagement
A good COO will constantly review the efficiency of processes they have implemented into a business, refining as necessary to ensure optimum performance. As a result, on making the leap to CEO, you may find it difficult to take a step back and extract yourself from the minutiae of the day to day operations.
By surrounding yourself with a team that you can promote as you move up through the business, you will already be familiar with their working practises and you will have a thriving working relationship in the same way that you had with your superiors.
5. Gaining exposure to the boardroom
As a COO you may not be a board member or have direct exposure to the C-Suite and you will be unaccustomed to investing time and effort into building relationships that do not directly impact the day to day running of the business.
To compensate for this, where possible, it is important to invest in building relationships with the board as your dealings with them will be fundamental to your success as a CEO and you will quickly gain a good understanding of how they perceive you and your role or vision for the company, help you to gain their confidence.
At a public company, governance is also an area that you will have had little exposure to. At the CEO level, you may find yourself overwhelmed by regulation and paperwork and you will need to quickly free yourself from this. However, the real challenge will be around managing the softer, often complex relationships between the committee and board members.
6. Managing time
Another key skill you will need to develop will be time management. Harvard Business School research shows that CEOs spend up to 60% of their working life in meetings, with a further 25% on phone or conference call and at public events. As a COO working at the heart of the business, you may find the transition to a role where your routine lacks the structure and activity you are used to difficult to manage.
A School for CEOs, which trains senior executives to deal with the transition of stepping up to the top job, cites that 12% of newly appointed CEOs view self-management as the element of the job requiring most preparation. The CEO role also lacks the guidance and support that as a COO you may be used to and you will require discipline, strength of character to the ability to stick to your priorities.
It is a much considered fact In order to successfully make the move to CEO you will need to master the art of networking outside of the business. As COO you will have focused on managing internal relationships and politics to ensure the smooth daily running of the company but in the CEO role you will be required considerably increase your public profile.
8. Business qualifications
Recent reports suggest that there is a shift away from COOs with a more technical background to commercially aware operations executives with business degrees or MBAs, a qualification increasingly held by younger executives in their 30s and 40s. These qualifications provide a solid commercial background and help prospective CEOs become a well-rounded business person and prepare them for the more strategic requirements of the role, particularly those moving from an operations background.
MBAs are, however, often considered to be too grounded in academia and it can be argued that they don’t prepare future CEOs for the challenges of the boardroom and the management of the often difficult relationships at this level.
Although there are difficulties that may be encountered from internal appointments, research shows that CEOs hired from within deliver better business results and are likely to hold their position for a longer period of time.
Whichever route your business takes, the key issue is around succession management and it is more important than ever, with the increasing complexities businesses face, that your business has a process to identify and train motivated and qualified individuals to ensure the continuing success of the company.
Battling Covid collateral damage, Renault says 2021 will be volatile
By Gilles Guillaume
PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.
Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.
“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”
De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.
The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.
Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.
Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.
The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.
The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.
Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.
“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”
Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.
The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.
Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.
The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.
In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.
Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.
Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.
Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.
It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.
De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.
($1 = 0.8269 euros)
(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
Discounter Pepco has all of Europe in its sights
By James Davey
LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.
The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.
Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.
“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.
To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.
The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.
Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.
Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.
That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.
“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.
Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.
Sales rose 3% to 3.5 billion euros, reflecting new store openings.
($1 = 0.8279 euros)
(Reporting by James Davey; Editing by David Goodman)
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