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COMMUNITY UPDATE

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A good Board will ask leadership teams difficult questions about how a business is going to retain its competitive edge. Who are the new market entrants to watch? Where is the next wave of disruption coming from? In what ways will the company invest in technology?

On Day One of Criticaleye’s Non-executive Director Retreat, held in association with Brewin Dolphin and BDO, the debate focused on how Boards ensure the right conversations are being held with executives about how the business model is going to evolve.

Angela Seymour-Jackson, Deputy Chair of GoCo Group, discussed how GoCompare has evolved since it was created over 10 years ago. She told the audience how it started out as a disruptor, intent on shaking up the car insurance market, but as the company grew, getting acquired in the process by Esure in 2014, it inevitably became part of the mainstream.

“Its market share and profits were still growing. Everything looked okay, but arguably after 13 years that business was absolutely ripe for disruption and, as a Board, it was something we thought about,” Angela said. “There was no burning platform as things were going really well but, driven by the Chair, there was a sense of us needing to agitate about what was coming next and how we needed to stay ahead.”

The Board conducted a strategic review and decided to demerge the two businesses in 2016. “In doing this, we believed it would help us recruit new executives into the GoCo business and bring in people with different perspectives who would also help rejuvenate that disruptor mindset...

“They worked alongside people who had been with the business a long time, including the founder, so we still had the continuity you need to be successful,” she said.

It’s a good example of a Board being on the front foot. David Tyler, Chair of property development and investment company, Hammerson, and former Chair of Sainsbury’s and Logica, argued that more NEDs need to take that longer-term view. He said, “I am troubled by how some listed company Boards have become absolutely determined, whatever happens, to meet short-term shareholder expectations, rather than saying, ‘Okay, you want this business to be profitable and create value for yourselves in five years’ time? Well, we now need to take a big hit to the bottom line in order to drive change.’

“You’ve seen it repeatedly, for example, in the retail sector and other sectors too, where businesses have disappeared because they didn’t go to digital quickly enough.”

Tania Cabrera, Relationship Manager for NEDs at Criticaleye, said, “It remains far too commonplace for Boards to adopt a conservative mindset, where they play it safe and prefer not to take the strategic risks that a business is crying out for.

“When there is a healthy dynamic in the boardroom, the Chair and NEDs will encourage the CEO and senior executives to discuss the future of the business. As part of this process, they’ll also provide them with the air cover to experiment with and test out new ideas.”


Devil in the Detail

The Chair and non-executives need to be mindful of not treading on the toes of execs after changes to the business have been agreed. That said, they can’t be too hands-off as there should be a degree of oversight and assurance.

Rita Clifton, who has a portfolio of NED roles, including ASOS, Nationwide and Ascential, commented, “The big question to ask is, ‘What are you transforming to?’ It is important to paint a really clear picture of what the organisation is going to look like. That gets locked in people’s minds, unlike a more nebulous idea of change.

“You need a really clear vision, a clear plan and a roadmap that breaks down the transformation into stages. Then you need the human factor – the right people, with the right skills in place.”

According to Rita, a Chief Strategy Officer (CSO) can be invaluable when implementing large-scale change, as they bind various strands together. She told the audience, “You need the right people to explain the destination and what it would look like.

“Some people think that Chief Strategy Officers should be more like ‘M&A’ and financial specialists, whereas the most effective CSOs I have worked with really roll their sleeves up in a practical way and get stuck into all aspects of the business and customer insights. They are able to paint the picture and produce a ‘sight bite’ of what the business will look like in the future.”

Paul Lester talked about some of the changes he has been involved in since coming in as Chair of the FTSE 250-listed company, McCarthy & Stone, at the start of 2018. It was evident to Paul that the strategy of the company needed changing, shifting it from being a housebuilder to a developer, manager and owner of retirement communities.

He explained: “There had to be a major cost reduction programme and the business needed a new strategy. We changed the CEO, which tends to happen when the strategy isn’t working and the P&L is under threat. We promoted the COO and also brought in two heavyweight people – one to carry on building, but in a much more efficient way, and another with a much stronger service culture.

“The model before was to build it, sell it and move on – our model now is to look after the people in our facilities.”

The core theme to emerge across Day One was that the Board must be curious, challenging and prepared to take calculated risks. David said, “Time and again you can look back and find examples of where companies should have disrupted themselves early. By doing so, it would have given them the best possible chance to defend their old business model as they could have brought in new skills and thinking, allowing then to cannibalise themselves rather than letting the disruptors do so.”

Perhaps the biggest responsibility of the Chair and NEDs is to avoid complacency setting in.


Marc Barber, Managing Editor, Criticaleye

Experience the atmosphere of Criticaleye's NED Retreat 2019 in this short video

Next week's Community Update will look at the role of NEDs in tackling climate change and sustainability.