Succession is not always successful – stakeholder buy-in and support is critical.
Boards and CEOs have many defining moments, but the moment of truth is more often than not the announcement of the new CEO.
In recent weeks, Yahoo and Leighton Holdings chose to replace their CEO. The chance of a successful outcome in both instances will depend on key stakeholder buy-in and support. Boards are ultimately accountable for CEO succession and selection. The incumbent CEO is a key stakeholder in making this challenging decision. The challenge for the Board is forming a view on potential successors in a highly informed, transparent and robust manner that respects the incumbent CEO and other stakeholder relationships.
The recent Booz & Company analysis of CEO succession clearly puts the onus on CEOs to help Boards make informed decisions. Boards need to move fast to replace underperforming CEOs or address unplanned departures. Boards must work with the CEO on succession and ensure they have an intimate knowledge of potential internal and external successors.
The CEO should be personally prepared for transition. There should be a robust selection process involving key internal and external stakeholders. The CEO’s input is clearly important, but the final decision belongs to the Board.
With internal candidates often advantaged over external candidates, the benefits of early short-listing, coaching and systematic development are obvious.
Stakeholder support increases the chance of a successful transition. Early focus on improving stakeholder relationships pays dividends.
Stakeholder input, particularly from a robust 360-degree assessment tool such as that offered by The Leadership Circle, will ensure that subsequent coaching takes into account input from all stakeholders.
Ensuring stakeholder involvement and buy-in helps the incoming CEO and helps the stakeholders – it is a classic “win/win”. Honestly identifying development needs and opportunities is of enormous benefit to the potential CEO.
Ensuring that Board, peer, direct report, customer or key advisor input are sought and considered is important. However, sophisticated Boards must test for bias and for personal or political agendas. If a stakeholder expresses a contrarian view, it may be their problem, not the candidate’s. But if many stakeholders have the same issue, then it is probably the candidate’s problem!
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Looking at the Australian legal landscape lately I'm reminded of a popular management book you used to pick up at airport news-stands in the 1990s called How to Swim with the Sharks Without Being Eaten Alive, by Harvey Mackay.
With international players almost weekly announcing mergers or intended mergers, there are only three options for local firms: 1) Go global (merge), 2) get more specialised (find a niche) or 3) become irrelevant.
We are in talks daily with international players and are actively facilitating mergers. This calendar year alone we have met with over 10 international firms who have a serious interest in developing a presence in the Australian market and (with our assistance) are exploring a whole raft of opportunities.
We are also helping firms to upgrade talent. Over the next three years there will be extraordinary dynamism in the market as the top performing partners are targeted by the leading global law firms and the top-performing domestic firms. We're partnering with a select number of clients now who have significant plans to grow their transactional capability to position themselves as the elite transactional firms.
We estimate that there are approximately 65 $5 million-plus transactional partners in the local market. The global firms may attract as many as 30 of them in the next 24 months.
The question for the leading firms to ask is: What will happen if we lose 10-15 of our top transactional partners - as Clayton Utz did to Allen & Overy?
The answer is that they may be relegated to second-tier domestic providers to the blue chip organisations, while the global brands scoop up the lion's share of the premium transactional work, offering the global reach that increasingly global Australian companies now require.
My prediction is that of the top-tier firms (Mallesons Stephen Jaques, Freehills, Allens Arthur Robinson, Clayton Utz, Minter Ellison, Blake Dawson), only two of those brands will remain in their current form and structure in three years' time.
We are already seeing market segmentation, where firms are either seeking to become elite transactional firms, generalists, or specialists. We are seeing some wonderful examples of commodity specialists, for example, who have worked out new business models for running high-volume, low-margin work and which are highly profitable firms as a result. Deep specialisation can drive profit, even in a low-margin game.
One of the biggest forces in the world today is globalisation. It's amazing that globalisation has taken so long to reach our shores. Five years ago there were 25 premium European law firms operating in eastern Europe. Then the big international firms pushed through and reduced that number to two. Twenty-three firms either merged or ceased to operate in the top echelon of firms.
Going back nearly 10 years when our Executive Chairman John Colvin (then CEO of Blake Dawson Waldron) visited the top law firms in London and New York to tap into their thinking on issues such as globalisation, they had no interest in setting up offices in Australia or merging with firms Down Under.
The China story of course has hastened the arrival of the global firms as they follow the money to one of the few growth stories left in the world right now.
What’s the future look like? Only time will tell. However experience from other markets and industries suggest that the Australian legal services market is in for one hell of a shake up over the next few years.
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Simple awareness is often curative. And so it has proven since the Australian Stock Exchange mandated full disclosure of women on our boards. Numbers of women have been progressively rising, where just three years ago they were in decline. So far this year women have made up a third of new board appointments.
I noticed that the tally up to today (August 30) is 12.9 percent of directors on the ASX200. You can track progress in realtime on the website of the Australian Institute of Company Directors.
But shaming our corporations into appointing more women is only half the battle. Running “diversity programs” is also achieving little, as Sasha Scott of Inclusive Diversity in the United Kingdom has found. “We've been doing it for 10 years and it is not really getting us anywhere,” she says. Many UK organisations are coming to the conclusion that it may be time to try something different – so they have started to look at the role that “unconscious bias” is playing in their inability to drive forward.
Unconscious or hidden beliefs are attitudes and biases beyond regular perceptions of ourselves and others. And as the idea implies, we are totally unaware of our biases – even when we think we’re doing the right thing and carefully monitoring ourselves.
In any case, it’s not a matter of good people doing the right thing or bad people doing the wrong thing. It’s a matter of awareness, or consciousness-raising.
At Johnson, we are completing individual surveys to uncover our hidden biases and understand the impact of these biases on their behaviour and decision-making. It’s scary.
And over the past three two years, we’ve presented diverse candidates in 71 percent of all assignments, and placed diverse candidates in 31 percent of instances.
Through our Diversity Planning service we're committed to helping organisations improve their performance.
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