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Seven's lessons in succession planning

 


The Australian Financial Review | May 22, 2013


It has not been a simple leadership transition, but Kerry Stokes’s approach to finding a new chief executive for his media empire highlights the importance of patience when it comes to succession planning. Stokes is not a man who has had to deal with a lot of management upheaval within his media empire until recently.

Peter Gammell has been one of his closest advisers for more than 25 years and David Leckie ran Seven’s television business for almost a decade with spectacular results. (James Warburton’s defection to Ten Network Holdings was an exception, but that worked out in Stokes’s favour in the end.)

That all changed a year ago when Stokes reluctantly accepted that Leckie was no longer up to the job after an extended leave of absence.

He called in his oil and gas buddy Don Voelte to step in and mind the shop until he could find a permanent replacement.

The appointment of Tim Worner as the new chief executive of Seven West Media (SWM) on Tuesday ended that caretaker process and put a man who lives and breathes television back behind the wheel at Seven.

What could have been a messy leadership change has become one of the media sector’s more orderly CEO transitions, at least in its second phase.

Seven never made any secret of the fact that Voelte, the former Woodside Petroleum boss, has been acting as quasi head-hunter as well as caretaker chief executive over the last year.

The candidates for the top job were always going to come from within Seven’s own ranks and Worner, who heads the company’s television business, was at the front of the queue.

The transitional arrangements gave the Seven board the time it needed to find the right person for the job, without having to look outside the company.

This is a contrast to Ten Network Holdings, which has hired from outside the company under conditions that never seemed to be on its own terms.

After his appointment was initially held up for 10months, Ten’s former chief Warburton was shown the door after just 13 months in the job.

Both cases highlight the pitfalls of bad succession planning, which is a hot topic in corporate boardrooms at the moment.

After years of neglect, directors are waking up to the fact that a well-executed leadership transition is a crucial component in keeping a company out of hot water.

This is partly due to a string of disastrous leadership changes, Australia’s relatively short CEO tenures and some serious management blunders in offshore banks in the wake of the global financial crisis.

The kind of forward-planning boards need to consider was highlighted with the changing of the guard at BHP Billiton, where new chief Andrew Mackenzie was recruited internally after being asked three times and then taking a year’s gardening leave.

Head-hunters say Australian companies started to take succession planning seriously about a year ago, roughly four years behind the United States or Britain.

There is also more focus on retaining top talent within a company than there was previously.

“It is pretty much No. 1 on the board agenda now,” says Clarke Murphy, the chief executive of global executive search firm Russell Reynolds, who is visiting Australia this week.

New York-based Murphy, who has hired CEOs for companies like MasterCard, Harley Davidson and Wells Fargo, has been meeting with chairmen and CEOs to get a handle on the local market. “Given what we are being asked to do, there is a huge amount of succession planning that has really taken hold in the last year,” Murphy told Chanticleer.

This is a contrast to a more defined process in the United States, which is about four to five years ahead of Australia. The SEC in the US has forced boards to put it on their agenda, recognizing the issue as a key business risk.

Murphy says the problems with poor succession planning here are highlighted by the high turnover of chief executives.

The average tenure of an Australian CEO is 3.9 years, compared to 5.2 years for the rest of the world, he says.

Australian companies are also recruiting externally more than their offshore counterparts. This is something that should not be happening if the right people are being groomed internally for the job.

When you have the kind of influence over a company that Kerry Stokes does, this is less of a problem.

However, boards often face resistance from chief executives who do not like to have their mortality questioned.

Boards also need to become more assertive to ensure chief executives are not just grooming someone because they remind them of themselves.

“The problem is if you are immortal, you may not be developing people who then leave because they think they will have an opportunity somewhere else,” Murphy says.

Worner, a former Seven News journalist from Perth who has risen up the ranks of Seven West Media, notes that television is an instinctive business where executives tend to operate by “gut feel”.

Voelte never matched this criteria, but brought what Worner describes as the “analytical vigour” the company needed at the time. Voelte has removed $100 million in costs from the company over 10 months.

Worner’s big challenge will be maintaining that discipline on costs and growing audience and advertising revenue share without sacrificing programming quality.

It is not yet obvious how he can achieve that goal, but he has outlined a strategy of more personalised advertising, while subscription television will play an important role.

Like every industry, technology will be a significant part of Seven’s future.

Worner’s strength is television content and he will now have to get his head around managing Seven’s print and digital operations. At 51, he has youth on his side and a talented management team to draw from.

Worner told analysts he did not anticipate any major management changes, except for finding someone to succeed him as chief of the Seven Network.

He did not rule out cutting the budget for content, which has always been under review.

There was also little detail about Worner’s short-term and long-term incentives, which Seven will release later in the year. His fixed remuneration of $2.6 million is the same as Voelte’s.

Worner will also be dealing with a powerful board, which includes Kerry Stokes and his son, Ryan, and former Consolidated Media Holdings executive chairman John Alexander.

It is still too early to judge how effective he will be as chief executive, but the latest management transition at SWM has gone according to Stokes’s plan, if not a little earlier than some expected.

Another two take a tumble

Transfield Services and Boart Longyear have joined the growing list of casualties in the mining services sector as management and the market belatedly come to grips with the impact of a slowing resources boom.

Transfield’s sharp profit downgrade, which sent its shares down 24 per cent to their lowest level in a decade on Tuesday, is a further wake-up call for an industry which has had its head in the sand.

Transfield chief Graeme Hunt was refreshingly frank in an interview with The Australian Financial Review, where he admitted there was a lag in realising what was actually happening in the market.

Profit warnings from Transfield and Boart Longyear follow downgrades from WorleyParsons, UGL and Coffey over the past week.

It is not the end of the world, but mining services firms now realise they cannot rely on maintenance-style revenue.

Some heavy cost-cutting as well as some nimble changes in strategy will be needed at a management level to adjust to a new era where miners like BHP Billiton and Rio Tinto will take a far more prudent approach to big capital projects.

Read more about what Clarke has to say about leadership transitions at afr.com.

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Seven's lessons in succession planning