Inside track: Next in line

Since the turn of the year, Wagamama, Byron and PizzaExpress have parted company with their chief executives, whilst other smaller groups, including Aubaine, We Are Bar, Polpo, Wahaca and the Azzurri-backed Coco di Mama have looked to restructure management teams or in the latter’s case part company with founders. It is understood that further leading groups are looking to make management changes over the coming months.

Earlier this year, AlixPartners second annual Private Equity survey found that more than half of chief executives (58%) in the US were replaced within two years of a business securing private equity investment. The research, which surveyed more than 100 private equity groups and company chief executives, found that 73% of chief executives were replaced across the lifecycle of an investment. More than half (55%) of private equity owners said that a “lack of fit with strategic direction” as the reason for replacing a chief executive.

Russell Adams, managing director at AdMore Recruitment, said succession planning remained important but that external appointments would continue to drive the sector forward.

He said: “The hospitality sector, and particularly the biggest companies, has dramatically increased in complexity over the last 10 years. That increasingly means firms are looking outside the sector to recruit top people. I don’t think that’s necessarily a bad thing because it shows how highly valued the industry is that some of the very best people in business are attracted to it.

“If you look at the retail sector, for a long time there was a culture of recruiting from within and you could argue that it contributed to the problems the supermarkets had a few years ago. It’s important to bring in fresh ideas and new ways of looking at things.

“Of course, you can only bring in someone from outside if you have an executive team around them with a good knowledge of the industry and the business, so internal promotions remain very important.

“What’s been interesting about the recent spate of departures is that it has not necessarily been the companies you would expect. There are so many different reasons why someone would leave a job but even at really successful companies I think there will be people looking at the comparatives that are coming up and wondering whether they are better off making a sharp departure with their legacy intact.”

The view from Tim Clouting, partner at recruitment firm Savannah Group, is that there isn’t a problem with succession planning, it’s a situational thing which is purely connected with how the trading environment has suddenly become much tougher.

He said: “Private equity firms are probably holding investments which now seem overpriced and they’re in a much tougher market than when they bought, which will not only affect growth trajectories they had planned on, but also the multiples they can expect, and therefore someone/somewhere will be losing a lot of money. The most frequent scapegoat will always be the chief executive.

“Hence, chief executives are feeling the pressure from their chairmen or investors, and the PE houses are feeling pressure from whoever their backers or paymasters are – and this type of pressure often results in people being sacked or being placed in situation where they feel they’re position is untenable as they’re being told to do things which aren’t in the best long-term interests of the organisation and which they don’t agree with (but will help prop up the numbers in the short-term) or asked to hit targets which simply aren’t achievable in today’s market, so their situation becomes untenable.”

“Given private equity firms hates risk, in someone like Wagamama’s example, they obviously decided someone like Jane Holbrook was more than capable of taking on departing chief executive David Campbell’s role (and potentially save a big salary/package in letting him go). With Byron, the business is pretty small in comparison so often there’s quite a big gap between the chief executive and their direct reports, so it’s naturally unlikely they’ll be a successor from within. With Pizza Express, it might just be that the backers feel more comfortable with one of their own team running the business. Clouting said: “So every single example will probably happen for slightly different reasons, often also depending on where a PE backer might be in their own sales cycle in a particular fund, as to what decision they might take.”

“Hospitality goes through phases of “obsessing” about retail/FMCG skills without recognising how different hospitality/restaurant businesses operate and more importantly make key decisions, according to Flemming Hansen, director - Leisure, Hospitality and Travel at recruitment firm PSD Group. He said: “Retail, bar a few exceptions, is a product and merchandising business, fmcg marketing & product led, hospitality is experience and service led, you will forgive great service with average food more easily than great food and poor service. The levers to get it right are very different. Three of the most successful businesses Pret, Azzurri and Cote are all run by chief executives who to a greater or lesser extent came from within the businesses. Rob Papps, managing director at Nando’s UK & Ireland, is home grown.”

Hansen said that brands of scale have no excuse for getting succession planning wrong as they have the resources to develop internal candidates. He said: “The biggest challenge comes with the mid-cap founder-led businesses, Byron being a prime example. I think it is a big challenge for growing brands and their investors to get succession planning right.”

In the view of Jon Midmer, founder and managing director of executive search firm JMA, the leading hospitality players will continue to look a) outside the sector, b) outside the UK and c) outside of operations for their chief executives.

He said: “Why these trends? Hospitality lacks depth of experienced, global leadership that bigger companies, be they private equity or plc need; there is a lot of good UK talent abroad, and all searches now need to be transnational; and in the current uncertain climate, ‘figuring out’, not just ‘rolling out’ is required. Operators are good at the former, not always the latter, which is why fewer and fewer internal operators will get the top jobs. The rare exceptions are the likes of Steve Richards and Robin Rowland who, having worked in private equity, are strategic, financially astute operators.

“Meanwhile, as far as talent sources are concerned, in an increasingly consolidated industry, the likes of Whitbread, Mitchells & Butlers and Greene King are doing away with P&L accountable divisions, so there is in effect one P&L accountable job, the group chief executive’s. In years gone by, an up-and-coming executive could be tested on divisional managing director roles, which were “full GM” roles, not matrixed, as many are today. This trend has been driven through the need to slim down structures and thin organisational levels, in response to cost pressures.”

So could we be faced with a missing generation of leaders? Not according to Clouting. He said: “It might just mean it could take a few more years for people to rise to the top. Unless you have existing experience of being a chief executive and everything that that entails these days – day-to-day running a business, buying/selling or IPO discussions, refinancing, M&A, growing and streamlining at the same time – it’s a big ask for a first time chief executive, so many could feasibly feel they were being set up to fail in the current environment. A lot in life is about timing and a bit of luck, and if you take the reigns of the right business at the wrong time it’s a horrible place to be.

“At the same time, you do face the issue that you can never gain the experience to become a chief executive until you’ve actually sat in the seat, so someone/somewhere has to take a calculated risk on you. You get someone like Danny Briethaupt for instance, who you could argue was probably over promoted, and that move might well harm his career long-term. So you have to think very long and hard about making the move in to the hot seat at this point in time, as it’s your name/reputation that will be tarnished with potential failure even if it might not be of their own making.”

It’s a thorny dilemma, but one which we’ll only see more examples of over the next 18 months. Hold on tight.