Replacing the head of a business will never be easy, but to make the transition as smooth and successful as possible, planning early is the key. Charlotte Dennis-Jones reports

Irate investors, press criticism, accusations of lax corporate governance… Marks & Spencer executive chairman Sir Stuart Rose knows better than anyone how tricky succession planning can be.

Finding an heir to a retail chief executive’s throne is a tough job, but it is remarkable just how badly some businesses approach it – if, in fact, they approach it at all. Rose’s promotion may have gone down like a lead balloon among investors but, for all the condemnation he has received, at least it shows his mind is on the task at hand.

Former Asda chief executive Archie Norman’s handover to Allan Leighton in the late 1990s is widely regarded as one of the success stories. Norman says that part of the problem is that people evolve in ways you can’t always foresee. “The idea that you can work career plans into a fast-moving organisation is not possible,” he argues. Instead, businesses need to build up their talent pool constantly so there are several options. “You need people who can play a number of different instruments in the orchestra,” he adds.

Lesley Uren, chief executive of talent management consultancy Jackson Samuel, says that many retailers’ approaches to succession planning involve little more than “putting names in boxes, when those names have no intention of sticking around”. Furthermore, Heidrick & Struggles managing partner Fran Minogue adds: “A lot of HR directors aren’t strong enough to drive the right succession planning processes within the business.”

Much of the reason behind the commotion at M&S comes down to the fact that Rose has made clear his wish to recruit an internal successor. His promotion to executive chairman will, he believes, take him from being a “hands-on, chief-cook and bottle-washer” leader, to one who is better placed to oversee the development of potential internal candidates.

Providing that the business is in a strong position and a turnaround is not required, a smooth, incontestable promotion from within is often regarded as the Holy Grail of succession planning. Retailers should look to the example set by New Look last month, when it announced that its former managing director of marketing, operations and international Carl McPhail will step up to chief executive, as Phil Wrigley moves into a chairmanship. But emulating that is not easy.

What businesses certainly don’t want is a situation like the one at DSGi last year. When chief executive John Clare retired, there was a gaping hole for about six months before present leader John Browett came on board after being on gardening leave from Tesco.

Team talk

Uren says that the most important step that chief executives and chairmen can take is to be absolutely certain about “what is going on inside the heads of their senior people”, adding: “The quality of conversation about this is often very poor.” All too often, boards rest on their laurels. “There are a lot of assumptions that go about: assuming someone is right for the role, assuming someone will stay at the company and step into the role. But you can’t work on assumptions when it comes to dealing with people,” she says.

Candidness will help determine whether bringing in people from outside is necessary and, if it is, headhunting can begin in advance. A good example is Morrisons chief executive Marc Bolland. He was brought in a year before Sir Ken Morrison retired and the two had offices next door to each other. It is thought that this was largely the board’s decision rather than Sir Ken’s, but since Bolland took the helm, sales have continued to soar, which goes to show that a lack of suitable successors within the business is by no means a disaster.

Yet, as Norman points out: “When you’re trying to recruit someone to serve under existing leadership, you will significantly reduce the pool of applicants – particularly when big characters are involved. A lot [of them] won’t feel comfortable working under the present leader.”

Minogue says that now retailers are becoming international businesses, it’s vital that top talent are given the opportunity to gain international experience. New Look did just that when planning McPhail’s succession. International responsibility had been made integral to his role and, having run Mim, the French chain owned by the retailer, he is “much better equipped to drive the business forward,” says Minogue.

What’s more, it’s never too early to start scouting for talent. As John Lewis’s succession manager Alan Savage says: “You can spot potential in people very early on.” It’s also vital to put the ball in their court to test whether they really could be the future leader of your organisation. “It’s about saying: ‘OK, here are the resources and the people to help you, but it’s about how you turn that into action’ – that’s what the really ambitious and talented people will do,” he adds.

Lastly, don’t forget about those who have left your organisation, either. Just because they’re no longer on the payroll, it doesn’t necessarily mean they won’t want to come back. Uren advises keeping a record of all the top talent that have moved on over the years and tracking their progress.

Often, problems with succession planning boil down to a lack of investment in people; really, the expenditure should be looked upon as future-proofing. Cash spent on building and managing a talent pool pales into insignificance when compared with lost sales and a damaged business reputation under an ineffectual leader.

Smooth transitions

Lord MacLaurin to Sir Terry Leahy at Tesco, 1997

Lord MacLaurin prided himself on his succession planning and, with his appointment of Sir Terry Leahy, he had every right to pat himself on the back. He once said that he “would always advise to appoint people who’ve been through the business”. In Leahy, MacLaurin certainly found someone committed to Tesco, since he started at the retailer in 1979. A few years ago, Leahy said, in practically one breath in the same interview, that “the only personality I believe in is Tesco” and “my ambitions are for Tesco”. But it wasn’t just Leahy’s dedication that caught MacLaurin’s eye. Leahy had long been singled out as a natural retailer and one of the ones to watch. Managing that talent had also been planned meticulously. Leahy was put on the group board in the early 1990s, made deputy managing director in 1995 and shadowed MacLaurin for almost a year before taking over when he retired. The way in which he has since capitalised on his predecessor’s achievements needs no explanation.

Sir Stuart Hampson to Charlie Mayfield at the John Lewis Partnership, 2007

When Sir Stuart Hampson announced he was stepping down as chairman, John Lewis managing director Charlie Mayfield was primed to take over the reins and, since then the Partnership has continued to perform strongly and the business has adjusted to the new chairman with characteristic equanimity. Nevertheless, there were those who disputed Hampson’s approach to succession planning. Some said that Mayfield – who, by John Lewis Partnership standards, had joined relatively recently in 2000 – didn’t have the requisite grounding. Others said that, at 39, he was too young and his previous job as a McKinsey consultant didn’t sit comfortably with some critics. Some were convinced that former managing director of John Lewis Luke Mayhew would have been better suited to the role; it was rumoured that he had quit after being told the job would never be his. But healthy competition is a good thing and Mayfield has proved he can do the job, as Sir Stuart Hampson had every faith that he would.

Bumpy landings

Dino Adriano to Sir Peter Davis at Sainsbury’s, 2000

When things went from bad to worse under Sainsbury’s chief executive Dino Adriano in 1999, chairman Sir George Bull approached the “man from the Pru” Sir Peter Davis in early December and the two began serious negotiations after the Christmas holidays. From there, it all happened rather quickly. The Sainsbury family expressed their approval at the appointment but, ultimately, everyone ended up being proved very wrong indeed. Davis’s achievement in turning around a building society was not echoed at the ailing supermarket giant. During his four years at the helm, the£3 billion invested in the business – which went on supply chain and warehousing – was£3 billion that was largely wasted, as Sainsbury’s market share slipped into the welcoming arms of its competitors. One of the final straws for shareholders, in the summer of 2004, was Davis’s£2.4 million bonus, awarded at a time when he was battling falls in profits and share price. He left in his wake an operational mess, which is now being sorted out by Justin King.

Luc Vandevelde to Roger Holmes at Marks & Spencer, 2002

Not M&S’s finest moment. Chairman Vandevelde had spent months expressing “absolute” support for former chief executive Peter Salsbury, under whom the retailer’s share price halved. Vandevelde stepped into Salsbury’s shoes and headhunted Roger Holmes from Kingfisher, installing him as managing director of UK retailing so that he could line him up for the chief executive post. For a while, Holmes kept stores running smoothly, while Vandevelde focused on the international side of the business, including selling off M&S’s disastrous purchase of clothing chain Brooks Brothers. Unfortunately, the grand vision that Vandevelde had for his protégé failed to materialise. One banker at the time commented: “Vandevelde has a better chance of turning it around than Holmes. Vandevelde has enough charisma, Roger has not. He would find it difficult to carry hearts and minds at M&S.” Whispered criticisms that Holmes was “just a consultant” were proved right. Both chairman and chief executive were ousted by directors amid the saga of Sir Philip Green’s attempted takeover.