IN ALMOST all jobs, there are generally three reasons why someone leaves. The starkest, of course, is a sacking, which is generally brought about if someone falls well short of targets – or is guilty of gross misconduct.
Then, more happily, there’s the better offer, or there’s retirement. None of them particularly allow for much of a physical handover phase between departing incumbents and their successors, but even a cursory analysis of directorate change announcements will yield several references to such handovers.
One example is January’s resignation of Clean Air Power’s Pete Rowse, who remained with the company to “complete the financial reporting for the 12 months ending 31 December 2013 and to help ensure an orderly succession”.
Similarly, when London-listed Australian miner Medusa appointed new CFO Peter Alphonso following the retirement of long-serving incumbent Roy Daniel in June last year, Daniel continued to work as a consultant for the company as part of the process.
More prominently and more recently, Tesco’s Laurie McIlwee agreed to remain in his role to “ensure a smooth handover to his successor” as he resigned ahead of an expected second successive fall in annual profits. This, it seems, is despite shares in Tesco hitting their lowest level in nearly a decade and investors being particularly worried by the company’s strategy and recent financial performance.
Clearly, handovers, even in trying circumstances, are certainly not unheard of, although they are by all accounts certainly not standard issue.
“In my experience, it’s not something that happens very much,” says Mark Freebairn, partner at recruiters Odgers Berndtson. “If they’re fired, there’s no handover – they leave pretty sharpish. If they have a better job, they’ll generally serve their notice period, and often the person coming in will have a notice period, too. Typically, replacing the previous incumbent takes the best part of three months, so they often don’t cross paths. Generally, handovers take place when someone is retiring as there’s less urgency to leave.”
A handover pack will be produced for the new FD or CFO, sometimes followed by an informal telephone call or coffee to help the move run smoothly.
“When taking up a post, FDs want to know where the skeletons are, but that’s generally something HR directors know,” Freebairn adds.
A straightforward concept
But while some say it is still relatively uncommon – particularly after short-notice changes which mean the new FD must learn the role very quickly – it is widely agreed that the more planning, the better and, as such, handovers are becoming more common.
Though seemingly a straightforward concept – simply showing the new person the ropes – it [the handover] is a decidedly nuanced concept, with several variables: for the FDs involved, their colleagues internally, the market and investors.
Of course, the primary purpose is to ensure the incoming FD or CFO feels comfortable and up-to-speed with their task. Knowing and understanding the issues and priorities facing their business is vital. Of equal importance are the skeletons in the closet and what the upcoming and ongoing projects and targets are. It is also said to help if the incoming FD can spend at least some time with the new business before the official joining date.
But, as the British Council’s outgoing CFO Christopher Kinsella notes, being handed over to can be “embarrassing” unless handled sensitively, respectfully and with care. Mainly, he adds, most “just want to get on with doing the job and take charge”.
Indeed, Kinsella knows first-hand, given that he is handing over to Caroline Stockmann, who is joining from Save the Children International.
The initial suggestion was to produce an induction programme to take place over the first month, which would include several “face-to-face familiarisation meetings” with Stockmann’s new colleagues, while she is to accompany him to “both regular and project meetings to get a sense of the British Council”, but not hold responsibility for everything from the beginning.
As it turned out, Stockmann requested that the process be abbreviated to just one week, keen to get to grips with the job first-hand.
The consensus among advisers and FDs is most incomers are keen to get their head around the financial levers at their disposal, external communications, the board dynamics, key performance indicators and investors’ interests. Making an early impression is key to them, and for many, a handover process has the effect of cramping their style.
Meeting and greeting crucial personnel is all very well, Kinsella says, but it should be borne in mind that they come with agendas attached. Of equal value to FDs are minutes of recent meetings and conversations with external influences such as banks and analysts – things that are not always included in handovers. The Institute of Directors director of corporate governance and professional standards Roger Barker concurs.
“Due diligence is key if you’re going into the FD role from outside. There are limits to the information you can get hold of, but most CFOs will speak to analysts and read credit reports and media to build up a picture. It’s key for newcomers to understand why they’re going into a job and the situation they’re going into,” he says.
Discussions with auditors and non-executive directors will also help inform an incoming finance chief, while reading recent media coverage, audits and financial reports are also vital in helping the incoming FD understand the task ahead.
Problem of perception
But it is bigger than that, and for most companies there is a strong PR element. It’s about perception. Handovers are orderly processes, and signal strongly to the markets that all is well and under control. And it is the markets, of course, that are pivotal to a company’s success, and it’s their early assessment that sets the tone for the new FD’s tenure.
“It’s something we call ‘reputation transfer’,” says Rupert Younger, director of Oxford University’s Centre for Corporate Reputation at Saïd Business School. “If a well-respected FD joins a company that’s a basket case, it’s assumed things must be in a reasonable state – otherwise, that FD wouldn’t have joined.” Similarly, Younger adds, if an FD or CFO with a disastrous record were to somehow land a prominent post, the shares in that company would take a hit.
It’s at that point incomers generally want their predecessors to make them aware of where the bodies are buried so they are able to manage any bad news.
The rule of momentum means it’s important for FDs to identify and, if necessary, publicise issues early – the markets will, inevitably, react. Shares might fall, but in most circumstances it is then put down to a previous regime – but the new management will address the issues.
“‘Kitchen sinking’ is almost expected,” says Younger. “No one blames a new FD for clearing out the stable; the market won’t penalise them for that.”
Often, this means using a strategy of releasing bad news in bulk shortly after an FD’s arrival, while better news is drip-fed over a longer period of time.
The practicalities of handovers can prove a source of issues, without strong direction. For example, clarity over who is boss is pivotal. Any overlap has the potential to cause confusion, both internally and externally, and so clear delineation over responsibility is required in order to avoid problems.
Politically, though, a handover can prove troublesome. There’s a balance to be found and the received wisdom is that no one wants to hang around, so between two and four weeks is the typical duration. Interpersonally, some also find the prospect of introducing changes in the presence of their predecessor unpalatable – and as such prefer brevity in the process.
But there are other complications, Kinsella points out. Unlike their non-executive director cousins, with their natural breaks after three-year terms, there are frequently loose ends to address for the outgoing party, such as signing off year ends, ongoing projects and structural changes to the company.
For that reason, Kinsella advocates a staggered handover, where the newcomer has internal responsibility from day one while the predecessor signs off remaining outstanding projects, particularly where dropping them mid-process would mean extensive substitutions of signatories or impede progress.
But Saïd Business School’s Younger adds a note of caution regarding such a move, recommending that the parties agree on a date by which the handover process must be completed. Not doing so, he says, runs a significant risk of confusing the market.
To that end, much of the handover process involves meeting and greeting stakeholders. Typically, says Odgers Berndtson’s Mark Freebairn, this happens once with the outgoing FD or CEO present, and once again without.
“The second meeting is about the incomer wanting to make their mark and commanding the respect of key people, and it’s more difficult to do so with the previous incumbent there,” he says. Kinsella has directly experienced this.
“Most like to get the previous incumbent into the background as quickly as possible. It’s best to have access to them daily for a short period, and, if possible, have teed-up conversations that need to happen. That’s how it happened when I joined the British Council.”
As far as internal hires are concerned, there is less need for such structure, given their existing familiarity with the business. Indeed, making such a move can, in and of itself, soothe market pressures, demonstrating the company’s faith in its own talent and a stability that goes with it.
“There’s a degree of assumption involved from the markets,” says Saïd’s Rupert Younger. “An immediate departure of the incumbent FD implies some kind of bust-up over numbers or some kind of nefarious behaviour, so even in the case of an internal candidate moving up there tends to be some kind of handover.”
While such moves may engender a degree of calm, FDs have a very short honeymoon period. As such, it is important to take advantage of it, not only in clearing out any bad news early on, but also in garnering goodwill.
“Being a chief financial officer is a lonely post. You have many bosses – chief executive, investors – and the buck stops with the CFO, so networking with peers is very useful,” he says. Doing so not only has the effect of providing some competitive camaraderie, but also allows for the sharing of best practice ideas, he adds.
The central message from those involved in handovers is that the most crucial element of the process is to create a stable environment for the new director to inhabit, particularly if a company is experiencing turbulent times.
“A transitional period is the point at which businesses have to be most careful, as that is when they are their most vulnerable to instability,” says Younger. “Instinctively, handovers can be very useful and beneficial in guarding against that.” ?