Marks and Spencer (M and S) has been having troubles in regards to implementing succession plans to replace its top leaders for over a decade now. This is a shame, given that the UK retail company went over a century with only seven leaders in place, mostly from the founding Marks and Sieff families. Things would begin to unravel though in 1998 when the recent string of shakeups and bungled succession plans began. M and S now appears to be a volatile organization with boardroom battles, management shake-ups, and forced resignations. The following information was taken from newspaper articles released in the UK between 2008 and 2009.
In 1998, Sir Richard Greenbury indicated that he would leave the position as Chairman of the Board in three years. He left the position as CEO which he also held, much sooner, vacating the CEO position in 1999. Greenbury favored Peter Salsbury to succeed him as CEO but this caused Keith Oates, Greenbury’s Deputy Chairman, to wage a public campaign to get the job. Apparently Oates had coveted the CEO position and thought it was his. Oates was rejected in favor of Salsbury. However, Salsbury was not a successful CEO and, as the chair, Greenbury was not pleased with the job he was doing. In 2000, Greenbury left as chair of M and S and Luc Vandevelde took over the position. Salsbury was soon removed as CEO. Because again there was no succession plan in place, this left Vandevelde in sole charge. Roger Holmes was recruited to take over British operations and was soon promoted to CEO. In May 2004, a new struggle erupted over who would replace Vandevelde as chair. Sir Stuart Rose wanted the job as Chairman of the Board, but was blocked by the ‘old guard’ who held power over the board. Rose was recruited as CEO to help break up a hostile takeover attempt. When Rose joined M and S in 2004 as CEO, he indicated that he would stay on until 2009. Rose was successful in fending off the hostile takeover attempt by billionaire Sir Philip Green, who was the head of Arcadia and BHS.
The upheavals in the boardroom continued though, and Paul Myners, who had replaced Vandevelde as chair and helped bring Rose to M and S, was replaced by Lord Terry Burns. Rose was successful in rebuilding the company’s image and he increased their market share. This increased the power that Rose wielded in the company. Early in 2008, M and S announced plans to promote Rose, then CEO, to Chairman of the Board. Rose would serve as both CEO and the chair, pledging to remain the chair until 2011. This move went against the UK’s Combined Code on good corporate governance and angered some investors. With this move, Rose wielded an incredible amount of power.
In March of 2008, investors demanded meetings with M and S over their botched succession planning efforts. Apparently when Rose demanded the position as Chairman of the Board he indicated that it was this, or he would quit as CEO. Because there was no succession plan in place, Lord Burns capitulated to Rose by stepping down from the position as chair. Burns is blamed for not having a succession plan in place to replace Rose as CEO. This shakeup also saw six of the ‘old guard’ board members pushed out. In came a new group who were loyal to Rose. With this move, Sir David Michels, the Deputy Chairman and senior non-executive, was charged with overseeing the new succession plan for replacing Rose in three years. The front runners to replace Rose were Ian Dyson (who was already a board member), Carl Leaver, Steven Esom, and Kate Bostock. Esom and Bostock were promoted to the board. (Remember these names because as this story unfolds, we will see some of them forced out of the company).
There were many who fought Rose moving into the dual roles in 2008, including such investors as fund manager Threadneedle, the Royal London Asset Management, Co-operative Investment, and M and S’s second-largest shareholder, Legal & General. It was too little too late though. Not having a Plan B in place when negotiating with an already powerful, ensconced CEO is a recipe for disaster. At the time that Rose gave his ultimatum, the company could ill afford to lose Rose. This is why Lord Burns stepped aside. M and S had no choice but to yield to Rose’s demands.
What is interesting to see is that the human resources group didn’t have a seat at the table regarding implementing proper succession plans. Keith Cameron, who was HR Director, was an integral part of the turnaround at M and S and served as an integral member of Rose’s turnaround team. He left the organization, indicating to Human Resources Magazine (2008) that while not entirely being pushed out, he was in partial retirement, and reported that “Stuart had me sitting on my deckchair.” As a matter of fact, there has not been an HR person at the boardroom table since Clara Freeman in 2000. It would seem imperative to have HR as a driver in succession planning. This doesn’t appear to be the case though, as a former HR professional with M and S indicated to Human Resources Magazine (2008), “You have to wonder how the people working in the HR department feel about their role within the business now.” The growing issue is that M and S now has a double succession problem in that they will need to find both a new CEO and board chair within the next few years. When asked why no one could replace Rose when he gave his ultimatum, Burns indicated that none of the possible candidates were ready. It makes one wonder though, if Esom and Bostock were not ready to take over then, how will they ever be ready in just a couple of years?
Rose has indicated that his replacement should be an internal candidate. This has left Sir David Michels scrambling to meet with, and groom, possible successors. In the summer of 2008, this is the position where M and S found themselves. They had an extremely powerful CEO and Chairman of the Board, and little indication of who might be able to replace him.
This is where the story gets interesting. In July of 2008, M and S had to issue a profits warning. Sales had dropped as the economy waned. M and S shares dropped quickly, back to nearly the levels they were at when Rose was brought in to turn things around. One of the divisions suffering the most was led by Esom. This cost Esom his job, as he was quickly fired. With this, one of the potential successors for replacing Rose was gone. Leaver, Dyson, and Bostock now looked to be the front runners to replace Rose. However, there was now growing discourse among shareholders, and a protest vote was convened at the July 2008 annual shareholder meeting to determine the future of Rose. As reported in the England Observer (2008) newspaper, Pat Wade, Corporate Governance Manager at Co-operative Insurance Society said, “We are sending a message to M and S that we want succession planning to be taken seriously, there are inherent risks in the concentration of power and this can create material risk in the operating performance and independent strategic view a board can offer.” Rose still has his supporters though, including Sir David Sieff, a member of one of the founding family dynasties. The overall prediction was that Rose would survive the protest vote. The proportional representation voting system in place means that the largest shareholders can split the votes they hold. This allows them to display their displeasure, while at the same time keep from destabilizing the business. In other words, they will send a message but no changes will take place.
As predicted, Rose survived the July 2008 vote and despite reported investor opposition, the vote in favor of Rose’s appointment as executive chairman survived with 78% in favor, 5% voting against him, and 17% abstaining.
Now we fast-forward to late March 2009. Again, Rose comes under fire from investors who are still unhappy with the state of the company and the low share price, the conglomeration of power held by Rose, and the fact that no clear successor for either the CEO, or Chairman of the Board, had been found. Now less than a year after fending off a shareholder revolt against him, Rose again was defending his position of power. Reports began to surface that internal candidates may not be the best bet to replace Rose and outsider Justin King, chief executive of J Sainsbury, became a target of speculation. New names were added to the list of possible successors. Former bosses of Asda, Allan Leighton and Archie Norman were mentioned as possible candidates for succeeding Rose as chairman. The positions of chief executive and chairman of M and S became two of the most sought after positions in the UK. What became apparent is that the upcoming July 2009 vote would once again be acrimonious at best.
May of 2009 finds more upheaval at M and S as Carl Leaver (another internal candidate marked as a possible successor to the chief executive position) loses his job at M and S. Industry analysts now report that Dyson and Bostock have pulled ahead in the race to succeed Rose, but some analysts report doubt that either has what it takes to do the job. Again, the company gives hints that it wants to use internal candidates only. The firing of Leaver stirs investor angst and further ensures that the July 2009 vote could be interesting. The newspaper The Independent (2009) reports that in the 52 weeks ending in March of 2009, S & M’s pre-tax profits have fallen by a whopping 40%.
The political maneuverings at M and S deepen as Sir David Michels, tapped to find Rose’s successor, indicates to investors that he himself should take on the job of Chairman of the Board. It is reported that the move could prompt Rose to leave before his planned 2011 retirement. The growing displeasure by investors of Rose serving as both CEO and Chairman of the Board, becomes public, and rather than whispers and ‘unnamed sources’, a formal resolution is put forth by the Local Authority Pension Fund Forum for the upcoming July 2009 annual shareholder meeting. The resolution would require that M and S must appoint an independent chairman by July 2010. The influential shareholder advisory body, RiskMetrics, publicly backs the measure and begins to urge investors to back the resolution.
Rose is no newcomer to political battles though and sensing the winds of change, Rose gives up around a million pounds (British) worth of shares of stock which he was given under the firm’s long-term incentive plan. This was a plan that was endorsed by the remuneration committee’s chair, Lady Patten. The concession comes after a number of investors question the exceptional reward for what is termed as ‘median performance’. Rose concedes after talks with the Association of British Insurers. M and S furthermore decides to slash dividends by a full third. Industry analysts predict a protest vote over the remuneration report and dividend cut. The July 8, 2009 shareholder meeting is set to be the greatest political fight of Sir Stuart Rose’s career. The resolution to replace Rose as chair by July 2010 would require 75% to pass. Rose begins a protracted battle to assuage investor’s angst. He is seen wining and dining investors. Reporting who, and where, and when, becomes the rage in London tabloids.
The July 8, 2009 meeting in London’s Royal Festival Hall lived up to its expectations, and it was reported to be as raucous an affair as any virulent meeting ever seen in the House of Commons. Investors sent a clear message with 42% of the shareholders supporting the proposal demanding Rose relinquish his role as chair. It was not enough to pass, but it was enough to rock the retail industry. Surprisingly, another 23% failed to support his re-election as a director of the company. The London Guardian (2009) reported that after the meeting, a spokesman for the Association of British Insurers said, “The investor community has for a long time been concerned about succession planning at M and S. The size of this vote is a very clear signal that investors need reassuring. We must avoid a sense of drift; there is an important message here.” Others also came under fire, including Lady Patten, the chair of the M and S remuneration committee. Nearly 11% voted against her re-election which showed the backlash regarding the huge bonus that was originally earmarked for Rose. It is also interesting that 15% voted against Sir David Michels, who had stirred up controversy by indicating his interest in the chair position, while concurrently being tasked with running succession planning at M and S.
Sir Stuart claimed victory though, and the London Times (2009) reported him as saying “They’ve got an opinion. We’ve got an opinion. We won. End of story.” Rose reported that the vote was an endorsement of the succession plan at M and S. Rose did capitulate some though. The Belfast Telegraph (2009) reported that Sir Stuart addressed investors’ fears by stating, “We do recognize that our current board structure is out of line with the code and we understand the concerns of our shareholders.”
Today, the succession plan is still murky. On July 12, 2009 in the wake of fending off the most recent investor revolt, Rose promoted his Executive Assistant, Susan Aubrey-Cound as head of Internet Operations. She follows in the footsteps of John Dixon who is current lead of Food Operations. It is reported that at the moment, Rose and the board still plan to pick a chief executive next year in 2010. Rose appears to still favor choosing an internal candidate. The list is said to include Finance Director, Ian Dyson, Clothing Director, Kate Bostock, and Head of Food Operations, John Dixon. Choosing an external candidate though is still said to be a possibility, with the lead candidate reported as the CEO of Asda, Andy Bond.
There are several lessons for organizations to learn by the fascinating story of succession planning at M and S. One is that poor succession planning undermines investor faith and can directly affect share price and public opinion. Another is that large sums of money were given to those who were recruited to join M and S (so called ‘welcome golden eggs’) and even larger sums of money were given to those who had lost their jobs in the ensuing chaos (so called ‘farewell golden parachutes’). These expenditures came at a time when the economy was weak and sales had been lacking. Perhaps the greatest lesson though, is that without succession plans, one person can become so important to an organization’s existence, they can hold all of the proverbial cards. Rose was able to usurp the role of chairman because there was no one available to take over his position as chief executive. The company had no fallback position, no Plan B in place, and so had no choice but to give in when he made his power-play to become the supreme leader by grabbing the reins of both CEO and Chairman of the Board. His threat to quit if he didn’t get his way was probably not an idle threat. But, according to all sources involved, the threat to M and S if he had quit was real. Lord Burns had no choice but to give in. Companies, especially publicly-traded companies, should take note. Succession plans not only provide leadership continuity, they protect an organization’s viability.
