In September, 2012, long-serving Metcash chief Andrew Reitzer said he was looking at four strong internal candidates to replace him when he steps down from the grocery wholesaler later this year.
But yesterday, his replacement was finally announced, and it wasn’t an internal appointment.
Well, not quite.
Incoming chief Ian Morrice has been on Metcash’s board for the past year. Before that, he was CEO of The Warehouse, a Walmart-esque retail chain in New Zealand, and before that worked for retailers in the United Kingdom.
In announcing the decision, Metcash chair Peter Barnes said Morrice’s wide experience and strategic thinking had clinched the deal, as demonstrated by his contributions to the board over the past year.
Metcash isn’t the only large company to look to its board for CEO talent in recent months. In December last year, casino operator Echo Entertainment Group parachuted American casino veteran John Redmond into the CEO role, after the shock firing of Larry Mullin. Redmond had joined Echo’s board three months earlier.
When LeadingCompany analysed the backgrounds of ASX100 executives last year, we found two had held a position on the company’s board just before being appointed CEO (when we update our research later this year, that figure will rise to at least four). It’s an unusual but not unheard-of path to executive leadership.
Appointing a director as your CEO poses unique challenges, but also offers a couple of rather arresting benefits for companies. What makes someone a good person to have on your board – industry and executive experience – often makes them an attractive candidate for the CEO role.
Julie Garland McLellan, a corporate governance consultant and company director, says appointing someone from the board is often the succession plan for the company that doesn’t have a succession plan. “It’s certainly the first place you look if your CEO goes under a bus,” she says.
“Imagine being Echo, going to a headhunter, and saying you need someone with experience running casinos ASAP. It’s a pretty tough ask. And even if they did find someone chances are they’d be working for the opposition. So it’s quite understandable Echo [put in Redmond].
“If you lose a CEO, you’ve got to replace them – you can’t run on empty,” she says. “The board members are often the only people who are available on short notice, who don’t have conflicts of interest or who don’t work for your competitors.”
Andrew Barlow is one such board member who recently stepped in to fill an unexpected leadership gap. Barlow rose to prominence by making a fortune in website analytics provider Hitwise. He’s now back on the board of publicly-listed search engine optimisation company, Adslot, after stepping in as interim CEO last year.
When he took over as interim CEO, he hadn’t had an executive role for several years – his last was as CEO of superannuation fund Max Super in 2007.
“Going from semi-retirement to 70-hour weeks was a bit overwhelming originally,” he tells LeadingCompany.
But there were benefits. “The speed with which you can progress things, how you can shape the culture and shape the products, that was great.”
“It’s very easy to fly into board meetings as a director and take a birds-eye view of the world, and say what should be done. But it’s another thing altogether to do it. It’s really crunch time.”
Barlow only filled the CEO role while the company searched for a new one. This is quite common, says executive recruiter Nick Waterworth. However, appointments of a permanent nature, like those at Metcash and Echo, are unusual.
“When recruiting for a position we usually wouldn’t consider [a board member] unless we were encouraged to do so,” Waterworth says. “Usually when people get to non-executive director stage, they’re near the end of their executive career. Usually they don’t want an exec job full-time.”
Waterworth says there’s nothing wrong with considering a board member for the CEO role, as long as the director is considered as part of the usual process alongside other candidates. “Otherwise, there’s a danger of it being a narcissistic exercise,” he says.
Could a CEO who comes from the board get an easy pass from the company’s directors?
Garland McLellan says it’s a definite possibility.
“There’s a different relationship between fellow board members than that between a board and the CEO who reports to them. The board are less likely to be harsh and mistrustful if one of their number suddenly steps into the CEO role.
“However, both Echo and Metcash have pretty experienced boards. In their cases, I think they might compensate for this by being overly harsh.”
Another negative with appointing from the board occurs if, when a CEO concludes their term in office, they then step back onto the board.
“They’re no longer an independent director,” Garland McLellan says. “They know too much detail about the company and they’re too aligned with the executives.”
Barlow however points to some good that came out of the exeperience. He says his temporary stint as CEO made him a better board director overall.
“I have a lot more respect for what’s involved,” he says. “The CEO role … in many ways, you wouldn’t wish it on your worst enemy. The board bashes you around, the executive team and staff look up to you. There’s a great deal of managing both up and down that requires very good diplomacy.
“Certainly I have a lot more respect for the CEO role, and I’m more appreciative of the time it takes to get good things to happen at the company.”