Can we reconcile these claims? To start, the table below shows the performance of 20 bosses from constituent companies of the FTSE 100 index of the biggest UK companies. Granted, it is not actually their performance, but that of shares in their companies relative to the Footsie since the day of their appointment. Yet, whether they like it or not, share price gains (or the lack of them) are the yardstick by which these women and (mostly) men are judged.
There is nothing scientific about which 20 are included except that their tenure clusters around this important 18-month mark, with two deliberate exceptions – Andrew Williams of technology group Halma (HLMA) and Simon Wolfson of fashion retailer Next (NXT). These two are included to offer a clue about the effects of sticking with the boss through thick and thin. That said, it’s guesswork to assess which way causality runs. Do these two have such long tenure because they are successful or has their tenure helped them become successful?
|Inside out, or outside in?|
|Company||Chief executive||Tenure (yrs)||Internal app't?||Relative performance (%)|
|London Stock Exchange||David Schwimmer||1.2||No||70|
|Smiths Group||Andy Reynolds Smith||4.1||No||36|
|Smith & Nephew||Namal Nawana||1.5||No||34|
|Reckitt Benckiser||Laxman Narasimhan||0.2||No||-9|
|BT Group||Eric Jansen||0.7||No||-16|
|J Sainsbury||Mike Coupe||5.3||Yes||-37|
|British Am'n Tobacco||Jack Bowles||2.1||Yes||-42|
|Source: S&P Capital IQ|
Conveniently, among the 18 comparative newcomers, half are internal appointments and half outsiders. Neither group covers itself in glory. The average share price performance relative to the FTSE 100 – and from the respective date of each boss’s appointment – is a loss of 5.8 per cent for those appointed from inside and a loss of 2.1 per cent for the outsiders.
Does that shave it for McKinsey’s notion that external appointments are more likely to bring the bravery and speed that resuscitates a faltering company? It is noticeable that – apart from Messrs Williams and Wolfson, who are really outliers – the three best performers are outsiders. Yet have these three made big, brave moves?
Maybe, in the case of David Schwimmer, the ex-Goldman Sachs banker now running London Stock Exchange (LSE). The proposed $27bn (£22bn) merger with data provider Refinitiv counts as transformational. But LSE’s share price has been helped by the touted – then pulled – bid from HKEX, the owner of the Hong Kong Stock Exchange.
Meanwhile, it seems like forever that investors have waited for the transformation – by which everyone means ‘break-up’ – of Smiths Group (SMIN). True, Andy Reynolds Smith insists the demerger of Smiths Medical will take place before next July, but don’t hold your breath.
As for Namal Nawana, the boss of medical equipment group Smith & Nephew (SN.), arguably he shouldn’t even be in the table. He left the group on 31 October after just 18 months, basically saying 'I can get more money elsewhere so, sorry guys, I’m off'. As a way of enhancing the rent-extracting leverage of other FTSE 100 bosses, Mr Nawana’s move is brilliant. Whether he achieved anything truly meritorious at Smith & Nephew is another matter.
Besides, as well as being among the best performers, external appointments cluster towards the bottom, and none more than Iain Conn at Centrica (CAN). Perhaps we should recall that landing someone who came close to the top job at BP (BP.) was seen as a coup for Centrica five years ago. And maybe the group has been transformed, although hardly as anyone would have wanted.
Yet judgement in favour of external appointments might just be swung by two ostensibly internal appointments – Emma Walmsley at GlaxoSmithKine (GSK) and Mike Wells at Prudential (PRU). The point is that both these bosses learnt their craft outside the groups they now run so, in effect, were outsiders. Neither was captured by a dominant corporate culture, facilitating the big moves both have made – last month’s spin-off of M&G (MNG) from Prudential in the case of Mr Wells and the forthcoming de-merger of Glaxo’s much-enlarged consumer healthcare division in Ms Walmsley’s case.
For investors, the moral may be that the stodgier and the crustier the company concerned, the more likely it is that appointing a boss from the outside will bring needed change – and fairly quickly. But that, of course, will hardly guarantee success.