Years ago, C. Northcote Parkinson wrote a satire called The Pursuit of Progress to explain why bureaucracy tends to grow. Out of this came the famous observation: “work expands to fill the space available” and his lesser known third law: “expansion means complexity and complexity means decay”.
In the heady days of the dot.com boom, Vodafone’s (VOD) leaders defied this third law by ramping up the group with audacious acquisitions. By 2014, its complicated web of businesses was worth over £60bn. Today the stock market values it at a third of that. Among its many issues last year, Vodafone was slow to adapt to a change in Germany’s Telecoms Act, where 30 per cent of its service revenue is generated – it could no longer renew contracts automatically, and consequently, it lost broadband customers. It lost business in Italy and Spain too. Over half of the non-executive directors were appointed within the last couple of years, and they think the group should do better. Nick Read, the chief executive, resigned by mutual consent in January. During his four-year watch, the share price halved.
Should chief executives be replaced from outside or from within? External candidates might bring a fresh vision and valuable experience, but it’s a complex role, and they need time to understand what makes the businesses tick and gel together. Internal candidates know this already. They’re familiar with the corporate culture and they’re likely to be better placed to master what can often be a maze of bureaucracy, but they might be wedded to the existing strategy. Not necessarily, though. Internal candidates often have reservations about past decisions. They can be frustrated at missed opportunities and itching to make changes.