“While Sir Chris Hohn of TCI is likely to be disappointed, his campaign for Mr Rolet to stay on did raise three issues, all of which are relevant not just to LSEG but all companies.
“The first is the agency problem – for whom do companies work? Is it to benefit management, stakeholders (employees) or shareholders? In an ideal world the answer is all three because their interests are interlinked. Sir Chris appears to have taken the view that LSEG was making a mistake in replacing Mr Rolet even though the executive had originally intended to retire once the Deutsche Boerse deal went through. That transaction’s failure left Mr Rolet in place but the chairman and the Board then appear to have concluded that a change was now appropriate to the benefit of all stake and shareholders, leading to the clash over succession (and implication strategy) with a leading investor.
“The second is the average tenure of a FTSE 100 chief executive. As of yesterday Mr Rolet was the 16th longest serving FTSE 100 boss, with a tenure of 102 months, or 8.5 years – that compares to the current average across the index of 66 months, or 5.5 years. Given the long-term nature of equity investing, where the real power of dividend reinvestment kicks in after about 10 years, the current average tenure seems too short and could lead some individuals into temptation when it comes to short-term manoeuvrings to trigger bonuses and options, when long-term thinking and investment in their firm’s competitive position is what is really required. Equally, the job is gruelling and companies must be wary of finding themselves with a dominant CEO who overrides the board so there remains the risk that an incumbent who is either left in charge for too long or goes unchallenged by the Chairman could do as much harm as good.
Twenty longest-serving CEOs in the FTSE 100 (as of yesterday)
Company | CEO | Started | Months |
WPP | Sir Martin Sorrell | Jun-1986 | 378 |
Randgold Resources | D Mark Bristow | Jan-1997 | 251 |
Merlin Entertainment | Nick Varney | Jan-1999 | 227 |
Next | Simon Wolfson | May-2001 | 199 |
International Cons. Airlines | Willie Walsh | Jan-2005 | 155 |
Associated British Foods | George Weston | Apr-2005 | 152 |
Compass | Richard Cousins | Jun-2006 | 138 |
Taylor Wimpey | Peter Redfern | Jul-2006 | 137 |
Ashtead | Geoff Drabble | Jan-2007 | 131 |
St. James's Place | David Bellamy | May-2007 | 126 |
TUI Travel | Peter Long | Sep-2007 | 123 |
Sky | Jeremy Darroch | Dec-2007 | 120 |
Vodafone | Vittorio Colao | Jul-2008 | 112 |
British Land | Chris Grigg | Jan-2009 | 107 |
Unilever | Paul Polman | Jan-2009 | 107 |
London Stock Exchange | Xavier Rolet | May-2009 | 102 |
Direct Line | Paul Geddes | Aug-2009 | 100 |
Berkeley | Rob Perrins | Sep-2009 | 99 |
Hammerson | David Atkins | Oct-2009 | 98 |
RELX | Erik Engstrom | Nov-2009 | 97 |
Source: Company accounts. Companies shown in bold indicate where a change has been announced. Xavier Rolet stepped down on 29 November with immediate effect. David Bellamy will by replaced by Andrew Croft on 1 January 2018. Richard Cousins will be replaced by Dominic Blakemore on 1 April 2018.
“This places great importance upon succession planning, to ensure that a long-term strategy is formulated and then implemented, to the maximum potential benefit of shareholders and stakeholders. This suggests executive pay should be structured so that some awards vest after a boss has left, to ensure they remain focused on long-term hiring and strategic planning and that the right culture is embedded. Unilever is thought to be already working on identifying a replacement for Paul Polman for some 18 months’ time (although the company has yet to confirm these reports) and HSBC recently concluded the appointment of John Flint as a successor to Stuart Gulliver in a very smooth, well-organised way. WPP is one example of company where the succession plan remains unclear, at least to outsiders, which may be of concern to some shareholders given how central Sir Martin Sorrell has been to the creation and growth profile of the company.”