Executives of public companies are currently very much under scrutiny. Asset owners are insisting on a much clearer link between performance and remuneration. In this edition of Overture Fidelio explores the role of the leadership team in the competition for capital.
Gillian Karran-Cumberlege
Seldom have leadership teams faced tougher competition for capital. In this context I am chairing the Conference “Competition for Capital” http://www.irs.org.uk/events/annual-conference to be held in London on 22 May for corporates and their advisors. Clearly access to capital is a major challenge for leadership teams and the Conference will explore both the constraint on capital and how corporates are responding.
Undoubtedly the current macro-economic backdrop explains why capital is scarce and Rt. Hon. Danny Alexander MP, Chief Secretary to the Treasury, will explore the government’s role in easing the constraint. Banks and investment banks are crucial to the flow of capital; several senior speakers from Barclays Capital, including Co-Chief Executive Rich Ricci, will provide the expertise and insight of a leading global player. And standing back from the public markets Luke Johnson, Chairman of Risk Capital Partners and former Chairman of Channel 4, will shed light on the merits and disciplines of private equity.
The Conference will also provide a more granular discussion on how corporates most effectively engage with debt and equity investors. Senior industry names will consider the challenges to modern capitalism in the wake of the Occupy London / Occupy Wall Street movement. Equally a panel of highly experienced Non-Executive Directors will debate the importance of Board composition in attracting capital.
As an Executive Search consultancy we see this being played out in a number of ways. Most obviously in terms of senior hires – here the Asian market continues to be robust. Pleasingly we see confidence returning to the US. Within Europe Germany remains the powerhouse and also demonstrates an appetite to invest in executive talent. In the UK the picture is more hesitant.
Within corporates, competing for capital is a team effort, involving principally the Chairman, CEO, CFO and IR Director. Intense competition typically leads to a straightforward upgrading of the team. We see a more complex picture.
I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent
– Michael Bloomberg
All well and good but there remains an elephant in the room. If the competition for capital is to be meaningful, we need growth, or at least confidence that growth is around the corner. The reluctance to put capital to work, in particular in the UK, is currently deterring corporate and institutional investment.
While European corporates are competing globally for capital, many are also fighting a rear guard battle at home. Disgruntled investors are becoming markedly more vocal, in particular on pay and performance. Equally business cannot rely upon support from the political establishment as politicians across Europe adopt an increasingly populist stance.
At a time when business needs to be taking bold confident moves, including in the composition of the top team, we are seeing risk aversion.
At Board level there is undoubtedly much soul searching about Board composition. Across the FTSE 100 we see evidence of tentative steps towards greater Board Diversity, with much prompting from the 30% Club. Boards are also currently much preoccupied with achieving an appropriate division of corporate earnings between management and shareholders. But growing the corporate cake is also critically important. There is a danger that Boards grappling with a range of extremely important governance issues are less focussed on driving growth.
At the Executive level we see the same issues being played out. The ability to navigate a complex and often angry stakeholder environment has become a key skill for corporate leaders. The unstable political environment prompts corporates to invest further in public affairs and government relations. We also see corporate investment in internal communications reflecting the scale of change management programmes underway in a number of companies.
Dans toutes les capitales, il y a des peuples qui, grâce à nous, espèrent et veulent en terminer avec l’austérité!
– François Hollande
These change management and restructuring programmes are indicative of how competition for capital is played out across much of Europe. Corporates are focused on redeploying capital more effectively with shareholders also paying close attention to the link between performance and remuneration. Many executive teams are implementing a corrective agenda rather than a growth agenda.
Unsurprisingly we see a much stronger focus on growth among executive teams within smaller companies, often with simpler business models, which are well positioned to gain market share and executive talent. Hiring is typically focussed on executives who demonstrably bring business or who have a track record of generating business. It’s a clear proposition.
From the perspective of an Executive Search consultancy, we would argue that competition for capital will only get underway when we have fully recognised the elephant in the room. The recognition that growth attracts capital is a game changer in corporate behaviour. And Fidelio concludes that the greatest advantage in the competition for capital is a Board and Executive team that can deliver on the growth agenda.
Coming Up…
Overture explores how talent drives valuation. Future editions of Overture will deal with
• Trusted Advisor to the Board
• Boards and Investment in China
• The Strategist and the Communicator
• The Art of Building Shareholder Buy-in
Please contact us with comments or for more information on Fidelio Partners on info@fideliopartners.com