Cases of Succession: Story About an Outsider

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In our study of succession in Russian business, we asked several professionals who had gone through the process to anonymously share their experiences with succession. The first story is about a top manager in an international company and the difficulties he faced after accepting an offer to lead a private company with an owner actively involved in the firm's management.

TEI: Evgeny, you weren't the first appointed CEO of the company, is that right?

Evgeny: Yes, that's true, there were two CEOs before me at the company. The first replaced the company's founder and served for about two years, but then, asfar as I know, there was a conflict between them and the CEO left for a position with a competitor. For his replacement, they decided to look abroad and recruited a foreigner who had extensive work experience in the restaurant business. At that point he had already retired, so he didn't come to Russia for long, he only spent about 2 years here.

TEI: Prior to this, you worked as the CEO of the Russian affiliate of an international company. Did you have any concerns about transferring to aprivate Russian company?

Evgeny: I didn't, no. I recognized that conducting business in a Russian company differs significantly from Western practices, but didn't harbor any illusions about the relative effectiveness of these practices. Ininternational companies, you can achieve significant career growth by simply making yourself look busy, while in Russian companies, in front of the owner, it's significantly harder – you're expected to produce concrete results.

In Russian companies, the owner actively looks after the asset belonging to him, which is absolutely atypical in leading Western companies, where owners like that don't exist. But it is important that this control be productive. There is always a danger of focusing not on management, but on accounting. I have encountered situations where the only answer CEOs can give to the answer “What did I accomplish?” is “I reported everything on time.” But the idea behind an owner will provide oversight shouldn't be subject to criticism – the owner should look after the asset, and that isn't up for discussion. A legitimate CEO should take that as a given.

TEI: What was the negotiation process like?

Evgeny: I met with representatives from the private equity firm several times. We had detailed conversations regarding my professional experience, interests, strategy for company development. Before joining the company I met with the founder just one time, and that conversation lasted less than a half hour. It's hard to say that my interview with the founder of the company was typical, he asked rather informal questions: what I do in my free time, what I live for. We found out that we were born on the same day, and have similar families. I understood that these kinds of intuitive things were important to him, that he was evaluating me not so much as a professional (I think it was the equity firm’s job to evaluate my professionalism), but as a person he could do business with.

«The idea behind an owner will provide oversight shouldn't be subject tocriticism – the owner should look after the asset, and that isn't up fordiscussion»

After that, I was repeatedly convinced that the founder of the company never once erred when evaluating specifically the moral and ethical qualities of candidates, and their ability to fit into the company, though it ispossible that in terms of evaluating professional qualities, he had some missteps.

As far as rigid arrangements, obligations, and harsh contracts go, we didn't sign anything before we left; rather, all parties decided to trust each other, and no one erred in their expectations.

TEI: Was it complicated, working with several owners – private shareholders and representatives of the equity firm?

Evgeny: The presence of several owners, naturally, becomes a problem for a CEO; it slows down the decision-making process, makes communicating information more complicated, but I can frankly say that there are definite pluses. Because we deferred making decisions regarding certain issues, spent a longtime discussing them so that all parties could agree, new ideas emerged that were significantly better than our initial ones. But this is only due to the constructive approach of the owners, who didn’t argue for the sake of arguing.

Before leading the company, a CEO should understand the relationship structure between owners, in order to avoid getting caught up in political games or becominga pawn. Many think that it is possible to “work effectively from outside,” but that is not true; the CEO is always working for someone, and the question for whom is critically important.

TEI: How did you delegate responsibility between you and the founder of the company?

Evgeny: He didn't walk away from the business; I could always turn to him for help – effective, practical help – to get contacts, access to certain people. Of course, there were definite complications – for example, with the team, which consisted of people who had worked with the owner for over 20 years, but who were obviously struggling to keep up with the increasing scale of the business. More often than not, the owner refused my suggestions to part with these people, citing their impeccable honesty and loyalty in arguments.

Of course, at the launch stage of any business, honesty and loyalty are particularly key qualities, but as far as developing the company, they become neutral – alongside personal qualities, it is necessary to have professional skills.

It's sufficiently difficult for a team to work under the owner. The owner makes a lot of decisions through feeling, he doesn't need to calculate and validate his ideas. CEOs, especially those coming from another industry, can't allow themselves that same luxury, nor should they. Accordingly, the needs for certain people within the company change – those that simply carry out the instructions of the owner should be replaced with strategists and managers.

TEI: What is the best way to build a relationship with a company owner who is still involved in the business?

Evgeny: In collaborating with the owner, it's important for the CEO to recognize that the investment of your time in substantiating decisions, regardless of how reasonable and elementary they may seem, is no less important to the owner than the development and implementation of these decisions. I always tried to defend my own decisions, and in difficult situations gave the owner time to consider these arguments. In turn, I was lucky that the owner was one to look for acompromise. But if the CEO acts as if he knows better, no owner will put up with that, even from the most unique professionals.

TEI: Did you leave behind a successor?

Evgeny: When I left, there was someone at the company that I recommended as my successor, but I was not consciously involved in training her. My successor had worked at the company since its founding, had worked her way up the career ladder, demonstrated absolute loyalty to the owner. Perhaps there were few skills (in particular, financial) that she lacked – for that reason, I suggested hiring a strong financier, who could provide support for issues regarding finance and strategy. But I think that she can handle the primary objectives – after we fundamentally restructured the business, we were in need of a person who possessed substantial knowledge of the industry and had seen every detail of it, and that kind of person you can only find inside of a company. I think there are fundamental differences between outsiders and insiders: it's necessary to bring in an outsider when the company needs fundamental restructuring, a change in strategy; but the task of improving efficiency, which lies in the details, is best done by an internal person, who knows every inch of the business.

As far as I know, the appointment of my successor did not go as smoothly as expected, but the owners were able to reach an agreement. At the moment, I am sure that the company is in good hands.

This article was published a part of the seventh issue of Talent Equity Newsletter "Succession in Russian Business".

To read all other journal issues, please follow the link to TE Newsletters page.