August 2024 

SAA are delighted to announce that we are now an accredited Board Reviewer

SAA underwent a thorough evaluation by The Chartered Governance Institute UK & Ireland, which concluded that our board performance reviews exemplify outstanding service and adhere to their Code of Practice. We continue to partner with clients across a range of ownership structures on value-adding Board Effectiveness Reviews. 

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Succeeding on the Board with Sam Allen

In this episode Dave Wright is joined by Sam Allen. In this conversation, Sam shares her perspective on: the evolving role of the Non-Executive Director, how to secure your first NED role, what Chairs are looking for in 2024, the qualities of a good Chairperson, how to develop a skills matrix for the Board, and why diversity and inclusion are essential for innovation and growth. 

The Bain & Company's midyear report discusses the current state of the private equity industry, highlighting its slow recovery from a two-year decline in deals, exits, and fund-raising. Although the first half of 2024 shows signs of stabilization, with deal and exit activity leveling off, overall momentum remains weak. Limited partners (LPs) are pressuring general partners (GPs) for quicker distributions and are increasingly selective with new commitments, focusing on a narrow range of favored funds.

The industry faces significant challenges due to the ongoing macroeconomic uncertainty, including high interest rates, inflation, and geopolitical tensions. The article notes that while some regions, particularly North America, have seen a slight increase in deal value due to larger transactions, the overall deal count is down globally. Exits remain sluggish, and the number of portfolio companies held by funds has doubled over the past decade, stretching resources thin.

Fund-raising is particularly challenging, with a small number of large funds capturing most of the capital, leaving smaller funds struggling to meet their targets. The article suggests that for PE firms to succeed in this environment, they need to reassess their strategies, improve value creation, and strengthen investor relations to meet LP expectations and stand out in a competitive market.

In summary, while the private equity industry shows some signs of stabilization, it still faces significant hurdles, particularly in deal-making, exits, and fund-raising. Firms must adapt by improving performance and investor engagement to navigate this challenging environment.

The loneliest job? How top CEOs manage dilemmas and vulnerability

McKinsey's Gautam Kumra, Joydeep Sengupta, Mukund Sridhar, Janice Koh, and Jennifer Chiang consolidate insights from around 100 senior leaders about five major dilemmas that challenge their leadership. They draw on qualitative data from the McKinsey Center for CEO Excellence (MCCE) and discusses the balancing acts CEOs must manage in their roles.

Five Common Dilemmas for CEOs:

Preserving Core Business vs. Innovating for the Future: CEOs must balance maintaining the core values and operations of their business with the need to innovate and adapt to future trends. This can be especially challenging for family-run businesses and publicly listed companies. The key is integrating innovation while honoring the company’s heritage.

Delivering Short-Term Results vs. Investing in Long-Term Performance: CEOs face pressure to achieve immediate results while also focusing on strategies that ensure long-term success. This dilemma often involves making tough decisions on resource allocation and managing expectations from stakeholders. A balance between short-term wins and long-term goals is crucial.

Managing Individual Stars vs. Maximizing Team Performance: CEOs must navigate the challenge of balancing high-performing individuals with the overall effectiveness of the team. This includes managing conflicts between individual stars and maintaining team cohesion. Effective management involves addressing issues with high performers who disrupt team dynamics and aligning team members with the company’s values and goals.

Empowering Others vs. Maintaining Control: Delegation is important for empowering teams and fostering leadership, but CEOs often struggle with giving up control. Finding the right balance involves setting up a structure that allows for delegation while maintaining oversight and accountability. Delegation can improve overall performance, but it requires trust and a willingness to accept mistakes.

Immersing Fully in the Role vs. Retaining Personal Identity: CEOs often face the challenge of dedicating themselves fully to their role while maintaining personal well-being and identity. Achieving a work-life balance is vital, and CEOs benefit from having a clear sense of purpose and maintaining personal connections outside of work.

Key Takeaways:

• Embrace 'Both/And' Thinking: Rather than viewing dilemmas as mutually exclusive, find ways to integrate competing goals. Flexibility, creativity, and transparent communication can help resolve conflicts and build trust.
• Build a Support Network: Having a network of peers for advice and support is crucial. Vulnerability can be a strength, and support networks can offer valuable perspectives and encouragement.
• Reassess Priorities Regularly: CEOs should periodically reflect on their priorities and ensure their roles align with what they find fulfilling. Regular reassessment helps maintain motivation and job satisfaction.
• Reflect and Reconnect with Your Mission: Carving out time to reflect on personal and organizational missions ensures alignment and enhances impact. This reflection helps CEOs stay true to their values and create lasting value for the company.

The article highlights the complexities of the CEO role and emphasizes the importance of balancing multiple, often conflicting priorities to achieve effective leadership and personal fulfillment.

How to reach the independent consumer: the art of persuasion

EY's Kristina Rodgers emphasizes the need for consumer products companies and retailers to adapt to the evolving preferences and behaviors of today’s independent consumers. To remain relevant, these businesses must engage with consumers in real time and craft messages that create meaningful moments. As consumers become more selective about who they listen to, brands must find new ways to connect and stay influential.

Despite the challenges of rising living costs, geopolitical tensions, and climate concerns, consumers around the world are displaying remarkable resilience. Most consumers maintain a positive outlook and feel in control of their lives. They are optimistic about their financial situation, expecting to be better off in the coming year.

The latest EY Future Consumer Index reveals that many consumers are normalizing global troubles and are increasingly seeking a simpler, more present-focused life. This shift in consumer behavior highlights the need for companies to understand and respond to these changes effectively.

Social media has significantly altered consumer behavior, making it easier for people to access a wide range of opinions and information about brands. Social media influencers, particularly micro-influencers and niche experts, are now more influential than traditional celebrity endorsements. These influencers shape consumer behavior through product demonstrations and reviews in online spaces, making it essential for brands to engage authentically and effectively with this new form of communication.

The growing importance of social media influencers means that consumer products companies must carefully select and manage their influencer partnerships. Engaging with a larger number of micro-influencers can provide valuable feedback and insights but requires careful management to measure their impact on brand performance and consumer purchases.

As third-party cookies become less prevalent, brands face challenges in maintaining effective digital marketing strategies. The shift away from third-party cookies necessitates finding new ways to stay visible and connected with target audiences. Retailers, in particular, have the opportunity to leverage their own retail media networks to gather data and create brand promotion opportunities. This requires a balance between data collection and privacy, ensuring transparency and simplicity in data practices.

Loyalty programs remain popular but are increasingly transactional. Consumers now seek tangible benefits from loyalty programs rather than emotional connections. Successful programs must offer valuable and accessible benefits to retain consumer engagement. Retailers and consumer products companies need to adapt their strategies to this new form of loyalty, focusing on providing clear value and using data effectively to target and engage consumers.

Overall, both retailers and consumer products companies must navigate these changes by building trust, investing in data security, and offering clear benefits to consumers. By doing so, they can leverage new opportunities and maintain a strong connection with their audience in a rapidly changing market.

UK Workforce Hopes and Fears Survey 2024

The PwC UK Hopes and Fears Survey discusses the current state of the UK workforce amidst ongoing changes and the challenges faced by leaders in managing these transformations. Employees are generally optimistic about new opportunities and ways of working, but many feel overwhelmed by the rapid and extensive disruptions they are experiencing.

A significant portion of the workforce has encountered more change at work in the past year compared to the previous 12 months. Nearly 45% of workers believe that the pace of change is too fast, and 40% do not understand the reasons behind these changes. Many employees are struggling to keep up, with 41% reporting a substantial increase in their workload and 37% needing to learn new tools and technologies to perform their jobs effectively. Despite these challenges, there is a strong sense of optimism among workers. About 65% are excited about new opportunities, and 74% are ready to adapt to new ways of working.

The article also highlights several factors that workers believe will impact their jobs over the next three years. These include technological change (35%), changes in customer preferences (37%), changes in government regulations (35%), alterations in their employer's long-term goals (34%), actions by competitors (34%), and geopolitical conflict and climate change (27% each).

One area of concern is the underutilization of generative AI tools. Although 47% of workers have used generative AI in the past year, only 18% use it on a daily or weekly basis. Despite this low usage, many employees are optimistic about the potential benefits of generative AI. For instance, 68% believe that generative AI will create opportunities to learn new skills, 64% expect it to enhance their creativity at work, and 57% think it will increase their efficiency. However, barriers to adoption remain, with 33% of those who have not used generative AI citing a lack of opportunities, 25% mentioning that their employer has not provided access, and 23% admitting they do not know how to use it.

There is also a notable disparity between workers' and CEOs' views on skills. Many workers, particularly those from older generations, feel their skills will remain relevant. In contrast, 78% of CEOs report experiencing some level of skills shortage within their organizations, and 68% highlight a lack of tech capabilities as a major barrier to transformation. This difference in perspective is reflected in the job market, where roles requiring specialist AI skills have grown 3.6 times faster than other positions over the past decade.

Despite facing numerous changes, workers generally trust their leaders to guide them through these transitions. The majority of employees understand (77%) and believe in (74%) their organization’s goals and long-term strategy. Additionally, 65% of workers view their senior leaders as competent, 63% see them as transparent, and 63% believe they genuinely care about their employees.

To address the challenges of managing change, leaders are advised to strike a balance between driving productivity and transformation while preventing change fatigue. Developing a coherent strategy that connects transformation goals with effective workforce planning is essential. Providing employees with the necessary tools, upskilling opportunities, and fostering a culture of empowerment and trust can help them thrive amidst disruption. By doing so, leaders can ensure that their workforce remains resilient, adaptable, and productive.

AI Survey: Four Themes Emerging

The Bain & Company AI Survey identifies prominent themes emerging in the adoption and impact of artificial intelligence (AI) across industries. If 2023 was about experimentation, 2024 is all about results. Companies are rapidly exploring ways to leverage generative AI to enhance their operations, with many already developing or deploying related initiatives. According to a recent survey by Bain, 87% of companies are either developing, piloting, or have deployed generative AI by the start of 2024. Early applications are primarily focused on areas like software code development, customer service, marketing and sales, and product differentiation.

The survey also highlights that companies are investing significantly in generative AI, with an average annual expenditure of about $5 million. Additionally, around 100 employees typically dedicate some time to these AI initiatives, and large companies may invest up to $50 million per year. Despite this investment, only 35% of companies have a clearly defined strategy for creating business value from generative AI.

In the transition from 2023 to 2024, companies have moved from exploring generative AI possibilities to focusing on delivering tangible results. While initial concerns about security and quality were prevalent, there is now a shift towards addressing implementation challenges. The concerns about organizational readiness have increased, while worries about investment returns and quality have decreased.

Five key areas where generative AI shows promise include sales operations, software code development, marketing, customer service, and onboarding. However, applications in legal, operations, and HR have seen less success. Technology companies, which are generally more advanced in their AI initiatives, report a slight decrease in readiness compared to late 2023, with challenges in data and security protocols.

Companies are experimenting with both purchasing third-party solutions and developing in-house applications. As off-the-shelf solutions become more available, some companies are opting to buy rather than build. The survey notes that while there has been a slight increase in buying third-party solutions, issues with vendor quality and tool performance remain. As the generative AI market matures, the focus will shift towards improving data quality and effectively operationalizing use cases to meet user needs.

Overall, the survey indicates that while generative AI holds high potential for business value, companies must navigate challenges in implementation and tool quality. As the technology evolves, the ability to integrate and optimize these solutions will be crucial for gaining a competitive edge.

Bias Busters: Next in line? A structured approach to succession planning

The McKinsey article by Tim Koller explores the critical need for a more structured and equitable approach to succession planning within organizations. It highlights how many companies lack formal processes, which can lead to inefficiencies and biases in selecting future leaders. A systematic and well-defined approach is essential for ensuring that succession planning contributes to organizational stability and leadership continuity.

One of the central themes of the article is the impact of biases on succession planning. Unconscious biases related to gender, ethnicity, and other factors often skew the selection process, potentially excluding qualified candidates from consideration. The article underscores the importance of addressing these biases to create a more inclusive and effective succession plan. By recognizing and mitigating these biases, organizations can improve their leadership pipeline and foster a more diverse and capable pool of future leaders.

To combat these issues, the article advocates for a structured framework for succession planning. Key components of this framework include defining clear criteria for leadership roles, implementing regular evaluations of potential candidates, and ensuring that the candidate pool is diverse. Additionally, the article emphasizes the need for tailored development plans that prepare high-potential candidates for future roles. This structured approach helps organizations avoid biases, aligns succession planning with strategic goals, and ensures that candidates are well-prepared for leadership positions.

The article also highlights the crucial role of senior leadership in driving a successful succession planning process. Senior leaders must champion diversity and inclusion efforts, hold themselves accountable for eliminating biases, and ensure that succession planning aligns with the organization's strategic objectives. Their engagement and commitment are vital for creating a fair and effective succession planning process that supports organizational success.

Global ESG due diligence study 2024

The "Global ESG Due Diligence+ Study 2024" by KPMG provides an in-depth analysis of the evolving role of ESG due diligence in mergers and acquisitions across different regions worldwide. The study, which builds on previous research from 2022 and 2023, highlights how ESG considerations are increasingly becoming integral to transaction processes, despite current economic challenges and geopolitical uncertainties. 

The study reveals that ESG considerations are now firmly on the agenda for 82% of global dealmakers, with 71% reporting that the importance of ESG in transactions has grown over the past 12 to 18 months. This trend persists even as global deal volumes reached a 10-year low in 2023 due to higher interest rates and economic uncertainty. While the importance of ESG is recognized globally, its emphasis varies by region. For instance, 57% of respondents in the Europe, Middle East, and Africa region conduct ESG due diligence to meet regulatory requirements, compared to only 19% in the Americas. This highlights the stronger regulatory drivers in Europe compared to other regions.

Looking ahead, 57% of respondents globally expect to conduct ESG due diligence on most of their transactions over the next two years, an increase from 44% historically. Moreover, 59% of global respondents are willing to pay a premium for targets with high ESG maturity, with more mature investors showing a higher willingness to pay over 5% more. This reflects a growing belief that ESG considerations can drive financial value in transactions. 

Despite the rising importance of ESG, challenges persist. Nearly 48% of respondents identified the challenge of selecting a meaningful yet manageable scope for ESG due diligence, while 45% struggle with quantifying potential findings. Additionally, 45% of respondents face difficulties due to the lack of robust data or written ESG policies at target companies. However, solutions are emerging, such as better integration with other due diligence streams and a more focused approach to ESG assessments. The study also highlights a significant gap in budget allocation, with ESG due diligence budgets remaining lower than those for other due diligence workstreams, such as financial or legal.

The report outlines best practices among mature investors, who are increasingly integrating ESG findings into post-closing action plans and leveraging ESG as a value creation lever. For example, some investors are focusing on areas like decarbonization and circular economy practices, which not only reduce risks but also open up new opportunities for growth and cost savings.

The "Global ESG Due Diligence+ Study 2024" underscores the rising importance of ESG in M&A transactions. It emphasizes that ESG factors are increasingly viewed as drivers of financial value rather than mere risks to be mitigated. However, to fully realize this potential, there is a need for better budgeting and more robust methodologies in ESG due diligence practices.

“Turn the Ship Around! A True Story of Building Leaders by Breaking the Rules” by L. David Marquet is a compelling and transformative book that challenges traditional leadership structures. Marquet, a former US Navy captain, recounts his remarkable journey of turning around the USS Santa Fe, a nuclear-powered submarine, from being one of the worst-performing in the fleet to one of the best. This book serves as a practical guide, offering invaluable lessons on leadership, empowerment and organisational change.

At the core of Marquet’s leadership philosophy is the “leader-leader” model, which challenges the conventional “leader-follower” approach. In traditional top-down hierarchical structures, decisions are made at the top and executed by those below. Marquet found this model to not only be ineffective, but that it also stifled innovation and ownership amongst the team. To address this, Marquest implemented a new approach where control was distributed throughout the organisation, empowering his team to take ownership of their roles and decisions.

Rather than issuing commands, Marquet sought suggestions and feedback, creating a culture where every crew member felt responsible for the ship's success. This shift from a permission-based culture to one centred on intent, where crew members would state, "I intend to...", cultivated a sense of accountability and initiative that transformed the USS Santa Fe into one of the top-performing submarines in the fleet.

Marquet’s key principles of Control, Competence and Clarity provides a roadmap for implementing this leadership style. By distributing control to those closest to the information and work, he ensures that decisions are made by those with the most relevant information. Competence is developed through training, ensuring that every team member understands their role and responsibilities. Clarity involves aligning everyone to common goals and outcomes, ensuring that all actions are purpose driven and strategically aligned.

One of the most striking aspects of the book is Marquet’s honesty about his own mistakes and learning process. He openly discusses how he initially led the Santa Fe using conventional methods, only to realise their shortcomings in this scenario. This honesty not only enhances the credibility of his narrative but also makes his leadership journey relatable to readers.

However, it is worth noting that some critics argue Marquet overlooks the importance of leadership readiness in his narrative. Not all employees may be prepared or willing to embrace the autonomy and responsibility that his model demands. In addition, decentralising decision making can lead to potential chaos and misalignment with organisational goals if not carefully managed. As a result, readers should be mindful of these potential challenges when considering how to apply Marquet’s strategies in different environments.

Overall, “Turn the Ship Around!” is a significant contribution to leadership literature, offering valuable insights into how empowering teams can lead to extraordinary results. Whether you’re leading a corporate team or commanding a military unit, the lessons from this book are applicable, making it a must read for anyone seeking to transform their leadership style and unlock the potential of their team. In a world where leadership is frequently equated with command and control, Marquet reminds us that true leadership lies in empowering others to lead. Demonstrating that true leadership lies not in authority, but in the ability to inspire and elevate those around us.

In Association with the KPMG Board Leadership Centre

Sam Allen Associates is proud to partner with KPMG’s Board Leadership Centre in delivering the latest insight to Directors. KPMG has an established reputation as a trusted advisor to many of the UK’s board members and KPMG Connect On Board, which is part of the Board Leadership Centre, has been designed to help non-executive directors, both current and aspirant to find their next appointment.

To hear about Board appointments and to support your non-executive career you will be able to register here.

School for CEOs are leading an immersive two-day programme, The Vital Few, taking place over 9-10 October 2024. The programme is designed to expose new CEOs and Executives to potential derailers, learning through the experiences of those who have been there before, so that they can step up to CEO with confidence and eyes wide open.