By Louise Chaplin. Published on 25 August 2016
As organisations evolve from a small, entrepreneurial start up to an SME and beyond, inevitably, the demands on leadership teams change and intensify. The skills of a visionary who can spot a gap in the market and develop a product or service to fill it are very different from those required once the organisation takes on significant numbers of staff or when private equity gets involved.
A critical skill for any leader is the ability to understand and create the right team for each point in the organisation’s life cycle. And to recognise the right time to step away.
Growing into an SME
The changes in the composition of leadership teams of very young organisations tend to be organic. An individual or small group of likeminded individuals establish a company and divvy up roles and responsibilities. Over time additional directors are accumulated, often with no clear plan for responsibilities and so demarcations become blurred.
It’s at this stage, the tendency to hire from a limited talent pool can become an issue. Often this means recruiting from the leader’s own network, resulting in a team that may be good company, but isn’t necessarily the right mix of talents for a sustainable business.
I’d encourage any organisation looking to grow or develop the leadership team to consider the wider market. The quality of talent that would be attracted to the challenge of working with an SME often pleasantly surprises our clients. Working with an executive search firm like Eton Bridge Partners means these organisations can access a wider talent pool that can help them grow and flourish.
I encourage even small organisations to establish a good idea of the general structure, governance and capabilities needed for the next stage in its growth, before starting the recruitment process. I recommend having the leadership structure in place that you will need in two years’ time. This prepares the organisation for its medium term future, embeds the rigour of decision-making and creates the governance the company will need in the long term.
A good executive search partner will help you think this through. As a minimum I’d recommend including the following roles:
- CEO, Managing Director (or equivalent)
- Finance Director, Chief Finance Officer (or equivalent)
- Chief Operating Officer, Operations Director (or equivalent)
If your organisation adopts a formal board structure you will want to consider having a Chair, though this role is often taken on by the CEO, which can bring governance problems of its own.
Consider the balance of skills needed in the leadership team beyond functional expertise and ensure your approach to recruitment and selection addresses this. If the team currently lacks someone who can turn vision into direction; that’s clearly a skill you need to bring in.
From small to medium
As an SME grows, so different structures and different talents are required. The team that grows a company to £5m turnover is unlikely to be the one to take it to £50m.
Growth in the form of expansion into new territories or acquisitions, often presents the chance – and the need – to bring in new blood with a different perspective. This can mean making some difficult decisions about who needs to leave, but with the right planning in place at least those decisions will be balanced and objective.
There comes a point when even the leader at the very top has to ask him or herself if they are the right person to take the organisation to the next stage of growth. Some of the most successful entrepreneurs have made an art out of spotting the right time to bring in an experienced MD or CEO to take the reins.
Sometimes this may be a decision that is taken out of the leader’s hands. Securing investment from venture capitalists, for example, will mean at least some loss of control and many private equity firms will want to bring in their own leadership teams and ways of working.
For some, selling the business and moving on to something new is the ultimate objective. For others it can provoke an existential crisis!
Is a board required?
There is no legal requirement for a company to have a board. Limited companies need one director (two for listed companies) and the reality is that all listed companies do have a board.
There are no firm rules about numbers or composition of boards, although the UK Corporate Governance Code suggests a board should be “of sufficient size that the requirements of the business can be met… and should not be so large as to be unwieldy.”
This generally translates into a board of between six to twelve people.
Non-Executive Directors (NED) can be a cost effective way of adding skills and objectivity to a board or leadership team cost effectively as they can be engaged for just one or two days a month, to cover preparation for and attendance at meetings. Some organisations make further use of NEDs for coaching and governance.
Alternatively, a less informal advisory board is a good way of tapping into external expertise and their networks.
Work with a trusted partner
The ability to take a long-term view of the leadership needs of your organisation while maintaining business as usual, is a challenge.
The Board Practice at Eton Bridge Partners helps the boards and leaders of mid-sized organisations and larger companies through these transitions. We specialise in finding and engaging top talent for boards and leadership teams of fast growing SMEs and listed companies.
For an informal conversation about how we can help your organisation please email me at firstname.lastname@example.org or call 01753 303 600.
Eton Bridge Partners has contributed to a new Institute of Directors and Kogan Page publication, The Growing Business Handbook. This blog summarises the chapter we provided on leadership teams that adapt to the needs of the business. For the full article please visit the Institute of Directors website where the handbook is available for sale.