By Elisa Martinuzzi
New York: Picking a new CEO is one of the most important decisions a board can take, yet one that Europe’s banks appear to be intent on flubbing. Lenders are struggling to find successors for the current crop of leaders.
Take UBS Group AG. The Swiss bank revamped its management board, hiring a star banker from a rival and promoting two more insiders. Yes, the revamp is a step forward for gender diversity, for a firm whose senior ranks were distinctly lacking in women, and the appointees may turn out to be potential candidates for the top job in future years.
But the reshuffle is also a sign that the number of potential internal successors for CEO Sergio Ermotti isn’t as big as it should be by now. Almost eight years into his tenure, the chairman and board of directors have few excuses. By now, there should already be several candidates just about ready to replace him.
Not just a UBS problem
UBS isn’t alone in grappling with succession. Hours after naming a new CEO, Swedbank AB was criticised by Sweden’s biggest shareholder group for picking such an insider — and one who had failed to prevent the bank from engaging in alleged money laundering. Given the scandal wiped more than 40 per cent off the bank’s shares this year and triggered the exit of the previous CEO, discontinuity wouldn’t have hurt.
Then there’s Santander SA. A year ago, the Spanish bank hired UBS’s then investment-banking chief, Andrea Orcel, as its new CEO. Yet before he had even started the two fell out over compensation and are now locked in an acrimonious legal battle after Santander rescinded its offer. Santander resorted to asking the existing executive to stay in the job, raising doubts about how the board came to hire Orcel in the first place.
Among global finance titans, HSBC Holdings plc ousted CEO John Flint. He was just 18 months into the job. Tensions with chairman Mark Tucker and a clash of style were among the reasons for the exit. Surely the HSBC lifer’s strengths and weaknesses would have been a known quantity to the board by the time he was appointed.
Europe’s diverse languages and cultures that go along with them do make filling the CEO post more challenging than in the US, but that means the boards and the incumbent executives should be even more focused on the task of avoiding leaving succession to chance.
It would help to align CEOs’ pay more closely with how they have groomed and retained top talent so that if they were to be hit by the proverbial bus an internal replacement would be on hand. While financial targets are clearly important for any CEO, shielding the company from potential instability if they were to leave is perhaps an underrated but critical function.
It’s up to shareholders to ramp up the pressure on companies’ boards. Choosing the right CEO is only going to get tougher as technology advances alter the economics, competitive landscape and opportunities. The next wave of CEOs may not be working in finance right now. Boards’ poor showing of late should be a cause for investor concern.