Ackerman has spent 25 years picking successors a strategy that pays off

The departure of CEO Sean Summers from the family-controlled business will not disrupt operations, writes Michael Bleby

Business Day
August 29, 2006

Raymond Ackerman has two large files in his Cape Town office. The Pick 'n Pay chairman says these are a record of every succession-planning meeting he has held over the past 25 years.

If there is one thing he's done right, Ackerman says, it is succession planning.

Last week's resignation of Pick 'n Pay CEO Sean Summers - "for a change of scenery" - put that planning to the test. Ackerman admits Summers' decision took him by surprise - he had expected him to stay another two to three years - but the advanced planning meant a successor could be named immediately.

"I've been pathological about succession planning," he says. "From the day Sean was made MD, even before he was CEO, we were planning for it. The real planning was in case of illness or death."

Such is the level of Pick 'n Pay's planning that if CEO-elect and retail MD Nick Badminton were to become seriously ill, die or be poached tomorrow, the company could immediately name his replacement, Ackerman says.

"We carefully analyse. If something happened to Badminton or my other two MDs, we've got names down there."

Ackerman says he is entertained by reading through the files and seeing the names that have cropped up in the past.

Planning requires consideration of a successor to be constantly updated and the people who were once likely candidates may not be now. Staff within an organisation change, as do circumstances and what they demand of a leader.

"It's amazing how the names have changed. One guy emigrated to Hong Kong - I thought he was going to be the CEO years ago. Your planned person may have been planned 10 years ago, but he might not be right for the position now. You've got to take today's circumstances into account," he says.

"We'll start (considering) whether the names put down for Badminton's successor are the ones we'll keep to."

Managing succession can be a tough issue. Companies worldwide are becoming better at planning, partly because of the tendency by boards to become more active with regards to corporate governance. Four times as many of the world's CEOs were sacked last year as were 10years earlier, says consulting firm BoozAllenHamilton.

Not all corporate succession in SA occurs as smoothly as with Pick 'n Pay, however. Massmart CEO Mark Lamberti said last year he would step down at the end of next year, but the company named his successor, Grant Pattison, only in May. Still, the owner of Game and Dion stores is hardly the exception. Absa's transition from Nallie Bosman to Steve Booysen via the possible candidacy of Rupert Pardoe created more uncertainty than was good for the company or shareholders.

Ackerman says Pick 'n Pay's family-controlled status makes the task more complex. His family owns 51% of Pikwik, the holding company that controls the JSE-listed supermarket chain.

Separating the family's ownership from day-to-day management of the company took effort and some good luck.

In 1993 Ackerman was at an international gathering of grocers in Paris. He spoke to the boss of a French supermarket chain, Groupe Casino, about succession problems in family companies.

"We had a session on family-controlled companies," Ackerman says. "He suggested an American company that was good on family business succession planning."

Ackerman went to the US to meet with three companies that consulted to family-controlled businesses.

Ackerman selected Massachussets-based Genus Resources, led by Tom Davidow and Richard Narva. Davidow helped Ackerman choose roles for family members.

"He's really helped us with the smooth planning of where each of my family should go or could go, depending on their abilities," Ackerman says.

Ackerman's oldest son, Gareth, formerly MD of the supermarket chain, is on all the family boards, but is not now involved in day-to-day operations. Part of succession planning is, after all, knowing who not to appoint.

"The family realised after an in depth report that Gareth was not the appropriate person to run the company," says Syd Vianello, a retail analyst at Nedcor Securities. "The family had to make that very hard decision to protect the family wealth in the long run."

Gareth chairs the family executive, composed of Ackerman's four children, Ackerman and his wife, which oversees family investments outside of Pick 'n Pay.

"We wanted to separate family finances and control entirely," Ackerman says. "He (Gareth) has taken the burden of the family finance away from me."

In the Ackerman family's case, the corporate has become the personal. The Genus consultants told Ackerman that to run a family-controlled company successfully, there needed to be harmony between family members.

"They got me drawing up a family corporate governance document, then a family council, where the four children and their spouses and my wife - 10 of us in all - meet. As the grandchildren reach the age of 16, they become observers invited to meetings. Each is given a small sum of money to invest and then they report back to the council."

With these structures in place, the family that controls Pick 'n Pay spends "an inordinate amount of time" discussing succession in the company, Ackerman says.

"With those findings we go back to the board and advise. We ask them to hear us, evaluate and make their decision. The board is dominated by outside nonexecutives. We come along with our findings, we debate them and they either take It on board, or they say they like it but we should do this or that."

All these discussions take place at board level each September.

Ackerman, who founded the company, which listed in 1968, was CEO, MD and chairman until 1986, when Hugh Herman, later Investec chairman, was appointed MD. He stayed until 1993. Gareth and former human resources director Rene de Wet have served as MDs of group enterprises and retail, respectively, since the positions were split. Summers was appointed retail MD in 1995 and CEO In 1999.

Ackerman has kept a close eye on his leaders. For the first two years of Summers' appointment, he reported to Ackerman.

"We wrote a job description that internally he would be at my knee, and externally he would be CEO. After two years, we told him he reported to the board."

Ackerman says he is now more experienced in handing over to a new CEO than he was with Summers, but will still keep a close eye on Badminton.

"The board have asked me to do exactly the same for Nick. I'm staying on as full-time chairman. I will be a watchful, helpful eye and a shoulder," he says.

Ackerman will no doubt keep a close eye on Badminton as he implements a strategy for the company over the next 10 years to replace the one that began in the mid-l990s.

"The most important thing is to keep profit growth going at 15%-20% a year," Ackerman says.

Development of the company's young black executives is also a crucial part of the next decade, as is the expansion of the company's franchised 170 family stores.

The company wants to expand in southern Africa beyond the eight countries in which it already has a presence.

It also needs to decide what co do with its struggling Australian Franklins subsidiary.

"We want to get Australia right and if we don't, we'll do something to get out of there. It looks as if it's coming right, but we'll know in the next year or so. We'll expand in Australia if we get it right."

Corporate succession in SA generally leaves much to be desired, Ackerman says.

"I think there's a lot of room for improvement. It's hard for me to criticise other companies, but I don't think enough time is really taken. I'm very sad about Sean, but thanks to the planning, it really is business as usual. To me, it's the main job of a chairman and the board. You should continually have it on the agenda of a board meeting at least once a year. It's as cardinal as our store opening programme."

And what of a successor to Ackerman? He says there is already a name in those files who could step in tomorrow, if need be. However, Ackerman says he has not yet reached the checkout.

"While I'm fit I can help the CEO. I will stay for a couple of years. I don't want to hang past my sell-by date," he says.