Pricey foreign CEOs in retail no guarantee of success

● As South African retailers embark on strategies to internationalise their business, several have recruited foreign CEOs — but this has not always yielded the expected benefits.

One company that did strike the right note — at least initially — was Edcon, when it employed American CEO Stephen Ross to transform the company ahead of Bain Capital buying it in 2007 for R25-billion.

But in the nine years that followed, German national Jürgen Schreiber, who replaced Ross as CEO, failed. And by the time Australian Bernard Brookes took over as CEO, it had suffered insurmountable losses, ultimately leaving Bain with no option but to exchange the retailer for nothing but a few hard lessons.

Edcon is now putting its trust in South African Grant Pattison, who started as CEO this week. He will prepare the group for a listing and expansion. Pattison was the Massmart CEO who led the sale of a stake in the group to Walmart.

Likewise, when grocery retailer Pick n Pay sought to implement a turnaround strategy, it looked to former Tesco executive and Briton Richard Brasher, whose efforts are starting to pay off.

Brasher replaced South African Nick Badminton, who had failed to transform the business, enabling Shoprite to take market share and leaving a sour taste in the mouths of many shareholders.

Woolworths’ appointment of Ian Moir in 2010 was part of a larger strategy to move the business into new territory, but it’s a move that has recently cost the business far too much, with failures at its Australian business David Jones.

Truworths’ attempts to bring in foreign talent were shortlived.

Frenchman Jean-Christophe Garbino was appointed CEO-designate in 2014 but departed at the end of 2015, leaving Michael Mark — who had been running the business for 25 years — still in the CEO seat.

Most retailers have more than one foreign executive.

For example, Woolworths has six expatriates on its board, Pick n Pay three, Spar four (heading the Ireland and Switzerland operations), and Massmart four.

Yet at the biggest and perhaps most successful retailer, Shoprite, there are none.

Of the South Africans on the boards of retail companies, many have studied overseas, with degrees from universities such as the London School of Economics and Oxford, suggesting that international expertise is almost a prerequisite for a senior position in local retail.

Part of the appeal of bringing in foreign executives is the expectation that they will introduce new ideas.

Andrew Woodburn, CEO of executive recruitment firm Woodburn Mann, said in some cases the limited pool of retail executives in South Africa had led to similar experiences and ideas in the industry, making unique approaches difficult.

“Most senior executives in South Africa have already been tested in various scenarios. If you have been given a turnaround person and they had a chance to succeed, but didn’t do it, why would you want that? So you go and find someone who has succeeded in turning around a Tesco or a Marks & Spencer.”

Natalie Singer, an equal-pay consultant at Global Business Solutions, said: “Too many organisations simply ‘plug and play’, hiring someone who has already performed precisely this function elsewhere, ideally at a competitor, rather than consider transferable skills.”

But even if a company is looking for local talent, executives also have other options.

Singer said there were increasing numbers of skilled South Africans being enticed to work elsewhere and this was causing a brain-drain. Economic, security and political conditions were leading to skills exiting the country.

Global expertise comes at a price. Singer said foreign executives would have an earnings expectation and companies were required to match or even exceed this to attract the skills.

“Once exchange rates, scarce skills and experience are factored in, the rand value may exceed what would have been paid to an individual had they been a South African citizen,” said Singer.

In 2015, before Brookes left Australian retailer Myer to join Edcon, he was paid $4.25million (about R50.5-million at today’s exchange rate), despite declining retail sales at the department store. According to the recent Edcon annual report, in 2017 Brookes received R33.7-million, which included a bonus of R20.2-million.

Truworths’ Mark earned R12.63-million in 2017 and Mr Price’s Stuart Bird R8.03-million. Massmart’s Guy Hayward earned R6.1-million in 2016.