Insurance CEOs: Picking the perfect candidate

Question: What do Towergate, RSA, Zurich and Aviva all have in common?

Answer: All of the above found themselves searching for a new CEO over the past 18 months.

And while the latter three all secured appointments – in the forms of Stephen Hester, Steve Lewis, Vihbu Sharma and Maurice Tulloch – there remains at least one high-profile CEO vacancy in the insurance industry.

Naturally, speculation is rife over the identity of Mark Hodges’ successor at Towergate, and whoever is brave enough to step up to the plate will likely find themselves under intense scrutiny, both within and without.

But before they can even sign on the dotted line at the beleaguered broker, the new CEO will have to cut the mustard with the regulator – a task that has not always proved straightforward for the c-suite, as Legal & General reportedly found out to its cost when attempting to appoint a new chief financial officer in June 2013.

The FCA stepped in to block the insurer from naming KPMG’s former UK head of audit Oliver Tant as CFO, just over a year-and-a-half ago, with concerns believed to be focused on Tant’s lack of insurance experience. L&G moved on and instead promoted the head of its saving business, Mark Gregory, a month later. Tant now serves as CFO at Imperial Tobacco.

All of which goes to show that the days in which an insurance boss could simply anoint their successor based on a school tie – if such days ever existed – are now surely gone.

It is perhaps surprising, therefore, that a study by recruitment firm Hire Right found that across all sectors in UK plc, CEOs go through fewer interviews than graduates, with one in three CEO candidates undergoing little due diligence prior to appointment.

However, UK General CEO Peter Hubbard disagrees, saying standards of demonstrated experience required for insurance CEOs, particularly for internal appointments, have been continually rising since the mid-1990s. “Twenty years ago, you could move up quite successfully within an organisation without being challenged about your understanding of what is going on in the big, bad world,” he says. “But I’ve got a feeling those days are numbered.

“Employers are more selective and tend to interview more candidates than they did before, and if you just think about regulation, the reality is boards are far more aware of the fact they have to go through a pretty formal process to appoint a CEO,” he warns.

However, he concedes that such rigidity is unlikely to be the norm in smaller businesses, saying: “What you tend to find further down the industry is less rigorous, but even that is starting to change. And it is probably driven by the fact that you have to go through an approved persons regime, and you have to interact with the regulator over the appointment. At the end of the day, the appointment of a CEO – even in small organisations – is moving towards a more structured, open and competitive approach.”

Better practice
Axa commercial lines and personal intermediary HR director Richard Trotter says that while a CEO may well go through fewer interviews, it is this regulatory influence cited by Hubbard that means insurance and financial services would likely be examples of better practice than other sectors.

“Because we’re so highly regulated, particularly over the last few years, we could probably say we’re more worried about [getting the recruitment process right] than anyone else,” Trotter says. “And probably in senior roles we are more thorough than we used to be.

“People want to make sure they do everything by the book, but that applies to all levels we look at, whether it is sales or distribution. In principle, we apply the same process to recruiting a CEO as we would to an underwriter in branch, although a CEO probably wouldn’t go through as many interviews. Whether it’s a low-level underwriter or not, we would still go through the same external screening process and on all external recruitment we would still use a company to do background checks.”

Conrad Hills, director of financial services at recruitment consultant Norman Broadbent, says employers have long used thorough assessments for graduates in a bid to narrow down substantial pools of candidates who may all have similar qualifications.

“It’s very difficult to do when you’ve only got five places,” he explains, “ so companies get quite exotic about how they are going to assess people. You might go to a two-day assessment centre with group exercises, presentations and psychometric tests all used to model up who would be most likely to be successful.

“Those kinds of assessment are in excess of 75% accurate in terms of predicting success in a role – you can get a really good measure. However, with CEO and other c-suite roles, it tends to be more of a biographic interview – and nothing like as scientific,” Hills admits.

The recruiter says CEOs may only be asked to go through their CV and evaluate their own strengths and weaknesses, although he argues this may be changing.

“There is a lot of informal referencing when it comes to CEO appointments, but we have seen an increased reliance on a slimmed-down assessment centre over the course of the last few years.

“One centre in Covent Garden offers a four-hour assessment that does some basic ability tests on verbal and numerical reasoning and a competency based review, and they’re done by doctors of occupational psychology. They’re proper competency based interviews, and I’m a real believer in them,” Hills says.

Revealing interviews
Candidates facing such interviews may find themselves asked how they reacted as a child when faced with conflict, such as when a toy was stolen from them. “’Did you stamp your feet? Did you punch the thief in the face? Did you stand there and cry or did you run to mummy and tell on them?’ That is the pure way you dealt with conflict at the age of three, so how do you deal with it now? And when are those pivotal magic moments in your life that you decided that snatching your toy back wasn’t the best way to behave?’ It’s really interesting stuff that can reveal quite a lot about individuals,” Hills concludes.

Bluefin executive chairman Stuart Reid was in the position of recruiting his own replacement when the broker hired Mike Bruce from Heath Lambert in February 2010.

Reid, then CEO, says he sourced Bruce as part of a lengthy process for a successor, although Bruce didn’t take on the role until July 2013. “We had a process that was set out for succession some two or three years before I handed over,” Reid recalls.

“We employed an agent who went out primarily in the insurance market – although not exclusively – and looked for someone with broking experience or who was in a senior position within a broking company that did similar things to ourselves. Then we worked very closely together for the two or three years until I was ready and Mike was ready to take over the reins. So it actually worked out very well,” he says.

However, Reid admits that in the era of the Financial Conduct Authority, the broker would perhaps move in a different direction if it was forced to repeat the process.

“I might be looking for a different animal. The list of wants and needs would be somewhat different now than it was two or three years ago, in that the spectre of regulation hangs large at the moment – not just for insurance brokers but also other insurance companies.

“Regulation was always in our focus when we were looking for a replacement, but it is much bigger thing to consider now when recruiting for a CEO,” Reid says, pointing to ongoing plans from the regulator to hold the CEOs of insurance companies to greater account for the performance of their businesses.”It’s not just looking for someone, it’s finding someone prepared to take what could be a relatively onerous liability on themselves.”

Over at Axa, Trotter says the most important criteria in a hunt for a business leader relates to the current position of the employer. If change and market reassurance is needed following a crisis, a company must seek out a candidate with this in mind. Conversely, business as usual might mean a different set of needs.

“You might think you need someone to bring in a substantial change because you’re haemorrhaging cash, or you might think morale is so low that you need someone who is a great leader and can inspire, or if your reputation is low you might need to bring in someone whom the market sees as solid and is going to give business confidence back,” he explains.

“You’ve got to be really clear with yourself and your board on the reasons for bringing this person in and then be prepared to stick to your guns, but there is a key problem in that boards don’t necessarily clearly articulate the type of person and the key functions [they are looking for]. You might say someone is a nice guy and do the checks – but then they’re not a success because you haven’t aligned the requirements of the individual you are looking at [with the board’s requirements].”

At the same time, Hills says that there are more similarities in the characteristics sought by insurance companies than there are differences. For a large UK general insurance business, Hills argues the list of potential candidates can be fairly limited.

“You wouldn’t appoint anyone that didn’t have previous GI experience. That’s the first given. And then while there are some big companies and lots of medium-sized companies, you might struggle to explain why you should offer such a big job to someone who has only run something medium-sized. So a big GI company will hire from one of the big firms, an Aviva or a Direct Line.

“But then you might not be able to appoint Paul Geddes or Mark Wilson, so you would be looking at appointing someone who is a divisional CEO within one of their large competitors. All that reduces the number pretty quickly, and some of those individuals would prove quite sticky, I would imagine,” Hills says.

Difficult to differentiate
This means using recruitment firms may not bring much to the process. “The market almost paints itself, and it is difficult to differentiate what one search firm can do that another can’t. And because of regulation, some experience of the UK market is likely to be required as well,” Hills explains.

All of which makes it understandable for the top table of the UK insurance sector to be regarded as a bit of an old boys' club – there can only be so many candidates for these roles, and many will already know their potential candidate or recruiter through market events and networking.

Nonetheless, Reid maintains that because of the importance of the appointment – and the increasing average tenure of CEOs – insurers and brokers alike will make sure they use any and all means to get the right boss.

“You may have a network and know a lot of the people around, but I didn’t know Mike [Bruce] before he came to us,” Reid says. “Going to a headhunter was absolutely right for us, and had it not been for that, Mike wouldn’t be here today. However small the city is, I hadn’t met Mike before.”

This article was published in the 29 January edition of Post magazine.