With corporate spin-offs common among multinationals in FMCG as well as other sectors, the CEO of a new business must be willing and able to take the brand in an entirely new direction from day one. Richard Sumner, regional managing partner, Europe and Africa for the Consumer Markets Practice at Heidrick & Struggles, reports.
Amid recent discussion in the FMCG sector about more company carve-outs, the complexities of leadership in this area are becoming increasingly apparent.
After all, when any large company takes the decision to spin off a segment of its business into an entirely new operation, the management structure will be very different to that of a company built over a long period of time.
Spin-offs are common practice among corporate entities worldwide. Last year, Kellogg’s announced its intention to separate its North American cereal and plant-based foods businesses, resulting in three new independent public companies with a combined revenue of almost $15 billion (€13.8 billion). Meanwhile, Kraft Heinz is currently mulling over the sale of its Oscar Mayer meats business, valued at up to $5 billion (€4.6 billion).
Projects like these can take many months or even years to complete, with costs ranging into the hundreds of millions. According to KPMG, ten percent of corporate spin-offs are cancelled, while seven percent are simply abandoned.
Innovation And Decision-Making
Amid the successful spin-offs, the leadership consulting firms tasked with placing a new CEO are encountering an increasingly common challenge: locating a candidate with the requisite sense of innovation, fast-paced decision making and rapid growth that may not be typical of the parent company from which the new brand is emerging.
Finding and placing CEOs for these businesses is a complex task with a range of variables and factors for those responsible.
Evolution Of A Spin-Off
Instead of speculating about any real-world examples, let us instead consider a hypothetical new multinational business, recently taken private in a carve-out led by a private equity firm.
Before the divestment, this company would have acted as one of many divisions within the larger entity, headed by a managing director responsible for keeping manufacturing, sales and marketing under budget. Meanwhile, strategic decisions related to the business itself would have been the remit of the larger parent company.
There is a good chance its product range is a significant contributor to the larger company revenue, so the appetite for big moves and seismic changes is low. Change, when it comes, does so slowly.
Once the new company is out there on its own in the world, all that changes. The role once occupied by our managing director becomes greatly expanded, while the appetite for growth and innovation suddenly shifts from cautious to ravenous.
This overnight shift presents a challenge for the board, in finding an individual with the experience, qualities and mentality for the role. To put it bluntly, it often will require a leap of faith. They need to be someone who will, from the top down, create that culture of innovation, agility, and growth, as well as the willingness to make tough decisions.
Decisions, Decisions
One of the biggest differences between the old and new role at the head of a spun-off company is the context in which decisions are made.
At bigger companies, there are so many people involved in the decision-making process that supposed 'bad' decisions get squeezed. It’s like how innovation is often known to get inadvertently suffocated by middle management.
In the new environment, it will be a smaller and leaner operation, and the opportunity for an incoming CEO to make decisions quickly can be exciting. Of course, the challenge with that is that bad decisions can come quickly too, but what matters is autonomy.
Another consideration when fielding potential candidates for a spin-off CEO is the potential impact on the market. If you’ve got people with agility and an ability to stand by their decisions, that will undoubtedly benefit the new company, but it’s also important to ensure they take the time to understand the business in which they’re operating.
A growth mindset and ambitious outlook should be tempered by the brand itself, which also dictates to some degree what type of people one should be looking for.
The Search
The key to finding this individual is gauging their appetite for risk. It is an attribute that any candidate can claim, so proof of such a thing should be evident in their career to date. Have they sought various challenges in their career?
Perhaps they have opted for a location that is not the most attractive, or, in the case of an FMCG group, have they opted to head up lesser known or profitable brands? Ambition can come in many forms and seeking out the biggest P&L is not necessarily the only route to the top.
With all this in mind, as corporate spin-offs and divestments continue into 2025 and beyond, we will be watching closely to see new companies' executive teams come together, and what bold moves will be the first order of business.
