Few would disagree that we are (and have been in the post-Covid era) experiencing a period of change in the UK to many aspects of employment. Some are sector and business specific, and others are social. However, in addition there is another set of changes being driven by government to “reset” some aspects of the employer/employee relationship.
The 150-page Employment Bill of Rights proposed in 2024 seeks to amend many aspects of the relationship and some of these have received notable media attention. Currently under consultation is the period after which employees gain rights that would otherwise have been gained after two years. Of, course, employees already have rights from day one. These include health and safety, discrimination, minimum wage, contractual clarity etc.
Advocates for day one rights argue that there is little to fear and that the changes will merely make the relationship more equal. Opponents argue that they will restrict employer decision-making. Whichever side of the debate prevails, all will agree that there will be need to sharpen recruitment decisions and other HR processes such as performance appraisals.
Client Listening
Over the last few years, we have spoken and worked with both investors and businesses to support their conventional Management Due Diligence activities.
This, of course, continues, but it has also highlighted whether, at times, a better picture would have been achieved by including (or even emphasising) the next level down.
The Wider Perspective
The need to look more widely seems to be the case even in larger target businesses that have developed systems for monitoring and reporting performance.
Typically, one would expect a similar approach to tracking management capability and potential but alas that is not often the case.
It is of little surprise to find HR practices, at best, disappointing. It is the SME situation, however that the issues are most clearly illustrated.
We are not saying, or course, there would be no review of the most senior players or execs in the business and to focus exclusively on the levels below.
However, it strikes us that since much of performance can be dependent on the talent beyond simply the most senior people, then that should be recognised in the approach to Management Due Diligence.
Six central reasons for expanding the Management Due Diligence focus.
There are six primary reasons for expanding the focus of any Management Due Diligence or “talent review”.
- As suggested, while investor attention and Management Due Diligence are clearly concerned with the decision-making capacity and capabilities of the most senior people, much of the delivery of that may in others’ hands i.e., the old mantra “a good leader is only as good as the people around them”.
- There is the assumption that the current senior people are getting the best from those at lower levels. Given that many businesses especially SMEs, can be founder and/or founder team led and that there is intense competition for their attention, accepting they are getting the best, may be a big assumption to make.
- The nature of the business’s growth and the roles therein, may not have been the right forums for those at lower levels to demonstrate what they can do.
- There is the implicit assumption that the talent of the existing leaders surpasses that of those below i.e., the real talent and potential may well not be in the senior people but at the next level.
- There is also always the worry that the exiting senior team have already given it their all and that, in reality, adding value would be better with others from different levels or, course, from outside.
- The picture that is created for the investor of other levels in the business is often coloured by the comments from the senior people. They may well be spot on in their assessment of their people and one would want this to be so. However, this is not always the case (and can be especially so in a situation where development of the business has not provided opportunities for those beyond the top team to “showcase” their potential).
You just won’t know if you don’t look.
Our main argument here, is that with all of these six points, unless you look, you won’t know. To do so, the process is largely the same as any development review process.
In MDC Advisory we follow clear, agreed processes. In summary, these are the same as for Management Due Diligence with the senior people.
They are conventional though typically for levels beyond the most senior, we place a special focus on the communication and engagement components (for the obvious reasons of addressing participant concerns).
As the business progresses towards growth and onto it exit plan, the obvious issue is conventional succession planning. In fact, one could argue that Management Due Diligence should be as valid at the other end of the investment journey i.e., in the preparation for exit phase.
In Summary
- Often Management Due Diligence focusses on the most senior within the business.
- With the future in mind, lesser focus on the next level seems like missing out in achieving a true picture of potential talent.
- The methods to do this are well-established and need not be burdensome.
About The Author
Dr. Steve Sloan is an acknowledged leadership expert and consultant who has over 20 years’ experience advising clients globally.
He can be contacted via email or by calling 07585 548420
