Does being a good long-term investor also make someone a good long-term business manager? Platinum Asset Management’s shareholders, staff and clients are about to find out.
Andrew Clifford’s job is to find appropriately priced companies to invest his clients’ money in, and he’s good at it. Part of his job is to make judgements about the quality and the capability of a company’s senior management, and its long-term stewardship of the business.
How control transfers from one generation of management to the next is critical to any firm’s ongoing success. Get the choice of a new leader wrong, and it can have catastrophic effects on how the business is perceived and how it performs. A radical appointment can spook investors and customers. But it can be just as big an issue if a change at the top merely preserves the status quo, and jeopardises the company’s ability to adapt and grow.
Recently these issues have taken on a new dimension for Clifford and his colleagues at Platinum Asset Management, but as business owners rather than as investors.
On July 1 this year Clifford will become Platinum’s new – and second-ever – chief executive officer when he takes over from Kerr Neilson, who has been the public face of the business since its establishment. Clifford and Neilson are the two remaining co-founders of the four who left Bankers Trust in 1994 to set up their own funds management firm.
How Platinum has approached the issue of succession contains lessons for all business owners.
When a business is starting out, formal reporting structures and processes are often less important than just getting the job done. Roles and responsibilities can be fluid; everyone pitches in wherever they’re needed. This describes Platinum in its early days: in an interview as part of No More Practice Education’s Thought Leaders series, Clifford recalls the early days when the business was “just four of us sitting in a room [and] nothing needed to be managed”. If you had a question, he says, you just turned around and asked the person sitting next to you.
In these circumstances, a succession plan just wasn’t needed. But that’s not to say the firm’s founders weren’t thinking about it – it’s just that any business has to walk before it can run. It’s not until it becomes better established and its responsibilities to other parties, including clients and staff, start to become more significant that it brings into focus the question of how the business is going to outlive its founders.
A key part of a succession plan, therefore, is eliminating so-called key-person risk to the greatest extent possible, by ensuring the business’s processes and procedures are well documented, properly implemented and understood by staff, and therefore consistent and repeatable, irrespective of who is at the helm.
Clifford says that throughout its history, Platinum has retained 10 of its 14 portfolio managers and its investment team now totals 30. It has accordingly developed and refined its management processes and structures (as distinct from its investment process, which has been consistent from day one).
Despite the best-laid plans, no business going through a management succession plan can ultimately control exactly how its clients and how the market might respond, and may have to face some short-term pain. Even though Clifford replaced Neilson as Platinum chief investment officer in 2013 with nary a hiccup in the firm’s investment performance, the market initially reacted negatively to Clifford’s appointment as CEO, with Platinum’s share price immediately falling as much as 12 per cent.
Clifford acknowledges that some clients may not be happy seeing Neilson step down, and may withdraw from Platinum's funds. The real impact on the business may not be known for another six months, he says.
If a business achieves sustained success then it will have to confront the succession issue more than once. While Clifford will lead Platinum for the foreseeable future, he’s already looking ahead to when the business is larger again, and facing the challenges that more growth will inevitably present.
The capacity to look forward, through what’s happening now to how things may play out in future, is an essential element in Clifford’s success as a long-term investor. Platinum’s shareholders, clients and staff will be hoping the same capacity stands them in good stead as he guides the business through the next phase of its development.
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