Business Essentials: To lose one director is unfortunate. To lose two...

If people are a company's biggest asset, then losing a top executive must be counted as a liability. What makes it even harder for M&M Plasline (MMP), a construction company based in the North-east, is that this departure was, by its own admission, largely the firm's own fault. Now, MMP's challenge is to work out how to move forward and overcome the losses it has incurred as a result.

If people are a company's biggest asset, then losing a top executive must be counted as a liability. What makes it even harder for M&M Plasline (MMP), a construction company based in the North-east, is that this departure was, by its own admission, largely the firm's own fault. Now, MMP's challenge is to work out how to move forward and overcome the losses it has incurred as a result.

Michael O'Connell founded MMP 18 years ago. "I started out in a caravan and have grown it into a £16m company employing 250 people. We provide construction services to the health sector, schools and universities, as well as housing.

"We have a number of companies within the MMP group, including one focusing on finishings and another on joinery and shop fittings. And we have recently formed yet another company, MMP Estates, which will buy and sell land and develop property."

Up until November last year, Mr O'Connell was managing director. "It felt like a natural progression," he says. "You start up the company and you run it. But eventually I got to the point where the business had expanded to such an extent that I needed support. So we restructured our board with me as chairman and Ian Smith, an employee, as managing director."

Two months ago, though, Mr Smith resigned. "It was when he was divisional manager that I agreed to make him MD," recalls Mr O'Connell. "We agreed we would review the situation after 12 months, but he didn't last that long."

What went wrong? "First, any conflicts within the company were magnified 10 times over by Ian being promoted over some of the other managers," says Mr O'Connell.

"And second, he seemed to find it extremely difficult to take over my position, when he had worked for me."

This had severe repercussions, particularly as MMP was going through a strong growth period at the time, and needed an MD to take the helm. "I'd say the company regressed six, if not nine months."

It was when both Mr Smith and Mr O'Connell were interviewing someone for a managerial position that they both came to the conclusion the candidate would make a good MD.

"He had great experience and a hunger to take the business forward. So we decided that if he wanted the job, Ian would stand down - and that's exactly what happened."

Mr O'Connell was particularly impressed with the new MD's banking background, and perhaps most significantly, he had learnt not to promote from within. But once bitten twice shy, he is keen to ensure the new MD does the job properly, equipping MMP for its projected expansion.

"So far, I've given the MD a job description and some key performance indicators, which I expect him to achieve over the next six to 12 months," says Mr O'Connell. "We have also come to an agreement whereby he will be given 5 per cent of the shares in a year's time, provided he achieves certain targets, and he will have the option to purchase another 5 per cent provided he reaches further targets in the next 12 months.

"I want to know what else I can do to ensure I don't have to deal with any more key executive departures."

www.mmpgroup.co.uk

WHAT THE EXPERTS SAY

Angela Baron, adviser, organisation and resourcing, Chartered Institute of Personnel and Development

"It's difficult to move from being a team member to being the boss. Inevitably, small rivalries and power struggles will be magnified. Many of the problems Mr Smith faced will therefore disappear for the new MD.

"However, there are problems with recruiting someone from outside, as well. It will take a new person longer to find his way around and he may not appreciate the value of relationships built up over time.

"It is vital, therefore, that the MD is given a proper induction into his new job, with time devoted to getting to know everyone and what they do. He can't be expected to hit the ground running if he doesn't have all the information he needs.

"It is also vital that once he has settled into the job, Mr O'Connell lets him get on with running the business. However skilled, the new MD will have to find his own way of doing things if he is going to succeed."

Dr Claudia Herbert, chartered clinical psychologist and director of The Oxford Development Centre

"Mr O'Connell should adopt a broader view than focusing solely on the compatibility of his new MD's business skills with the requirements of MMP. In order to be effective, his MD needs specific management and leadership skills that will enable him to help the business expand.

"My suggestion would be to prepare psychological profiles of both MMP and the incoming MD. This process would identify areas of potential conflict and current weaknesses within the company. It would also provide an outline of the MD's strengths and abilities, his personality and leadership style. Areas where he might require development in order to match the challenges that lie ahead of him would then be identified.

"Following this, a tailored executive development programme should be designed to help the MD master the demands of his role."

John Brooks, head of business banking, Abbey

"Setting and discussing clear goals and objectives will be vital. Regular reviews can help identify areas where support is needed and provide an important communication forum. Clear roles for all the management team (including Mr O'Connell) will avoid confusion.

"Involving the key executives, as well as the MD, in decisions will help ensure that everyone is on board and unite the new team. Encouraging the new MD to take the lead with the expansion will make him feel he is in charge and also provide him with the opportunity to demonstrate his knowledge and skills to the other executives.

"While communication and feedback are essential, there will inevitably be times when people leave. Have a strategy in place to cope. Share information, document procedures and maintain client contact strategies so that someone can step in at short notice."