If the chief executive officers likely to be hired by supermarket companies in the next few years were cars, they would be Volvos, not Porsches.
The business world wants, as always, high performers, but in this era of heightened corporate scrutiny, safety is in and flash is out, according to executive recruiters interviewed by SN.
Jason Wickline, Atlanta division vice president of Philadelphia-based recruiter Judge Inc., said, "I think there is going to be more of a demand for attaining profitability through the proper channels and not cutting any corners.
"That is job No. 1 for any CEO: Increase sales, increase profitability, increase market share, etc., etc., without funny math."
The headhunters also said that in the wake of the Enron, WorldCom, ImClone and other scandals, companies may be forced to become more creative about executive compensation. Stock options -- which usually account for more top executive pay at the large public supermarket companies than salaries or bonuses -- may become as outmoded as tail fins if government regulators decide they must be recorded as expenses when they're granted rather than when they're cashed in. What's more, the bosses of tomorrow should expect to see their pay more closely linked to overall company performance.
A HEAD FOR NUMBERS
While accountants are unlikely to seize control of the industry, supermarket companies will likely select CEOs who have a firm grasp of financial issues, the recruiters observed. Jack Coughlin, president and CEO, Coughlin & Associates, a search firm in Monroe, N.J., told SN, "I think the ideal CEO nowadays in the food industry is going to be someone who has come up through the financial ranks, maybe with a touch of the operational background. In the past, the tendency was always to select an operations/merchandising person, but with what's happening now, the need is to get a sort of financial guru." Wickline also observed that hands-on accounting experience is likely to become a key item in the executive skill set. "I would imagine that would be part of what any company is going to be looking for," he said, "a CEO who is much more involved with financials. What you find in a lot of companies is that CEOs have tended to come up through the sales channel, perhaps the operating channel, but I would start looking for more to come up through the accounting side."
Commented Jose Tamez, managing partner, Austin-Michael, a San Antonio recruiting firm, "The executive of the new millennium will be a hybrid, combining financial understanding with marketing and operational expertise."
Some recruiters noted that the stress may not be so much on getting a boss who can crunch the numbers as on finding a CEO who can be relied on to achieve those numbers without reproach.
Mary Jane Schermer, Denver-based vice president and managing director for Cook Associates, a Chicago search firm, said, "Leadership capability will still be fundamental, but what companies will focus on will be an unblemished track record.
"I think you're going to see references go deeper than they were before. We're looking for not the high-profile, rock star-type executive you saw in the past but someone who's squeaky-clean, someone that's not out there in front of the press.
"I don't think that's going to change who's going to be vying for those top spots. I believe the increased scrutiny will not preclude those individuals who previously expressed interest in that top spot. It is the same leader who enjoyed the spotlight in the past; it's just that they will have to be armed with the right public relations team to weather the storms of today's increased public scrutiny."
Another skill companies will want in their CEOs, Schermer noted, is the ability to work with a board of directors that is composed largely of people outside the company who take their oversight responsibilities very seriously. "I think companies will be looking for CEOs with strong corporate governance experience, who have experience working with a board that is not comprised of insiders but is a well-balanced group of advisers." Marketing is likely to be a proving ground for such leaders, noted Tamez. "Marketing executives are very expressive," he said. "They generally have impeccable reputations. They're usually good at handling large forums, whether of investors, analysts or employees. You need someone who has presence and can deliver a message with assurance."
To find such individuals, the recruiters advised, companies may have to look outside the supermarket industry. Often cited by the executive searchers was Larry Johnston, who was named chairman and CEO, Albertsons, Boise, Idaho, last year, after a career with General Electric Co., Fairfield, Conn. His last position had been president and CEO of GE's appliances division.
Another industry outsider sometimes cited was Steve Burd, who has been president and CEO, Safeway, Pleasanton, Calif., since 1992. However, Burd, a management consultant, was not a complete stranger to the supermarket world. Among the companies that he had consulted for were Stop & Shop Supermarkets, Quincy, Mass; Fred Meyer Inc., Portland, Ore.; and Safeway.
Several recruiters argued that the supermarket industry -- particularly the large national companies formed by the megamergers of the late 1990s -- may have to look outside the industry to find leaders capable of handling corporations of such size.
Schermer said, "With the increased consolidation we're seeing in the supermarket industry, you're having larger chains, and that's forcing the chains to look in different directions for the executive that's going to lead the organization. A big supermarket company, although they're going to be looking internally within the industry, they're not going to be shy about looking externally."
But Schermer also observed that as the larger companies get used to being so big, they'll
have the time to train their own next generation of leaders. "Because these chains have been of size now for a number of years, they have the ability to grow some talent internally," she said. "We may not see that for a couple more years, but I think boards of directors are going to be more supportive of that approach because you're guaranteed a clean slate. I think the shareholders will approve of that for the same reason."
Tamez noted that the industry's inertia may limit the speed at which companies attempt to hire bosses from the outside. "The funny thing thing about our industry is we're not known for working at lightning speed," Tamez said. "I think it will be a trend. But it won't occur at the same rate or same frequency as other sectors."
And everyone agreed that there is one major problem in bringing in outsiders: Few people who have never worked in the supermarket industry understand how tight its margins are.
Wickline estimated that the current rate of one outside CEO per decade might accelerate to "one every five years or so," but he added he doesn't expect it to go beyond that.
"One of the things that is germane to the grocery business is that the margins are so tight," he said. He noted that an executive coming from an industry that makes a margin of 20% or 30% on its products may find supermarkets daunting. "If companies continue to look outside the industry for key players, they're going to look at industries where the margins are tight, and the person at the helm of the ship understands that and realizes the importance of controls.
"It comes back to the fact that someone has to be savvy about where the money actually goes."
Other recruiters said they thought CEOs without supermarket experience would remain an industry novelty.
Norm Wills, senior partner, Craig Search, a Dallas search firm, said, "Supermarket companies are still continuing to go inside the industry to hire people. There are some firms on the cutting edge that in some areas, such as marketing or category management, will go to the consumer package goods side." He cited the example of Elizabeth Culligan, currently president and chief operating officer, A&P, Montvale, N.J., who had previously been president, Nabisco International (which has since been acquired by Kraft Foods International, Rye Brook, N.Y.).
"In some areas they're going to go outside the industry," he added, "but for the most part they're going to promote from within or they're going to get other people from the grocery trade."
Not only are CEOs likely to be held responsible for the actions of their accountants and required to report to less-chummy boards, but one of their principle forms of compensation may fall victim to the current wave of corporate reform, the recruiters pointed out.
An increasing number of companies are saying that they will start reporting stock options as expenses. Winn-Dixie Stores, Jacksonville, Fla., said it has treated options this way all along. And while, so far, the expensing of options remains voluntary, there is growing speculation in the financial press that government regulators are eager to turn it into a requirement.
Commented Wills, "Stock options for executives, officer level, are a significant part of their compensation. I have several clients who have suspended their options for this year until their board gets a grasp on how they're going to be handled, whether they're going to be expensed at the time that they're given or expensed at the time they're taken. It's a wait-and-see thing."
Coughlin also expressed the view that options may be on the way out. "It always used to be a very nice sweetener as far as the compensation package, but I think that's going to change," he said.
Not all recruiters will be sad to see options eliminated. Some said options tended to reward good luck more than strong performance. Wills explained, "I look at financial statements, and I see CEOs make 'x' number of dollars in salary and 'x' number of dollars in bonuses, and then they make more than either one in stock options. To me that's ridiculous. They just happen to be in the right place at the right time. From a shareholder perspective, that would just cause me to scratch my head."
What will replace options, and whether that replacement serves to link compensation more effectively to performance, remains to be seen.
Perhaps companies will go back into the future, offering the sort of traditional perks, like a company car, that fell by the wayside in recent decades, Schermer speculated.
"Senior executives may be thinking about forms of compensation that are not going to dilute the performance of our business as much as stock options," she said. "Maybe we're going back to those more traditional forms of compensation that we've gotten away from, some of those extra perks that people saw in the past, club membership, all of that unique stuff we used to see thrown at executives but we've gotten away from.
"Those things are understandable. They're easily recorded."
However, such perks will not be enough to make up for the loss of options, she admitted, adding that she wasn't sure if the industry was ready for radical change in executive compensation packages. "Are people going to change the structure of comp?" she asked. "I don't know the answer to that today. I think it's too early too tell."
One solution, several recruiters suggested, would be to put greater emphasis on a performance-based bonus.
For high-level executives, that could mean basing bonuses closely on company performance. Wickline said, "I think you're going to see bonus plans already in place that are based on individual performance or a smaller target become more broad, and those things are going to be tied more toward overall company performance and profitability. I don't know if that's necessarily going to drive large change in executive compensation programs."
Ultimately, the recruiters noted, what companies want is leadership that's not necessarily customized to any temporary shift in corporate fashion.
Wickline observed that there are a great variety of cultures in the supermarket industry. "You have companies with forward-thinking management styles that use techniques like profit sharing," he said.
"As companies evolve, they're going to be more centered on having a CEO in who can truly build a team and attract people who can offer world-class customer service. I really don't know if having financial disclosure is going to make that much of a difference."
AT THE FRONT LINES
Chief executive officer is not the only job title in the supermarket industry. SN spoke with recruiters about several other hiring trends.
Companies are filling front-line positions first and holding off, when possible, on other, higher-level hires.
Jason Wickline, Atlanta division president, Judge Inc., said, "Your mission-critical positions -- your store managers, your first-line supervisors in distribution centers -- continue to be very active, and you have companies that are hiring those people because they have to. Some of the upper-level support functions -- your human resources, directors of various departments -- haven't been doing a lot of moving. This goes across not only the supermarket side but also the distributor and manufacturer side."
Companies are scrutinizing candidates more closely.
Jose Tamez, managing partner, Austin-Michael, San Antonio, said, "Today, companies are more likely to search for the person with the right set of skills, the right temperament and someone who is going to mesh very well with the company culture. I guess more reverence is given to the style and cultural fit as well as the technical skills. Companies are trying to match as many of their key criteria as possible. Ten out of 10 or nine out of 10 is the status today, while maybe a few years ago eight out of 10 would have done it."
Companies are devoting greater efforts to developing a diverse workforce.
Norm Wills, senior partner, Craig Search, Dallas, said, "The supermarket industry has always been a white male business. We're seeing a lot of companies promoting ethnic diversity and moving up females through their organizations. Companies are really addressing diversity issues. I've had several tell me, 'We want our employees and staff to look like our customers."'
HOW TO SUCCEED
In the classic Broadway musical "How to Succeed in Business Without Really Trying," an ambitious young man rises from window washer to board chairman aided almost exclusively by boyish charm and the advice he gets from a book with the same title as the play.
One of the first pieces of advice he follows: Find a job at a company so large nobody employed there has a clear idea of what it does.
In the supermarket industry, such a strategy is unlikely to work out.
Instead, executive recruiters told SN that aspiring chief executive officers should follow the paths of those who have advanced before them, even though the industry is changing.
Norm Wills, senior partner, Craig Search, Dallas, said, "If you look at most of the people who are CEOs right now, they have come up either through operations or merchandising and marketing. The career path for so many executives is they started working in supermarkets when they were in high school and college. They probably started in operations and moved to marketing and merchandising.
"They worked for national companies while they were in college and maybe made $35,000, $40,000 a year running a grocery department. When they graduated, they had a marketing degree and discovered they could get an office job with a big company and make $25,000. Suddenly, the grocery job didn't look so bad to them.
"They get a grocery manager, co-manager, assistant manager-type position, then work their way up to become store director. Store directors have long hours, work nights and holidays and get lots of pressure, but they're well-paid, and the top performers continue to move onwards."
Jason Wickline, Atlanta division vice president, Judge Inc., advised CEO wannabes to get as many diverse supermarket experiences as they can.
"You need to have a well-rounded background, having started at store level and worked in all the departments. It also helps to have had profit and loss responsibility for a location.
"Hit as many of the departments as possible, both at store level and in merchandising, move into retail operations director, division president-level positions, and then I think the next logical path is a regional slot and then a CEO slot."
Changing companies, rather than being a handicap, may actually accelerate the trip to the top, Wickline added. "The days of 20- and 30-year, one-company persons are over," he said. "Most companies prefer someone who has seen two or three different operations, and in some instances two or three different parts of the country.