Monday 25 September 2017

For first time ever, Ireland's most valuable company may not be led by an Irishman

Traditionally, the company has chosen an identikit Irish male engineer as its chief, but all that may change soon, writes Dan White

THE announcement that CRH chief executive Myles Lee will be stepping down at the end of the year has fired the starting gun in the race to succeed him as the boss of Ireland's largest industrial company. Will the company break with tradition and give the job to an outsider or a woman?

No Irish company has managed executive succession as smoothly as CRH. A bit like the former Soviet Union, as one leader approached retirement, another identikit version was plucked from the ranks of the politburo to succeed him.

All of CRH's leaders have been cut from the same cloth, fifty-something Irish male engineers with several decades of experience with the group. Following last week's announcement that Mr Lee will be stepping down at the end of the year, will CRH stick with the current formula and appoint another male insider?

If it does, then it will be spoiled for choice. Chief Operating officer Albert Manifold is the front-runner. He may become the first non-Irish boss of Ireland's most valuable company.

Another obvious candidate is Mark Towe, the boss of CRH's US arm Oldcastle. However at 63, he is older than Mr Lee who turns 60 this year, the age at which CRH bosses normally retire.

Other strong internal candidates include the Oldcastle chief operating officer Doug Black, the head of its European materials division Henry Morris and the boss of CRH's European products and distribution arm Eric Bax. While all of these are CRH insiders, Mr Black is an American while Mr Bax is Dutch.

This means that, even if CRH sticks with its tried and tested formula of appointing from within, there is a very significant chance that its next boss won't be Irish.

Even if the new person in charge at Belgard Castle is Irish, it might not be a man. Mr Lee became chief executive in 2009 having previously been CRH's finance director. Will the CRH board do the same this time around? If it does, the new boss will be Maeve Carton, CRH's current finance director. However, if she throws her hat into the ring, she faces one potentially insurmountable obstacle.

All of CRH's previous bosses have been engineers. Even Mr Lee, who came from the finance side of the business, first qualified as engineer before going on to become an accountant. These things matter at CRH, a process-driven company. Will CRH chairman Nicky Hartery, himself an engineer, break with tradition and appoint a non-engineer?

If CRH does decide to look outside the company for its next chief executive, then it is unlikely to be short of choice. With an annual turnover of €18.6bn, operating (pre-interest) profits of €845m and a market capitalisation of €11.9bn, CRH is the world's second-most valuable building materials company.

A special committee chaired by Mr Hartery has been established to find a successor to Mr Lee. CRH hopes to announce the name of its next boss by the end of the third quarter.

Mr Lee was unfortunate in that his term as CRH boss coincided with the worst global economic downturn since the 1930s. This has inevitably had an impact on CRH's bottom line, with operating profits falling by almost 60 per cent from their 2007 peak of nearly €2.1bn.

Not surprisingly, the share price has gone nowhere over this period. It stood at €18.25 at the beginning of 2009 when Mr Lee took up the job and €16.50 this week after he announced that he was stepping down.

So did Mr Lee jump or was he pushed? CRH sources are adamant that Mr Lee decided to go of his own accord. They point out that he was originally appointed for a five-year term and that his long-term incentive plan, under which the company has provided an additional €460,000 a year on top of his 2011 annual salary of almost €2.7m, vests at the end of this year.

While the CRH share price, which has fallen by 15.5 per cent in dollar terms since the beginning of 2009, has been the worst-performing of any of the major building materials groups over the period of Mr Lee's tenure – something that wasn't helped by the massive €1.28bn rights issue in March 2009 – this is due at least in part to the fact that the shares of most of its major competitors, including Cemex, Lafarge and Heidelberger, fell even more sharply than those of CRH in 2008.

In fact, over a five-year time-frame CRH has been the best-performing building materials share, falling by "only" 42 per cent in dollar terms, as against 61 per cent for Lafarge, 59 per cent for Cemex and 52 per cent for Heidelberger. One pays one's money and one takes one's chances.

The challenge facing Mr Lee's successor, whoever he or she may be, will be to get profits growing again. With a rock-solid balance sheet and the global economy finally showing signs of recovery, safety first is no longer good enough for CRH.

Irish Independent

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