When former Olympic Delivery chief Sir David Higgins became non-executive chairman of HS2 in 2014, he could not have imagined he would three years later be hauled in front of MPs to explain the debacle that has unfolded in recent weeks.
US giant CH2M was awarded the £170m phase 2b development partner deal, only for rival bidder Mace to cry foul, CH2M to give up the contract and third bidder Bechtel to ultimately be awarded it. The fiasco has gone right to the top, with Number 10 reportedly keeping a close eye on it, and the Transport Committee holding an inquiry last week.
Many of the issues discussed related to perceived/potential conflicts of interest of some senior hires at HS2 and CH2M, one of HS2’s major suppliers.
The ‘poacher turned gamekeeper’ scenario of client organisations and suppliers headhunting from one another, is a frequent occurrence within the Infrastructure & Transport sector. When it is managed with careful consideration it can work well, however there is a line that when crossed will lead to friction, commercial conflicts and relationships between companies being damaged.
So where should you draw the line? Which companies are truly off limits to you?
This is subjective but here’s my take on how to avoid problems when recruiting from your suppliers and clients:
1. Recruiting from your suppliers
In the case of both Roy Hill (interim secondment) and Mark Thurston (permanent hire) HS2 opted to recruit a CEO from one of their main suppliers; CH2M.
Roy Hill was named as interim chief executive of HS2 on the day that tenders were opened from firms shortlisted for the phase 2b development partner role, his secondment from CH2M certainly raised a few eyebrows. While an undoubtedly a highly experienced executive, by appointing Hill HS2 left itself open to scrutiny, which duly came in spades. HS2 has insisted that Hill had nothing to do with the procurement for that deal while at the client body, and that may very well be the case; couldn’t someone have predicted appointing a senior employee of one of their major suppliers in the midst of tendering for a high-profile contract might cause an issue?
Mark Thurston – former European managing director at CH2M Mark Thurston succeeded Hill at HS2, joining as permanent chief executive in March this year – some weeks after his former employer was controversially awarded the phase 2b development partner contract. Given the timings, there isn’t any conflict of interest regarding the phase 2b procurement but did HS2 significantly weaken one it’s major suppliers by taking away a key business leader? The CEO search took 5 months, reportedly considered 20 potential candidates in all corners of the world before, as Transport Select Committee Chair Louise Ellman MP noted, HS2 found a man “who was in the building”.
With Thurston’s experience at CH2M on the Crossrail project of a similar delivery partner contract, his departure will be felt at CH2M. Many observers have commented that HS2 could have found a suitably qualified person from outside of its major suppliers.
Many major project clients agree with their key suppliers not to poach one another’s senior staff. Sometimes the infrastructure client will ask their supply chain to agree not to poach from one another or to ask for approval before doing so, to protect a key supplier from being weakened and putting the project at risk.
When considering approaching key staff from your supply chain we recommend you consider;
- What impact will it have on the supplier? Will it put their ability to deliver for you at risk? Will it damage the relationship? If you were the supplier what would you think about it – is it acceptable business practice given the situation?
- What impact might it have, or be perceived to have with other suppliers? Would other suppliers perceive the individual might have a potential bias towards their former employer?
- As the client you are expected to set the tone of the relationship with suppliers, could this encourage your supply chain to poach from one another? Could there be any risk to corporate reputation? Can you demonstrate there is no conflict of interest?
- Are there any contractual or informal agreements that are in place to prohibit recruiting from your supplier?
Amid all the potential difficulties, you have to keep an eye on the prize. What are you trying to achieve as an organisation and how will this recruitment decision help you do that? There can be benefits in employing someone from a supplier; the knowledge of your organisation they bring, the understanding of the supplier and it can also improve communications between the two organisations. Does it outweigh potential harm? That’s the equation.
2. Recruiting from your clients
Christopher Reynolds, formerly a HS2 chief of staff, joined CH2M and was quoted in its bid for the phase 2b development partner contract. His name has since featured in many news articles and was brought up several times in the Transport Committee hearing.
Higgins told MPs that if HS2 had been aware Reynolds had been part of CH2M’s bid team, due to his previous involvement at HS2 “we would have said to them ‘don’t do it… you shouldn’t have him anywhere near your tender team’”. The decision to hire a key person from a client and be part of a bid for work from that client has been a significant part of the HS2/CH2M adverse press, which has in turn led to CH2M having to walk away from a £170m contract.
The implications of recruiting key staff from your customer can be severe. Careful consideration is required about how this might affect the relationship with the client. If it is sensitive, it’s good practice to put a buffer in; ensure for their first 9-12 months that the individual isn’t working on any contracts with their former employer. This can avoid many of the potential points of friction.
3. Non-Executive recruitment
Aside from the CH2M men, Sir David himself had some questions to answer at the Transport Select Committee. Sir David commenced as Chair of Gatwick Airport in January this year, undertaking the role on a part time basis while still chairing HS2. Chairing two companies in itself is not an issue, depending on who the companies are and the time commitments required.
Multiple non-exec Chairs are not uncommon, some seasoned business figures feature on four or five boards concurrently. However it can lead to potential conflicts.
Sir David told MPs that his role at HS2, despite being contracted as three days a week, was keeping him busy seven days, and that his position as chairman of Gatwick Airport did not involve “a massive amount of work”. But nonetheless he is working for both bodies and has to ensure he can show there is no way one role impacts on the other. How other London airports might feel about this dual chairmanship when HS2 are developing any options for airport connectivity will be interesting to watch.
The recommended steps to avoid a messy situation are;
- Identify which companies are off limits to you from the outset.
- Ask yourself how the hiring decision might look to other companies.
- Get the process right. If you do decide to hire someone from a supplier or client, because you’ve ruled out conflict of interest and believe the pros outweigh the cons, make sure you’ve hired them correctly. This often means looking broadly across the market for suitable candidates and interviewing them all without bias, perhaps removing individuals with a close relationship to the supplier/client candidate from the interview.
Of course professional executive search firms such as ourselves can aid your recruitment process in most scenarios. We typically find 70%-85% of the candidates we identify at longlist stage are unknown to the hiring organisation, and giving a clear-headed, neutral appraisal of the capabilities of those that are known is valued.
If you want to explore new avenues of talent, and step away from the same old names that crop up, just click here to get in touch. I’d happily spend ten minutes talking with you about how to thoroughly map the market to ensure you secure the best talent.