When trouble at the top is down to DNA rejection

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The Independent Online

Discount retailer Matalan posts its final results later this week. Profits will have fallen - sharply. Current trading is likely to be poor as Tesco and Primark siphon market share. Upward-only rent reviews are looming. And speculation about a possible bid refuses to go away.

In other words, there is much for Matalan and the City to talk about. But investors may well be left disappointed. Because there will be no news on the other hot topic - who is to replace its outgoing chief executive, John King.

Mr King said in January that he wanted to move to the US and would be leaving the group at the end of this year. But the news of his departure also fuelled gossip that, yet again, John Hargreaves, Matalan's founder, chairman and majority shareholder, had proved impossible to work with. Mr King joined in 2002 and is the third chief executive to quit in five years - his predecessor, Paul Mason, left after just 12 months following a row with the founder.

Critics have accused Mr Hargreaves of running Matalan like a family business; his three children have all been employed, at one time or another, by the company. They currently work there as consultants.

Insiders say Mr Hargreaves only ever has the company's best interests at heart. But there are fears his presence will deter potential chief executives.

These sort of problems are not restricted to Matalan. Penny Webb, managing partner at Whitehead Mann's centre for family business, says founders often accept they need to let someone else run the company. It's just that doing so can prove much harder.

"They say they are ready to do it, but when push comes to shove, they can't let go. We often call it DNA rejection, where the founder is very reluctant to let people in."

And that leaves candidates wary. "It's not uncommon for people to say: 'I want autonomy but I'm suspicious about how much I will be given'," adds Ms Webb. "Even when they are given reassurances, there are still no guarantees."

Of course, having a founder on board is not always bad. Richard Singleton, director of corporate governance at F&C Asset Management, says there have been some glowing examples - such as John Lewis, the department store that was run by the Lewis family for several decades. But this is the exception rather than the rule.

Instead, the saving grace is the board, which forms a bridge between founder and chief executive and should be able to head off clashes. "If [the founder] has respect for the board, and strong colleagues about them, then that's fine," notes Mr Singleton.

Matalan's board consists of four non-executive directors - including veteran retailer and Carpetright boss Lord Harris of Peckham - who are "all strong, robust characters", according to one insider.

It was a different story at Wm Morrison up until recently. As profit warnings rained down, the supermarket chain came under pressure to strengthen its board. It did - but not, it is near universally accepted, without Sir Ken Morrison putting up a fight.

The chain is now searching for a chief executive. It should be a plum role, a chance to turn the ailing chain around.

But Sir Ken, the chairman and son of the founder, remains an issue. "I think they will find it difficult to find someone sufficiently high profile," notes one shareholder. "Sir Ken won't just be looking over his shoulder - he'll be threatening to lean over and grab the wheel."

At Mittal Steel, Lakshmi Mittal is said to be favouring his son Aditya, who is chief financial officer. Concerns also persist about the lack of independence of some of the other directors.

Ultimately, though, investors and executives can tolerate most things if profits are on the up. It's when conditions start to deteriorate that tensions usually surface. Eighteen months ago, Matalan's Mr King was singing his chairman's praises. But conditions are tougher now.

"Matalan is somewhere between losing and haemorrhaging market share," says Simon Proctor, retail analyst at brokers Charles Stanley. And as sales started to slip so, it would appear, did the relationship between chairman and chief executive. It is a cautionary tale for whoever finally decides to step into Mr King's shoes.

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