Toll's question of chemistry

It has taken the best part of a year and a global search for the board of Toll Holdings to come to the conclusion that the best person to replace outgoing chief executive Paul Little was already within the building.

The announcement that chief financial officer Brian Kruger will succeed Little on January 1 next year isn't, however, a surprise. While at least one external candidate is thought to have made it to the end of the process it was evident from the moment Little foreshadowed his departure last October that there were some very serious internal candidates, including Kruger, within the group. The longer the process went on, the more he firmed as the probable choice.

Toll has presented Kruger, appropriately, as someone who comes to the role with the real advantage of being relatively new to the group – he joined it two years ago – and with considerable external experience. He understands Toll but will bring a different perspective from his lengthy and varied senior finance and operational management experiences at BHP and BlueScope Steel.

Given the darkening clouds over the developed world economies, the exchange of a remarkably entrepreneurial CEO for one with an extensive finance background is probably also appropriate for the times. CFOs are inevitably more cautious than entrepreneurs and more focussed on returns than on simple growth.

That's not a criticism of Little, who has, over more than a quarter of a century, built the tiny transport business with 95 employees he took control of in a management buyout in 1986 into the biggest transport and logistics business in Asia Pacific and one increasingly global in reach. Toll should have more than $8 billion of revenue this year.

If Asciano, demerged from Toll in 2007, were included, he has been responsible for creating companies with combined market capitalisation of about $8 billion. It is one of the most remarkable entrepreneurial, business-building stories.

The aspect of the handover that has already caused some controversy, and inevitably will continue to do so, is Little's plan, after taking a break from the company albeit remaining a consultant, to return as a non-executive director after next year's annual meeting.

That is a departure from what the textbooks would say is good corporate governance, at least in this jurisdiction – it's not that uncommon elsewhere, particularly when a 'founder' is involved.

Little, however, who remains Toll's biggest shareholder, is determined to ignore the criticism and appears to have the support of his chairman, Ray Horsburgh, and other directors in his ambition to retain some influence over the group.

Whether having the previous CEO in a role that oversees his successor can work or not probably depends on the chemistry between Little and Kruger and the rest of the board and Little's own ability to observe the distinction between a non-executive and an executive role.

The Toll insiders would have a better understanding of whether the relationships can work to the group's benefit or its detriment. Certainly, if it can be made to work, Little's vast experience and his contacts in the sector, particularly in the Asian business which is so critical to Toll's future, could be a major asset.

Until Kruger has settled in his new role it won't be possible to assess how different Toll might be under its new direction from the aggressively expansive Toll that Little built.

Given that Little would have had some influence over the appointment, one suspects that the broad direction – the continuing rapid expansion of its internal presence through both organic growth and acquisitions – won't change but, at least until Kruger has established his own credibility as a CEO within the market, the pace of expansion might be more measured.