John Fallon to succeed Marjorie Scardino as Pearson s CEO Interviews with Glen Moreno, Chairman, John Fallon, CEO Designate, and Marjorie Scardino, CEO Glen Moreno, Chairman Today marks a significant announcement for the business. What process did you follow to choose Marjorie's successor? Well, it was a very structured succession planning process, which every good company tries to have in place. It's lasted for quite a long time, because it's an on-going process. It involved detailed analysis by the non-executive directors in the nomination committee. There were quite detailed discussions, and Marjorie played a very major role in providing information and insight. And the process was accelerated earlier this year when Marjorie informed me and the Board that she was considering leaving at the end of the year. So obviously that focused our minds. We moved forward and we came, I'm happy to report, to a unanimous conclusion that John was the right man for the job. But clearly Pearson has a very strong management team. So what stood out about John Fallon? Well, you're right to say we have a strong executive bench. But we weighed all the factors I've described. We looked at John's business record as a builder and as a contributor to Pearson's strategy. He's done a remarkable job in our international business over the past decade or so, in taking a relatively small operation and building into something that's quite large and now makes up a quarter of our businesses in total. We were particularly impressed by his efforts in the emerging markets, places like China and Brazil and South Africa where Pearson now has very significant businesses. One of the things that's pleased me most about Pearson, and it has a lot to do with John, is that in China, for example, where only a few years ago we had just a handful of people, John has built that into an organisation of 6,000 people, primarily teaching English in a very interesting Chinese market. In Brazil he's built a great school business. In South Africa we have a mix of businesses, including a university, the first one that we've owned. So he's done just a great job of building in new markets. And in doing that, he's incorporated some of our fundamental strategic initiatives, like the switch from analogue to digital technology and services. So he's really taken a lot of the very good things we had in places like North America and applied them intelligently in new markets. Did you look outside? And if not, why not? We looked outside in the normal course of due diligence as a nominating committee. We studied the literature in some depth, and there's a lot of it, on the relative success of internal and external
candidates as CEOs. And the general conclusion of that is quite strong, is that we have a good company, with solid performance that has clear strategic direction; knows where it's going. You're better off, and it's much less risky appointing an internal candidate if you have a strong executive team, which we do. We did track people outside of the business over quite an extended period, and at the end of the day felt: hey, we're the market leader, we've got the best company, we've got really good people, it's right to go internal. And what does the appointment say about Pearson and Pearson's strategy going forward? Is there going to be change here? There's always going to be change in our strategy. But I think it's fair to say that the strategic tenets we operate under and which Marjorie and the team have developed over the last many years are pretty clear. You adapt your strategy to changing market conditions and external conditions and that's always changing: technology, competitors, growth in new markets. But I think the fundamental direction of strategy is pretty clear to us. And John's appointment is not a challenge to our strategy. One of John's great strengths is he's a good manager. And he can execute and implement strategies that we've all agreed on, we think, very effectively. Might this decision trigger departures from the senior management team? That's very difficult for me to predict. What I will say, is we have a very strong executive team; really good people. And obviously good people are attractive to outsiders as well as to Pearson. Our feeling is that there are plenty of really interesting jobs at Pearson. We're very hopeful that our team are going to respond to the tremendous opportunities that are here in very rewarding positions. And I think our chances of that happening are pretty good. Now, Marjorie's really personified Pearson's over many years. Are there any risks in this transition? I don't know if I'd define it as risks. But there's certainly a certain sense of loss. Don't forget the Chairman/CEO partnership is critical in a company, and I'm losing a very, very effective CEO and a very valued partner and a friend. But things change. Marjorie and I have talked about this for years. We always knew there would be a point at which she decided to move on to new challenges and felt that she'd gotten Pearson far enough up the mountain that it was time to have somebody else take up the challenge. So we will miss her. But one of the interesting things about Marjorie's contribution to Pearson is that the critical parts of it are enduring. They have to do with our value, our cultures, our dedication to decency, our commitment to a corporate purpose, which is all about helping people improve their lives through learning broadly defined. So the things that Marjorie built are bound to be around for, I think, quite a long time. So how would you characterise her achievements, then? Remarkable. She came to a venerable old British institution which had been a family holding company, then a listed company. In its early stages I suppose you could still define it as a media and entertainment conglomerate, really. And she's over the years turned that holding company, conglomerate holding company, into an integrated global education and information business. I stress global, because remember she took a venerable British institution, which was then an important Anglo-American institution, and has led it to becoming a fairly serious global company. And that global growth is just beginning. It really is. There are huge opportunities ahead of us. Then in more recent years, and this has been particularly challenging, she's been leading the transition of Pearson from an analogue print publishing company, if you will, to a global digital services and content company. That's a very challenging transition, and one that's going to take us years to complete. But those sort of brave, bold moves are what will define Pearson's business future.
Beyond that, I can't stress enough the importance of Marjorie's influence, and that will be lasting on Pearson's culture. This is a good company that does good things. And good people work here because they want to do good things. And I think at the end of the day that'll be the most important thing that Marjorie will have a lasting contribution to Pearson. John Fallon, CEO Designate There's long been speculation in the markets about when Marjorie would step away from the Pearson business and who would succeed her, and it turns out to be now, and it turns out to be you. So can you tell me a little bit about what you've been doing within Pearson over the years? Well, for the last 10 years I've been working with colleagues around the world to build our international education business. I think that the financial results are probably fairly well known. We've quadrupled sales; profits have increased more than 15-fold in that decade; but much, much more importantly, we've been building sizeable, scalable businesses in some of the fastest-growing economies of the world: in China and Brazil, in India, across sub-saharan Africa and the like. And we're meeting a rapidly growing and universal need for really high-quality, effective, accessible and affordable education. You've got a rapidly growing middle class who really recognise the value of education, are ambitious for themselves and their children, and are hungry to see better, more affordable and more effective education being provided to that much bigger range of people. Then you have governments themselves, who are increasingly convinced that fundamental to high levels of economic growth is high levels of educational attainment linked to technology. Most fundamentally, and the thing that Marjorie's put right at the heart of Pearson over the last 15 years, which is how can you apply technology to personalise and power education in ways that have never been possible before. So it's been very exciting over the last 10 years. We had a huge amount of support from colleagues around the world, particularly from having such a large and market-leading and innovative education business in North America. But perhaps the really exciting thing is, we're only just getting going. There's so much, more we can do, and so much more demand that we can meet. Given that you've headed up an education business, does that mean education will become an even more dominant part of the Group? I think that what's important is the strategies that have driven the growth of our education business are the same strategies that are driving the success of the Financial Times and Penguin. So they are Pearson Group strategies, not education-specific. And those strategies really are digital transformation, they're about getting much more engaged in delivering high-quality, effective services, so that we're much more directly and intimately involved in our customers' lives. And we're also about increasing the exposure and playing a much bigger role in those fast-growing emerging markets. So you can see that, for example, in the Financial Times, the HTML5 App of the FT -- fantastic, innovative product which I think is the envy of many in the world of newspaper publishing, the success that the FT's having in China and Brazil. Likewise with Penguin, very much leading the way in the transformation of trade publishing to a digital world, and very much making moves in Brazil and India. So I think these are Pearson-wide strategies, not education-specific. But how do you view the portfolio within the Group? How do you view the shape of the business at the moment?
Well, I think that the one thing that we've seen over the last 15 years is that the portfolio and shape of Pearson has constantly evolved and constantly changed as we've honed and developed and worked at the strategy. And if you really -- this is a way of asking me specifically about Penguin and the FT, I think I would say they are both valuable and highly valued parts of Pearson that have made and are contributing to the overall success of the Group. But you're not just inheriting a strategy, are you? You must have your own agenda and your own priorities. What might they be? I think that the strategy is clear. It's a strategy that along with the whole of the Pearson senior management team, I've worked with Marjorie in helping to develop and to hone. So in many ways it's my strategy, it's our strategy as much as it's Marjorie's. But obviously I do have some clear ideas about how we need to accelerate that strategy, how we need to move harder, faster, deeper in many ways on many of those things. But clearly, I don't take over the new role until January next year, so there'll be plenty of time then to talk about what I mean more specifically. But I think the strategy is very clear, but getting after it in harder, faster, deeper way is fundamental to what we need to do. Marjorie's going to be a hard act to follow, isn't she? She's an incredible act to follow, and a hugely inspiring one. I've worked with her now for the best part of 15 years. I admire the huge competitive spirit and will, the desire and drive to always deliver exceptional performance and good returns to shareholders, but always underpinned and always driven by wider social purpose and a real understanding that we're in business to do things that are important to society and do them really well, and that the wider benefits flow and follow from that. So you can see her as a hard act to follow, but you can also see her as setting a great example. I think the other thing is Marjorie would be absolutely the first person to say that what has been achieved at Pearson over the last 15 years has been very much a team game and has been the work of everybody at all levels and in all parts of the company, and clearly what gives me confidence in following Marjorie is knowing that there's 40,000 highly talented, committed, energetic, enthusiastic people in all parts of the world, who share the same vision, the same sense of purpose and the same competitive spirit and desire to perform and deliver. And you start your new role at the beginning of next year. What happens in the interim? Well, I will be putting in place some interim measures in the next few days to ensure that the international business is in good hands for the next three months. I've got a very talented management team of my own in Pearson International, and they'll be working very hard and very focused with the odd nudge from me to make sure that we bring home 2012 as hard and successfully as we can. I'm going to be using the next three months really to take a step back, to use the time to meet as many stakeholders as I possibly can, shareholders, customers, policy-makers, educators, and above all, as many colleagues in as many different parts of the company as I possibly can. What I really want to do is listen to them and learn from them what are we doing well, what are we perhaps not doing so well, what do we need to be doing more of, maybe what do we need to be doing less of? As I say, I have some pretty strong instincts and ideas of my own of the ways in which we need to drive the very clear strategy that we have harder and faster. But I'm keen to test those ideas and instincts on as many people as I can. I think these next three months really gives me an opportunity that I won't have again in quite the same way to listen and learn from a wide range of people. Marjorie Scardino, CEO There's been speculation for quite a while now about when you might leave Pearson. Why now?
It felt like time. This is a company with some wonderful opportunities in a time of exciting change, and those opportunities are generally going to need long-term choices. I just felt that that meant this was the right time for the company to start a new chapter. And John Fallon is a lesser known member of the senior management team. Can you tell me a little bit about him, and why he's the right man for the job? Well, he's not lesser known inside Pearson, obviously, but possibly lesser known because we've made him go out to all sorts of exotic countries and build big businesses for us, and he's done that. So his global understanding and the breadth of his thinking about that has been important. His track record, his financial track record, has been excellent; his ability to manage people, to inspire them and to incite them to do every better work. But mainly I think, John really was a part of building the Pearson culture. He understands it; we think it's one of our strategic advantages, and he will live it every day, and I think everybody will love working for him. Pearson's transformed as a business whilst you've been at the helm. What were the significant milestones for you? Well, there were lots of them. I guess the first one that I became aware of was about the culture. I had started my very first day talking to people about what kind of a place they wanted to work, and culture meant a lot to me and I thought would make a great company, without that, we wouldn't have a great company. And I remember a day when we were working with a group of people and they began to speak and think in a way that was very much aligned to the kind of behaviour that I had hoped we'd have, the kind of generosity, the kind of bravery, the real imagination that I had hoped people in Pearson would have. And I thought: we're going to have a great culture. Then after that, in about 2000, I think we became really clear about what we wanted to do in education, because we figured out that we needed to personalise learning for every child -- for every human being, actually, that the secret of real learning is being able to teach someone in the way they learned best and with the tools that they learned best. So we began to talk about software and services in that area and that was a signal moment, I think, for this company. And then of course, as the digital revolution began to be apparent to everybody, we were able to run a little bit ahead of the rest of the resolution. The Financial Times was really first in being an online newspaper. So many of our education materials were adaptive learning, they were different from everybody else's work, that was a moment when I realised that we were going to do better. And any mistakes or regrets along the way? Millions of mistakes and regrets. Things that we've tried to do that we didn't succeed in doing quickly enough; ways that we knew we should start working that we didn't manage to accomplish in one year. Acquisitions that we've made, thankfully small ones, that we weren't quite right about. Lots of things. I think if we hadn't made mistakes we would have been doing something wrong. And what does the future hold for Pearson as a business? What should your successor be concerned about? The things that John is concerned about are the things that I think this company ought to be concerned about. Global education; how we're going to find a way to educate the 61m children who don't even have an access to school these days. How we are going to really personalise learning for every single child, whether he's poor or rich. How we are going to take our performance to new heights, but how we are going to tie that to the purpose that we have. You've always talked about life-long learning, so what are you going to do next?
Well, for the next three months I'm still going to be the CEO of Pearson. I'm going to ride this horse as hard as I can, make sure that the transition to John is a good one and a smooth one, and I think it will be. After that, I will take some time to think about what I want to do. I still want to work. I have a lot of things that I'm already doing. I chair a foundation in America, and I have some other things. But I'm going to think about that only after I finish my duty of thinking about Pearson, which duty is also a privilege.