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Stephen Kelly, the outspoken former boss of Sage, on what went wrong at the UK’s largest listed technology company

Stephen Kelly
Stephen Kelly has held senior roles at Sage, Micro Focus and in the Government Credit:  Geoff Pugh

Stephen Kelly is clearly still vexed about how his departure from the UK’s biggest-listed technology company was handled. 

“Can I be candid?” the former Sage chief executive asks, eyes flashing. “I would have loved them to hire a rainmaker [to replace me] who was better than me...a rockstar.”

It’s almost a year since the FTSE 100 giant announced Kelly would leave the business following “execution” issues during its turnaround, but it is still a touchy subject. 

The writing had been on the wall for a while. Whilst Sage was in dire need of change, Kelly having been brought in in 2014 as a fresh face to implement this, shifting the business from its traditional license-based model to a cloud-based one hadn’t proved easy. 

"The first meetings I went to, it was almost like people were advocating that transport of the future was horse and carts, and all the money should be in shaving the horses and producing better wheels on carts, whereas obviously the world’s moved on," Kelly says. 

Sage had been around for almost 40 years, selling accountancy, payroll and payment software to thousands of small businesses around the world, and sales staff were believed to have struggled with the overhaul.

Sage missed its earnings expectations, warning over profit in April 2018 – and five months later, Kelly was out. 

He was ultimately replaced by his “finance guy”, Steve Hare. Analysts claimed Hare was the natural choice, already tuned in to the issues at the company. But, for Kelly it appears, this was a bitter pill to swallow. 

“When I left, they had said they wanted to go out and hire probably a US technology CEO and then within two or three months they stopped the search and appointed Steve,” he pauses, considering his words. 

“It’s all about innovating for customers, and keeping the flame of innovation burning bright. And you’re typically going to find the innovation gene more in the DNA of US technology entrepreneurs.”

His comments may seem unfair, but in all truthfulness Kelly may be right to be sceptical over whether Hare was the right man for the job. 

Last month, in Sage’s third quarter results, software revenue had disappointed, causing the biggest drop in its share price in 16 years. 

Such an update reportedly led some shareholders to question whether Hare also was failing to make enough progress in executing the company’s transformation, although Sage claimed the figures were “encouraging”, and to be expected given it was still in the midst of a “transition to becoming a great software-as-a-service company”.

The way Kelly tells it, though, there really isn’t that much left for Hare and his management team to do.

“All the hard work around the transformation and the turnaround was done,” he says. What they need to do now is “effectively turn the handle”. 

But, as much as Kelly would love to think of his time at Sage as a roaring success, some former colleagues would probably disagree.

As Kelly tried to push through changes at the company, the decision was made to cull significant numbers of staff – in what was a “pretty brutal” experience, according to one former Sage employee. 

That move reportedly hit morale, cited by some as one of the reasons he ultimately stepped down from his CEO post. In any case, it clearly damaged Kelly’s relationship with staff, one ex-worker having branded him a “snake oil salesman” for how he handled the transition.

“Look,” Kelly says, brushing this off, “as a leader, you’re not necessarily going to be popular, but if your conscience says you’re authentic, there’s no point killing people or being dishonest.

“Of the folks you’re talking about, who we let go, many of them would probably give glowing testimonials,” he says. “The test is, would people come back and work for me again, and I got loads of inbound calls at Sage.”

Certainly, the list of people who have worked for Kelly in the past is substantial. When he joined Sage, he was no newcomer in the field. 

Prior to that, he held senior positions at some of the largest software companies globally – from Oracle, to Micro Focus and, even, during the coalition years, as chief operating officer of the Government. Kelly claims that, during his time in public companies, he added £10bn in value. 

Coming into business as working class boy from Kent, and someone who dealt with “a lot of adversity” in his childhood, Kelly’s achievements are not to be sniffed at.

“My dad was sick when I was younger, so I had lots of jobs, working in hotels, zero-based contracts and all that sort of stuff,” he says, speeding through his childhood, eager to move on. “I worked at Sainsbury’s, and sold ice creams on the seafront, had two paper rounds, all those sorts of things.”

Last month Sage’s third quarter results showed it had suffered a significant slump in its software revenue, causing the biggest drop in its share price in 16 years

After studying business management at the University of Bath, becoming “the first generation who went to university” in his family, he says he decided to go into the technology space. 

After all, he is “endlessly curious,” he says, something he, bizarrely, repeats at least five times. “That’s one of the overwhelming themes about me,” he later stresses.

The first company he joined was Oracle, at the time “an early stage company, but now obviously a market leader in databases and applications”, and a place where he says he started “building up the experience of the blueprint and playbooks of how you go for growth businesses and deploy them internationally and become a global market leader”. 

Nine years later, Kelly left Oracle, and went on to deploy those “playbooks” at an American “high growth start-up company” called Chordiant, which he floated on Nasdaq and which was later sold to California-based Pegasystems. 

And from there, he made the move back to the UK, joining Micro Focus, a company “on its knees” which he helped return to growth as its chief executive – hailed an “excellent turnaround” by analysts at the time. 

Since he left, Micro Focus has become a much larger beast, now one of the few other technology companies in the FTSE 100 other than Sage, and worth more than £5.5bn, its share price having grown more than 200pc. 

But, he says, the strategy is largely unchanged from when he was there - they still work off his blueprints. “The only thing that’s changed is it’s gone from every year I was there, organic growth was in the teens to now, they’re at revenue decline.

“I’d really encourage Kevin Loosemore, the chairman, and Stephen Murdoch, the CEO, to think about what can they do to revitalise the growth that was there under my tenure,” he says, bluntly. 

To be fair, Micro Focus would argue it doesn’t judge its performance by revenue growth. The way its business model works is it buys companies whose margins it believes it can improve, so tries to do things such as stemming the rate of revenue decline.

But, it’s true – he did drive growth at the company, and he was undeniably popular with shareholders. When it was announced that he was leaving Micro Focus, to take up the COO role with the Government, shares in the software provider plunged by 14pc. 

It was a decision some have, since, questioned. Whilst he was in the civil service, rumours had swirled that he had found the slow pace of change frustrating, with suggestions that this had been the reason he left less than two years after joining. 

But he is resolutely positive about his time there. “I don’t want to sound patronising, but you just can’t appreciate what it’s like when people don’t believe they can do things, and then a year later they’ve done them. We really allowed civil servants to knock the ball out of the park.”

In practice, what his job entailed was work on projects such as establishing gov.uk, helping move more content and databases onto cloud-based systems, and making it easier for the public to access.

“I loved my time in government, absolutely,” he gushes, nodding that he would “always consider” another role in the civil service.

In fact, it seems Kelly would relish the chance to take up any high-profile position. Whilst he says he’s pretty content as he is, “coaching and mentoring” chief executives on how to make their businesses “go global”, he hardly mentions the companies he’s involved with (health start-up Locum’s Nest and software start-up Kimble). 

Instead, he waxes lyrical over the need for business leaders in the UK to “stand up with a really positive narrative for what Britain is and why we love Britain”.

“You could argue,” he says, “that some of the political leaders have left the pitch over the last three or four years, so the role of business is to actually step on the pitch provide the leadership, and a really positive vision of Britain.”

His abrupt departure from Sage may appear like he was forced out of public markets, but it’s unlikely he’ll stay out of the spotlight for long. After all, Kelly relishes the attention – and, of course, he’s “endlessly curious”.