This leadership test for a board presents some divergent outcomes potentially ranging between (say):
• a leaner business with a reset business model and strategy to grow profits.
• the complete “torching” of shareholder value with a restructuring process being driven by lenders and creditors.
Beyond retaining and preserving shareholder value, the more specific goals for a company board from early intervention are:
• “Catching” the decline in financial performance while it is manageable.
• Maintaining strategic options eg. debt refinance, equity investment and/or trading out of a downturn.
• Having organisational “fitness” for the tasks ahead eg. strong executive team, exiting of under performing businesses.
Obviously management has a key role (particularly in planning and execution) in achieving these goals with a board inter alia overseeing the strategic thinking and eventually the strategy approval.
Here are 7 tips for a board for early intervention and achieving these aims:
1. More haste and less speed. Or in other words acting quickly but without panicking.
2. Prioritising a solid balance sheet being in place eg through a debt/equity solution.It is very difficult to drive any subsequent operational turnaround with an unstable debt position.
3. Changing the organisational risk appetite and shelving higher risk growth, expansion and acquisition strategies. Get ready for push back from the C’suite in relation to any pet projects and sacred cows. But companies facing under performance issues are better to “stick to their knitting” and generally reduce trading risk where possible. This may involve selling/shutting down under performing businesses/divisions and cutting losses despite the burning the upfront costs!
4. Renewal in C’suite and leadership roles.This can be a difficult proposition when job performance of the C’suite is not necessarily poor. However, the basis of renewal should be whether for tougher conditions the right executive team is in place to steady and eventually improve performance. A litmus test for a member of the management team is whether they will be able to perform in a falling as opposed to rising market.
5. Accelerating renewal of the board. This can be a hard conversation amongst the incumbents but having board members with relevant technical and situational expertise, for instance in relation to cost outs and capital markets can provide invaluable assistance for a board and the executive.
6. Requiring the executive to increase their reporting and analysis of cash. Liquidity is the lifeblood of any restructuring while good cash management and forecasting has ancillary benefits such as:
a. Identifying softness in the reported profitability.
b. Providing target areas for cost cutting and under performance.
7. Requesting the revisiting and updating of protocols/internal controls for risk and crisis management. A review of controls which haven’t been tested for a while can identify issues regarding delegation, responsibilities, authority breaches and litigation risk.
Recognising and acting on forthcoming risks and dangers is one of the great tests of the capability of the leadership of a company and a nimble board acting early in a financial downturn can mean the difference between surviving the storm and having to man the lifeboats.
If you would like a confidential discussion about the services offered by Integral Financial, please contact me at svertullo@integralfinancial.net.au