The Director’s Dilemma – February 2022 Edition
*Contribution by Mpho Nkeli, Executive Chairman & Head: Board Practice at Search Partners International / AltoPartners South Africa. Mpho is is a Non-executive Director and Committee Chair of Implats and Sassol
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The Director’s Dilemma - February 2022
This month we consider how a board can confidently make a new strategy when the previous one failed. On the one hand, the wisdom is that you get straight back on the horse after falling off, but on the other hand you don’t want to repeat your mistakes and take another fall. How would you solve the dilemma?
Orlanda’s board is about to abandon the company’s strategy because it has not worked and they have reached the walk-away point that they set for themselves when it first became apparent that the strategy was not delivering.
Management are expecting it. There have been a few comments from analysts and institutional investors at recent ‘roadshows’ asking when the board will reconsider, and last week there was an article about it in the press.
Rather than wait to discuss the issue at the in-camera session prior to the board meeting, Orlanda’s chair organised a board zoom call so that the directors could talk through the coming decision and its implications with no executives present.
The conversation was honest and penetrating: The board spent much of the time discussing that they are not sure if management failed to implement well or if they – with management - had endorsed a poorly conceived strategy in the first place. However, they all agree that they don’t want to delegate the task of developing a new strategy to the team that has just failed to deliver this one. Equally, they agree that they don’t want to punish management for a failure that is simply not due to any fault of the management team or their work but stems, instead, from unforeseeable market conditions.
Which leaves the board unsure how to move forward; what can they do to ensure that they act fairly and still avoid making a second strategic error? How can Orlanda, who is not the chair, help this process?
The board and management are responsible for the strategy and are equally responsible for not considering all possible market forces that could impact the successful implementation. The board being unsure if they can blame management for the poor implementation of the strategy, gives a perception that they may not have interrogated the strategy implementation as robustly as they should have.
A management consultant can be engaged to provide an independent evaluation of the reason for the failure of the strategy. This strategist will help facilitate the development of a new strategy to give confidence to the board, management, and shareholders that all market scenarios have been considered, and the resources, capacity and capability to implement the chosen strategy are evaluated before approval of the strategy.
The board don’t want to delegate the task of developing a new strategy to the team that has just failed to deliver this one. The independent investigation may inform to change some members of management and a board skill composition evaluation should be considered to make sure the board have the capability to approve and effectively monitor strategy implementation. This may result in the appointment of new board members to enhance the quality of the board or enrich the board with new skills.
The outcome of the independent investigation will inform the board’s decision on consequence management. The board agree they don’t want to punish management, however the investigation will either confirm this decision or inform a different position. The board principle to act fairly will be clearly applied in their final decision.
The use of a reputable management consultant to facilitate the strategy formulation will give confidence to the board, management and investors.
Orlanda’s role is to help the board to reach the best decisions it can.
Her board is currently suffering from a (quite expected) lack of confidence given the past failure. They are also clearly not fully aware of the drivers of success for their business.
Orlanda can help by ensuring that the management team is appropriately resourced and supported with expertise as the new plan is developed.
She should also start to equip herself to better oversee performance in the future. She needs to understand what each of the CEO’s direct reports is responsible for and help the board to set one or two measures that will indicate whether that executive is performing well or whether they need help.
The CEO is the most important executive for Orlanda, and her colleagues, to assess. She should start by understanding how external stakeholders view the CEO. If there have been questions at roadshows and articles in the press, the CEO is already being destabilised.
Orlanda should instigate a discussion about whether the CEO is able to lead through this next period or if the company is better served by appointing an alternative. This is going to be uncomfortable and will be made more difficult by a lack of clear information in performance.
Having that conversation is a crucial next step. The board can bring in external consultants to help develop KPIs for monitoring executive performance. They can’t delegate their role of selecting the CEO and supporting him or her in their role.