Welcome to the July 2014 edition of The Director's Dilemma. To read this email in your browser, go to www.mclellan.com.au/newsletter.html and click on 'read the latest issue'.
Government sector companies operate in a complex environment where strategy and policy interact with personalities and politics to influence choices and subtly alter the role of directors and shareholders. This month our real life case study considers a situation where changes in the shareholder environment could impact the strategic choices of boards.
Consider: What would you advise a friend to do under these circumstances?
Irene chairs the ‘People and Culture’ committee reporting to the board of a government sector company.
The company trades profitably in a geographic monopoly and has pursued a strategy of partnering with private sector organisations to outsource much of the work whilst retaining the control and responsibility of equitable service supplied to the community. Given the frequent contractual interactions the culture has evolved into a vigorous hybrid of commercial enterprise with government sector values. In particular the company has a track record of hiring staff from the commercial sector, on similar salary scales to those in the private sector, and devolving autonomy to them as soon as they are deemed to be culturally acclimatised. This has led to a small core team with a relatively small number of staff operating in a flexible manner. The strategy has had good results leading to price inflation that lags the general economy and a growing dividend stream back to government.
Following a recent election the Head of the portfolio department resigned and was replaced by a very experienced under-secretary from another department. There is also a new Minister who, whilst ostensibly agreeing to the strategy and its supporting culture, has shown a far greater desire to be included in decisions which has resulted in increased interaction between the Minister, department and company. Departmental staff are demonstrably uncomfortable with what they perceive as lax controls and high salaries. Gossip and tension have increased.
The government has now announced a review of salary scales across the entire government sector and it is obvious that Irene's company will be an outlier on the high side.
How should Irene proceed?