Dear reader,

Welcome to The Director's Dilemma 2022!

Each month this newsletter looks at a real-life scenario that happened to a board, perhaps to a board like yours, and considers a range of responses. The scenarios are de-identified to protect the individuals concerned. 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?

Of course, these scenarios are general, written to help you with practical information without the risks that attach to living these situations in real-life.  I work with boards and directors as a confidential mentor to help them build great companies and maximise their impact. If you would like personalised service, please call me.

To read this email in a web browser, go to www.mclellan.com.au/newsletter.html and click on 'read the latest issue'.  I hope you will enjoy the latest 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?

It would appear that the board has in fact developed the strategy and delegated the responsibility for its implementation to the executive.  This is contrary to good governance principles.

According to King IV Principle 4 recommended practice:

• The governing body should assume responsibility for organisational performance by steering and setting the direction for the realisation of the organisation's core purpose and values through its strategy.
• The governing body should delegate to management the formulation and development of the organisation's short, medium and long-term strategy.

The board's role in developing strategy undermined its ability to exercise oversight and hold management to account. This is reflected in the inability to ascertain the cause of the failure of the current strategy, namely management's implementation or market conditions.

The lack of communication and trust between the board and management needs to be addressed. Regular interaction between the board and management does not exist and management is excluded from strategy discussions. The unwillingness to delegate the development of a new strategy to management indicates a serious lack of faith in management's abilities to deliver.

It is a concern that the strategy execution was allowed to continue without early warning or intervention. Regular reporting of actual versus planned achievement of the business plan should be communicated to the board together with planned actions to be undertaken to address changes in market conditions. The continuation of the apparently ill-conceived strategy without timely intervention reflects poorly on the board's oversight role and the level of trust and communication between the board and management.

Christopher Whittle is a Governance, Strategy and Enterprise Risk Expert - Consultant and Facilitator. He is based in Johannesburg, South Africa.

 

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.

Julie Garland McLellan is an experienced non-executive director and board advisor based in Sydney, Australia.

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.

Mpho Nkeli is a Non-executive Director and Committee Chair of Implats and Sassol. She is also Executive Chairperson and Director of Search Partners International. She is based in Johannesburg, South Africa.

Julie’s News

January is always a lovely quiet time in Sydney. This year I managed to get Covid and was out of action for a while. I'm now fully back to health and enjoying the pick up in activity as Australia starts to return to business as normal.

Do you like video?

Readers who follow me on LinkedIn may have noticed that I have been posting short video insights. You might like to visit and subscribe to my YouTube channel to see a link to the channel whenever you visit YouTube.

The videos are in three lists:

• 'Quick Insights' up to three minutes long
• 'Board Thoughts' three to ten minute informal comments giving my take on current board issues
• 'Presentations and Classes' up to an hour long

Choose how much time you want to invest. Let me know if there are any topics you would like to see addressed.

Book Review - Becoming a Boardroom Star by Beverly Behan.

Most boards can confidently point to their 'star performers'. Most boards quail at the prospect of identifying and addressing their less than stellar performers. Which means that if you want to become a star, you will have to work on your own performance.

This is the only book I have found that addresses how to have a positive impact on a board and how to stand out as an individual rather than how to improve the board as a whole. There will be something in this book that even the best directors can use to keep improving; if you are struggling or new to the role, the whole book will be a great help.

It is practical and full of ideas that any director can apply immediately as well as many ideas that will continue to resonate for months after you have finished reading it.

For people who like a more experiential learning process there is also an online course that takes you through the book, chapter by chapter.

Available at Amazon.com

Inspirational quote for February

We read a lot about 'digital transformation'. If we haven't transformed already, we are probably already casualties of the transformation of others. Getting value from the investments we have already made is essential.

Companies that slide back into old ways of doing things as the Covid crisis passes (or as we hope it passes) are following a recipe for failure. Directors need to continue their digital journey, not go back to the start.

Do you know where to focus your director and board development?

Boards often struggle to get cut through and drive company performance. They work hard, then they work harder, then call in a consultant who recommends some changes, then they work harder still.

If that sounds like your board, don't worry. It is likely that you have simply been focusing on the wrong stuff. I have made a diagnostic tool that might help you to prioritise the actions that will free your board from the drudgery and allow you to maximise your impact. You can take the diagnostic here:
https://directorsdilemma.scoreapp.com

Call me afterwards for a personalised action plan to revitalise and enhance the impact of your board work.

A note on names - A few readers have asked me where I find the names for the protagonists in each case study; I 'borrow' them from people I meet or things that I read. Orlanda is an old Germanic name that means 'famous land'. If our protagonist can help her chair to lead the board through this process she will become famous for all the right reasons.

This newsletter - If you have any ideas for improving the newsletter please let me know. If you are reading a forwarded copy, please visit my website and sign up for your own subscription.

Suggestions for dilemmas - Thank you to all the readers who have suggested dilemmas. They are greatly appreciated. I will answer them all eventually. I could not write this newsletter without your help and without the generous help of all the experts who respond each month to the case studies.

Be a contributor - if you would like to attempt a response to the dilemmas for publication you will be most welcome. Simply reply to this email and let me know. I am always on the look out for new talent from around the world so please reach out if that sounds like something you could do.

Let's connect - I use LinkedIn to share information about boards and directorship with my friends and acquaintances. If you use LinkedIn and we are not yet connected I will welcome a connection from you. You can find me at linkedin.com/in/juliegarlandmclellan.

Let me help you - I would be delighted to speak for or train your board, staff, audience and/or group. If I can help, please contact me at julie@mclellan.com.au.

Farewell until the next issue due 1 March 2022. I look forward to greeting you again then. Best wishes for a successful 2022.

Enjoy governing your companies!

Best regards,
Julie

Main Photo by Sora Shimazaki from Pexels
Quote Illustration by Julie Garland McLellan

Disclaimer: The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling and do not constitute legal advice. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

Privacy: I am privileged to have your contact details and keep them as safely as possible. I will alert you if they are ever accessed by any unauthorised person (the technical staff at ayuda help with publishing and issuing the Director's Dilemma and have access so they can send the newsletters to you). I do not sell your details to anyone; they are kept only for the intended purpose - sending you this newsletter and helping to build the judgement of company directors by providing a safe way to consider potential responses to real life events.