Welcome to the December 2009 edition of The Director's Dilemma newsletter. I hope you find it interesting, informative and inspiring.

I advise Boards and Directors on complex and challenging issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter considers three responses to a real issue. Which response would you choose?

Jenny chairs a small listed company. It has been through very tough times this year, major contracts were lost due to the GFC, workers had to be made redundant as roster changes were not sufficient to reduce costs, and dividends were cut to zero. Some loan capital agreements expired and, as new debt was simply unavailable at the time, a rights issue was canvassed with major shareholders. They were unable to support this so a placement was made. This diluted shareholders who are now complaining even though they made it clear at the time that they would not support a rights issue.

Morale has suffered but prospects are now good. The company is operating profitably with a pipeline of prospective work and a strong balance sheet.

The CEO wants to host a 'slap up' Christmas party to raise morale and signal to everyone that things are now going well. Jenny is not sure that this would be popular given that many staff have had friends who were laid off and are still struggling.

The new shareholders from the placement have praised the company for its austerity and focus on client service. She fears they would not be pleased to see money spent on parties. But, like the CEO, she knows that morale is important and that some tangible way of convincing staff that the worst is now over would help to raise morale.

What should Jenny do?

Dianne’s Answer

A modest end of year celebration would not be inappropriate. However, on its own, would not re-build trust or sustain morale.

Coming out of a period where people have dealt with a lack of operating flexibility, actions to reduce costs and headcount, increased responsibilities, changes in hours, higher levels of stress, fewer promotions, uncertainty around career paths and constrained compensation, how do you keep and re-energise people?

Promises made in times of growth and actions taken in economic downturns are fresh memories. Communicating by talking about corporate direction and financial performance can be insufficient for motivating those grappling with operating frustrations and retrenchments in an atmosphere of anxiety. It is more effective to make individual connections with people, not forgetting the value of a collaborative leadership style, informal conversations, mentoring and coaching that make the difference.

For example, recognising any special contribution an employee has made to the company's performance or customer service levels can be mentioned during a more meaningful 'stay interview', followed by a personal note from the CEO.

The strongest drivers of morale and belonging are feeling valued and involved. Involvement in decision making, including their own careers; the extent to which they can voice their ideas; the opportunity to develop their role; and having managers who listen to these views and value their insights; are all important catalysts for increased engagement.

People look for companies with reputations for identifying and developing talent, as this personally impacts on their individual growth and promotion prospects. Executives can act on their rhetoric about people creating competitive advantage if they have a deep and genuine commitment to learning, development and career options.

It is important to remember that personality guides different approaches to motivational drivers, incentives and feedback. You cannot create motivation, you have to tap it.

Dianne Jacobs is Founding Principal at The Talent Advisers and a former group manager and equity partner at Goldman Sachs JB Were. She is based in Melbourne.

Julie’s Answer

Jenny probably knows the 'slap up party' won't help morale. Her problem, as non-executive chairman, is getting the CEO to share her view. It would harm their relationship, and prevent him learning, if she overrules his desired action.

Jenny should talk privately with the CEO. This is not an issue for a board meeting as it would undermine the trust other directors should have in the CEO's judgement. It could also lead the CEO to be more covert next time he wants something that he believes the Board may not sanction.

First, Jenny needs to praise the CEO for his awareness of morale and his proactive desire to improve matters. She shares his concern. He must believe that.

Then she needs to ask how the shareholders (particularly new ones who are interested in austerity) may view his proposed action. A good CEO will understand the negative connotations a party could evoke. Jenny should ask the CEO to suggest ideas to:

• raise morale
• help people to draw a line under all the bad experiences of the past
• build courage and a strong team ethos for the future

• not arouse the ire of investors, and
• not upset staff who have friends out of work following the tough times of the past.

The CEO, with some guidance from Jenny, should develop his own optimum solution. Once both he and Jenny are happy with it, it can go to the Board for approval.

Some form of get-together would be good; it must be cost effective and future focussed. It is important for the CEO (and possibly also Jenny) to make a statement to staff that prospects are improving and that the company recognises their hard work and support in getting to this stage. More will be needed to rebuild morale but that would be a positive start.

Julie Garland McLellan is a specialist Board consultant and practising non executive Director based in Sydney.

Naveed’s Answer

Morale is boosted only when employees firmly believe in the state of their organization and its management team. When an organization like Jenny's has just emerged from a financial crises, throwing money at employees in the form of holiday party or bonus may not obtain the desired results. Will such action really make an employee feel comfortable about future prospects of a firm that recently laid off their colleagues? Everyone would feel lucky that their positions were not eliminated but many, if not all, will wait for better economic conditions to seek new employment opportunities outside the organization.

Therefore, the CEO and the management team need to strategically spend time and resources to earn the trust of their employees and show how stable the company is. Not an easy thing to do but not impossible.

The CEO should hold regular meetings, preferably in a town hall format, with all employees providing information on the state of the organization and the exact measures they are taking to turn the company around.

Key areas to focus on in these discussions include:

• How the company's investments are performing
• Providing specific information on why there was a slowdown in their organization, why they had to lay people off and, most importantly, what strategies they are now implementing to ensure that such a downturn does not occur again
• What is being done to gain new business
• The strength of their market share
• Areas in which the company will make strategic capital investments for the next few years
• What measures the firm is taking to make employees more effective and efficient for their future work, for example, training, skill building, professional development, promotion, etc.

Naveed Mustafa Naveed Mustafa is a senior IT Leader/ Executive at McKinsey & Company. He is based in New York.

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. Names and some circumstances have been changed to ensure anonymity.

What’s New

Book review – Directors do a lot of reading. I keep a note of my thoughts on each book I read. Here is my review of Don't Picture Me Naked by Michelle Bowden an excellent book on presenting and influencing skills (that does not suggest picturing your audience naked).

I also reviewed Peaks and Valleys by Spencer Johnson, MD (the author of Who Moved My Cheese?).

A book full of dilemmas – The first compilation of dilemmas and solutions from the 2008 and 2009 newsletter series is to be published in December. Email me for details or check the 'Books' page on my website.

Where’s Julie? – A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now divulge my non-confidential travel plans each month. Where events are open to the public I list the organiser and title. Where events are private I can only meet before or after the function and cannot divulge details.

Please call or email me if you would like to schedule a meeting or find out more about attending one of the public events.

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. It is (still) free. As an existing subscriber you will continue to receive a free subscription when a charge is introduced next year.

Suggestions for dilemmas – Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Be an expert – I will post the next dilemma on LinkedIn. If you would like to feature next month just log on to my Q&A and type in your advice. I will pick the best answers to be published in the next newsletter. 

Farewell until next issue (due 1 February 2010; I take January off ). Enjoy governing your corporations; we are privileged to do what we do!

Best wishes
Julie

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711