Welcome to the September 2011 edition of The Director's Dilemma.

The newsletter provides case studies that have been written to help you to develop your judgement as a company director. The case studies are based upon real life; they focus on complex and challenging boardroom issues that can be resolved in a variety of ways. There is often no one 'right' answer; just an answer that is more likely to work given the circumstances and personalities of the case.

Although these are real cases, the names and some circumstances have been altered to ensure anonymity. Each potential solution to the case study has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

Consider: Which response would you choose and why?

Dimitri is the eldest son of the eldest son and, as expected, has entered the family business. Last year he was given leave to travel to the USA and study an MBA at a prestigious business school. On his return he was appointed to the board and given a promotion. He now runs a large part of the company's operations.

The company's processes have changed very little in the last ten years and there has been no investment in staff training or development. Marketing is restricted to brochure production and sales support. Sales growth is falling and margins are starting to contract. Dimitri immediately saw that although the company is profitable, it needs to adapt to a globalising marketplace to ensure that it survives and thrives in the future. He prepared a plan of action detailing the necessary changes, calculating the budget required and forecasting the likely results in terms of new markets and improved margins.

When Dimitri presented the plan to the board (which is composed of his father, his uncle, himself and the family's accountant) they rejected it without any discussion. They seemed to feel that he was ungrateful for the opportunity he had been given and that he did not appreciate that the company, run as it currently was and always had been, had generated the very prosperity necessary to allow his expensive education. His mother is very upset. Dimitri feels that he must now choose between family harmony and corporate survival.

What should Dimitri do?

Alan's Answer

There is a serious culture clash here: Older, traditional, family-run company collides with MBA-speak and youth. To sort this out will require compassion on both sides, but given the situation, Dimitri will have to take the initiative. He could start by re-reading some of his MBA texts on change management.

There is a lot in this but I would counsel three basic things.

First of all, Dimitri should acknowledge the historic success of the company and its management. What are the strengths that have gotten the firm to where it is? Ignore the shortcomings for now. Try to identify the things that work in the existing structure. Assess those strengths laterally and see where you might be able to apply them to new initiatives. This will help put new ideas in terms the existing board feels comfortable with. In other words, start with the positives and see how you can use them.

Second, acknowledge the frailties of modern management thinking. The best contribution made by Jim Collins' best-selling Built to Last is that many firms he listed actually failed to last. While that may suggest some things about Dimitri's family firm, it also says a lot about how over-rated some management theory is. There is no standard business model. Dimitri will have to work with the uniqueness of the family firm he is part of. That's the reality.

Lastly, less strategy and more action. With points (1) and (2) in mind, Dmitri should step back and look for an area where he could introduce change on a project basis. Major strategic overhauls are regularly stillborn because there is no buy-in. Lower the bar. Start with something less ambitious that nonetheless demonstrates the practical application of different thinking. Make it something manageable. Talk with each board member individually about the project and explain it in their terms. Most importantly, form a team to make it happen and get them excited about it. If he can make this work, Dmitri should build on it with a follow-up initiative. Major strategic change is like climbing a mountain; it works best as a series of climbs rather than one massive ascent.

Alan Hargreaves is Managing Director at Copabella Investments and the author of 'Recharge'. He is based in Sydney, Australia.

Julie's Answer

Succession is a vexed issue. Things must change as new generations take on leadership roles. This is especially important if there has been a history of under-investment and laissez-faire strategy.

That said, Dimitri must recognise that the board holds the power and makes the decision; not an executive. Even the chief executive operates on authority delegated by the board; he must follow the chain of command. He also needs to understand that in family business, any disagreement with co-workers can have repercussions in his family life. He has probably shaken the board by exposing them to ideas that they were not prepared for and which, in their shock, they will refute.

Dimitri needs to check that he has real authority. Is he really intended to take charge of his division or is the title an excuse for paying him a stipend? He needs to decide if he wants to work in the family business, with the prospect of one day becoming CEO, or elsewhere.

An executive must tell the board what it needs to know; not just what it wants to hear. If Dimitri stays, he must address the fact that this business has a dysfunctional board. There is no independence; the family accountant possibly views directorship as an incidental result of being a trusted adviser and the two brothers will have evolved a close and comfortable relationship.

Dimitri must build the capacity of the board to lead the business. He should seek outside assistance from his local professional director association. Taking his father, uncle or the 'non-family' director to some professional events where they can discuss director issues with their peers will be a good first step. Getting himself a professional mentor whom his seniors on the board will respect and trust may also assist. As the youngest and newest board member Dimitri has a hard task ahead if he decides to take this challenge. Transitioning a board from an administrative necessity run by a cosy family group into a professional leadership team is difficult. If the company is to survive and grow it must be done.

He can start by making small changes, earning trust by managing well, and being seen to seek and take wise council, then start very long term discussions with his father and uncle about how they see the business meeting the needs of their grandchildren and great-grandchildren. When there is a shared long term vision it will be easier to reintroduce the hard topic of making the necessary changes to bring the vision into reality.

Julie Garland McLellan is a specialist board consultant and practising non-executive director based in Sydney, Australia.

Michael's Answer

Dimitri should humble himself before the board, thanking them for their wisdom and guidance as his mentors. From there he must take stock of all of the tools he has added to his toolbox, put the hammer away, and begin to slowly implement a process that is more like a vice: Slowly engaging a process of renewal in small steps, creating a strategic win through smaller tactical methods.

His plan may be correct, but it is not correct to take a massive strategic step in the manner of tactical haste.

He can bloom where he is planted and succeed in his role, possibly to perfection. Taking this opportunity to grow, he will learn to separate identity and role. He will then, with renewed gratitude and humility, bolster his strong identity by gaining the wisdom of experience that isn't taught in an expensive college MBA program. His identity and role are mixed together based on life script issues with his family, and they immediately need to be separated.

The point? These life script issues will follow him wherever he goes. If he leaves, he will run rough shod looking for a new place to plug in his umbilical cord. No strong leader will put up with that.

This is not new. Any seasoned executive like his father has a broader scope, and albeit "old" ideas are Dimitri's objection, a blend and balance will bring no harm, or harmony, as he grows into the position his father holds. In the meantime, his gift for persuasion on a more reasonable strategic basis will bring him where he wants to go without destroying his family or their successful company in the process. He needs to grow up, not take a bad situation and make it worse.

It is impossible to be in a state of gratitude and resentment at the same time. They are polar opposites. Love/hate ambivalence, for example, never leads to harmony - it leads to injury!

Micheal Geary is Vice President at Zeno Imaging and is based in Houston, Texas, USA.

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 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.

What's New

Global eBook Awards - I am exhausted from all the reading required of a judge in the business category of the Global eBook Awards! The three finalists in the Business Non-Fiction section (which was 'my' section) were:

• How to Build Buzz for your Biz; tap into the power of social media, publicity and relationship marketing to grow your business by Wendy Kenney
• Minitrends: how innovators and entrepreneurs discover, and profit from, business and technology trends by John H Vanston and Carrie Vanston
• Selling Change; 101+ secrets for growing sales by leading change by Brett Clay

I also liked Find the Numbers for Your Business Plan by W Hope Player. It was not a book with the wide appeal of the finalists but anyone starting their own business would benefit from reading it.

The overall category winner of the Global eBook Award for Business Non-Fiction was How to Build Buzz for Your Biz. Congratulations to Wendy for a great read and a topical book that covers all the key points in a pleasant and engaging manner.

Book reviews - Finding books that meet the needs of directors and aspiring directors is no easy task. Many glossy publications have little substance so why not try an eBook for a change? Here is my review of Wendy Kenney's award-winning book.

Success tips for board presentations - My new book "Presenting to Boards; practical skills for corporate presentations" launched in March. You can get a copy through Amazon.com or from independent book retailers. Here is a letter received Fay Feeney about the book.

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 share my travel plans each month.

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

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

Farewell until the next issue (due 1 October 2011).

Enjoy governing your corporations; we are privileged to do what we do!

Best regards
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