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    Boardroom decisions: The crucial importance of context

    Governance Leadership Management Performance Strategy
    Things are looking rosy for the New Zealand economy—rosy enough that Paul Bloxham, Chief Economist at HSBC, reckons "New Zealand will be the rock star economy of 2014". An important driver appears to be continued strong demand for New Zealand's dairy and meat products, particularly from Asia where the move to protein-based consumption continues unabated—which reminded me of a speech that I heard eight to ten years ago, delivered by the then Chief Economist of Westpac Bank. The suggestion was that Chinese demand for coal and steel would wane, as massive infrastructure projects were completed. Demand would then shift to food, to feed the growing middle class. The corollary was that New Zealand could look forward to long-term demand for its primary exports, and the resultant economic growth from a steady stream of export receipts. The chickens seem to be coming home to roost.

    This seems to be good news, so what should corporate boards do with it, if anything? Should boards move quickly to capture "their share" of what is obviously a growing international pie? Should more capital be applied to drive expansion into new areas, or should companies stick to their knitting? These are important questions. In the last seven days, I have been party to discussions with two successful companies that are seriously considering international expansion, to become exporters of services to Asia on the back on high primary sector demand. My initial response was to suggest several questions that their boards should ask and answer before any decisions are made:
    • What is the actual opportunity?
    • How does it fit with our current strategy?
    • What do we know about the off-shore market that the locals don't?
    • How transferrable is our capability? 
    • What will the impact be on our established business? 
    • How will it fit with the wishes of our shareholders?

    The pursuit of opportunistic growth is often exciting. However, it is rarely sustainable. Boards need to stand back and look at the big picture—to understand the context within which they operate, check their strategy and understand how the so-called opportunity fits—before making any significant decisions. The pathway of history is littered with stories of companies—including some large, well-resourced ones—that have tried and failed to become exporters on the coattails of growth in another sector. However, if boards are adequately informed before they make important decisions about strategy and the application of capital, they stand a much greater chance of success. Growth opportunities abound, but context is crucial.
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    The crucial importance of providing great customer service

    Governance Leadership Management Performance
    I want to tell you a short story, to demonstrate the crucial importance of providing great customer service, and reflect on implications for boards of directors. In mid-May, a small but important part of my website stopped working—the Twitter counter. This counter reports how many people have tweeted or retweeted links to any given blog post. It is a very useful indicator of whether a posting is of interest or not. I reported the issue to the website people. They quickly admitted there was a problem; told me that others had reported the problem; and, said they were working on a resolution. However, they kept my expectations in check by saying that they did not have an expected resolution date. All good so far. A few days later, a 20-second survey form arrived, asking for feedback on the customer service provided to date. I happily provided a positive response. Yesterday, another note arrived—this time to advise that the engineering team thought they had fixed the problem and could I please check my website. So, I checked and provided the requested feedback. Hopefully the problem is now fixed, and the update to the software will be deployed soon.

    While we don't like things to break, sometimes they do. Given this, it's the putting right that counts. This is what I learnt about "the putting right" that counted from this experience:
    • If there is a problem, admit it straight away
    • Commit to finding a remedy, but be realistic about when and how that might occur
    • Keep the customer informed of developments as they occur
    • Ask for further feedback or information
    • Tell the customer when the problem is resolved

    There is a profound message here for boards of directors. It concerns communications. People talk. They tell their friends and colleagues about their experiences—good and bad—in ways that can't be controlled. Boards are somewhat aloof from the day-by-day activities of the companies they govern, yet the effect of poor customer service has the potential to directly ruin the board's day. However, if boards put effective reporting measures in place and ask appropriate probing questions, the chance of being blindsided by unforeseen problems is greatly reduced. Effective leadership and a healthy culture from the boardroom out through the organisation are crucial. Boards that do the hard yards in the boardroom should see the fruits of their labours become apparent—on the bottom line—soon enough.
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    ICMLG 2015 to be hosted in Auckland, New Zealand

    Conferences Governance Leadership Management Phd Research
    The 3rd International Conference on Management, Leadership and Governance (ICMLG) will be held in Auckland, New Zealand on 12–13 February 2015. This conference attracts leading thinkers from around the world. It is a significant opportunity to share research findings; debate emerging ideas on leadership, governance and strategic and operational management; contribute to the body of knowledge; and, importantly, meet some great people! In case you are wondering, the conference is designed for scholars and practitioners with an interest in these important topics.

    The call for papers has just been issued. I commend this conference to you, particularly if you undertake academic or commercial research, or if you are a doctoral candidate. I have delivered papers at the two previous conferences (click here and scroll down for details), and will be chairing a minitrack in Auckland.
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    Will the surge in IPO activity lead to a supply-and-demand problem?

    Governance Leadership Management Performance Strategy
    The New Zealand Stock Exchange has admitted several new listings in the past six months, with more pending including Gentrack, PushPay, Hirepool and iksGPS. Rumours abound that several other companies are hatching plans. The Initial Public Offering (IPO) is a popular option if new capital is required for growth or if the owners want to sell down. However, it is also an expensive instrument.

    Investor and commentator Brian Gaynor has suggested that the current surge in listings in New Zealand is a good thing. It may be, but I'm not so sure—because the grown-up world of public share trading is ruthless. If value is to be realised, the IPO needs to be heavily subscribed and performance needs to be at or above the expectations created in the IM. Otherwise, a key driver to list—liquidity at a fair price—will be lost, as Moa found out recently.

    While IPOs are popular at present, the current surge in activity may lead to a supply-and-demand problem. The supply of offers is bound to exceed demand from investors at some point. Inevitably, advisors will struggle to attract sufficient interest to fill the initial subscriptions, and that will put the share price under pressure. Boards need to think carefully about this before they decide to take an IPO proposition to shareholders. It may be smarter to use debt (or some other instrument) to fund growth.
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    Has the time to hold local councils accountable arrived??

    Governance Leadership Management Performance Societal Wellbeing
    I am on record as being a critic of the way local councils often go about their business. Councils were established to provide common/shared infrastructure to support the growth of towns and cities, and to set some rules (bylaws) around the operation of infrastructure. However, many councils have claimed a greater remit over the years, with attempts to drive economic development (what do councils know about business?), sister city programmes and so forth. Yet few of these schemes have delivered much to ratepayers except cost. I have a sense that local councils have lost sight of their "core business", and that the mayor and the council (ie. the chairman and the board) have lost sight of their role in many cases.

    However, things may be starting to change. The problems with the issuing of building permits and the maintenance of appropriate standards of construction provide a case in point. The Christchurch City Council lost the right to issue building permits because it was doing such a poor job. Now, the judicial system has ruled that affected parties can bring a case against Auckland City Council in respect of poor construction standards (the so-called leaky building problem). I applaud these decisions. Hopefully, they will cause Mayors and Councils to take their core roles more seriously, and hold their CEOs to account for performance more directly. That will be a good thing, for ratepayers and citizens alike.
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    On the unravelling of a business

    Governance Leadership Management Performance Strategy
    I have mused on the downfall of Postie Plus twice recently: when trading was halted on the stock market, and then when an administrator was appointed. Today, a third instalment: an initial impression of what went wrong, and what boards can learn from the case.

    The Postie Plus board and management appear to have lost sight of the company's purpose. The company's genesis was as a provider of good quality, affordable clothing that was good value for money. However, in recent years, the company has found itself competing in a higher fashion segment of the market, something that the chairman—remarkably—is on record as saying that the company did not aim to do. On this information, the company was operating at variance to its strategy. Gosh. The questions that emerge from this revelation flow thick and fast. Why did the board allow this to happen? Was the board watching? Did the board know? What was the board thinking? 

    The board is responsible and accountable for the achievement of business performance outcomes in accordance with the wishes of shareholders. Yet in this case, decisions were made (or, not made?) that resulted in the company performing less well over an extended period. Sadly, the board took little, if any, action. The Postie Plus board knew something was amiss two years ago. An interview with the chairman in December 2012 corroborates this. At that point, the board should have gone back to basics—to purpose, values and strategy—to find out what was going wrong and to make some serious adjustments. However, it appears that the company simply tinkered around the margins (while the patient was dying).

    Other boards should take note. Boards need to set strategy, and they need to review business performance against strategy on an on-going basis, to determine the appropriateness of the strategy. To do this effectively, boards need to understand the business of the business they are responsible for. They need to understand the market, the competition and the emerging trends, lest they get blind-sided by competitors, completely disruptive technologies, or, more simply, a change in buyer preferences and behaviours. On the evidence to date, the Postie Plus board does not appear to have done these things—or if it has, then it has not done them well. It is little wonder that the Postie Plus business has unravelled as it has.