Why is it that SME businesses so often go down this route, when, statistically 96%* of such activities are a total waste of everyone’s time and money, and when such diversions are also damaging seriously their core business via varying degrees of management distraction and neglect ?

A relevant case study

A long-established and largely successful food importing business with £6m + turnover got itself in to all sorts of most unpleasant difficulties, even before the current recession / depression bit hard, this because the newly-elevated Non-Executive Chairman became way over-obsessed with looking at potential takeovers / mergers / acquisitions, within that which he perceived as his key (non-executive) role in long term strategic planning, and frankly because he had become bored rigid  !

He also (critically) dragged in to that process considerable quantities of the time and expertise of members of the senior management team, particularly that of the newly-appointed CEO/MD

The Owner / Founder / Chairman had done an absolutely amazing job in starting and building and developing this significant enterprise over a number of decades. He had also recruited, when he wished to retire, an eminently sound and driving and progressive CEO, and the Chairman had in fact behaved impeccably during the relevant hand-over period, and had stood aside completely thereafter from any form of day-to-day involvement in the executive management of the business - which surprised hugely not a few people, and not least the new CEO  !   

The first stage – Over the first 12/24 months of his appointment, the new CEO/MD had been mandated to and had planned actively to be dealing with some pretty intransigent net profitability issues and to be undertaking all of that activity with the support of an OMSG Non Exec

However, the incipient boredom of the Chairman began to rear its ugly head, and instead of taking up sailing, or improving further his already much-improving golf handicap, he decided, without being asked to do so, to start thinking (and plotting and planning) actively reference that which he saw as the long term strategic planning aspects of the business. Of itself, no bad thing at all and in fact in most cases to be a recommended role for a Non Executive Chairman, but this individual really over-cooked the thoughts and the process  

The OMSG Non Exec, who had continued to be involved in supporting the CEO with all of the planning and implementation aspects relating to the quite serious net profitability issues which were facing the business, was asked quite forcibly to become involved in this “Strategic Planning” work, as was the CEO, and to a lesser degree certain other members of the senior management team 

The CEO had already discussed strategic planning matters on a number of occasions with his Chairman, and with his OMSG Non Exec, both in a deux and a trois situations, and all had decided (supposedly) to put any serious thought or active work as regards long term strategic planning matters on to the back burner for at least two years, whilst agreeing still to be reviewing same but only in general terms at board meeting level at least once per annum in the meantime

The chairman was though not to be thwarted and he continued to press loudly and at length month after month for A & M action now / immediate, and reluctantly the CEO agreed finally to acquiesce and to involve himself with the Chairman in looking together, preliminarily at least, at various potential acquisition and merger options, but only on the basis of a very time-limited involvement

But you know what comes next ! - Yes, within weeks, the CEO was working three or sometimes four days each and every week on various and manifold meetings and plans relating to these A & M matters, and was NOT working on his primary role of the hands-on managing of the day to day running of the business      

Whilst the CEO tried to compensate for this by working evenings and weekends on the core business activity, other members of the senior executive management team became thoroughly dis-enthused and disenchanted – middle management and staff ditto – major customers ditto – and in essence the whole thing began to fall apart

At this point, the OMSG Non Exec felt that he had no choice but to speak individually and then collectively, with both the CEO and the Chairman about the serious dangers as he saw them of what was going on, and thankfully both individuals, and most particularly the Chairman, listened actively, carefully and thoughtfully

As part of this exercise, the OMSG Non Exec had explained just one key aspect of the whole process which had escaped totally the Chairman (and the CEO in fact), namely, as most Business Schools know only too well, that 80% of initially-proposed mergers and acquisitions do not ever even get to the altar, and that 80% of those which do make it to the altar, then fail effectively or actually within five years, ie a potential likely success rate out coming from all of the frantic such interest and activity at our client firm of just 4%  !

The second stage – The Chairman accepted the folly of his way, and agreed to pull immediately all his interest in progressing any thoughts of potential A & M matters, other than at the appropriate annual review each November of strategic planning matters, and to put all such specific thoughts on to one side for at least two years - and to take up sailing !  

The final outcome – The CEO now got on with that which he had been asked originally to be doing with his first two years in post, and proceeded, with the support of his OMSG Non Exec, to dramatically improve the bottom line performance of the business from just marginally net profitable, way up to £600k Pre-Tax Net Profits per annum, this primarily and initially by relocating the business and by cutting back the backroom office staff by approx 66%, (largely via appropriate IT inputs, early retirement and natural wastage). Thus both the Chairman and the CEO were now once again very happy bunnies indeed, and could look forward then to be moving on to a consolidation and developmental stage within the newly-profitable business, before looking again (just maybe) at M & A options, 2/3/4 years down the line, and, if doing so, to then be doing so from a position of vastly-increased financial and commercial strength  
 
The moral of this story ? – Having a strong-minded, independent detached objective and highly-experienced Non Exec on board made all the difference, in order to be analysing clearly the problem, and to be discussing examining and proving appropriately relevant and workable alternative strategies and tactics with which to deal successfully with that problem – and for the client firm to “to have its hand held” throughout - and Yes, we would say that wouldn’t we ! – but it’s true, nonetheless

More next month, on another topical issue for SME businesses.

June 2010