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Getting the Balance Right


Keith Faulkner CBE


Twin Group

· Leader Interviews,Leadership,Boards

“Decision-making should be widely spread, and direction-making should be based on wider inputs rather than the loudest voice in the room.”

Mid size businesses (MSBs) want to grow, and they often need an investment of cash to achieve this. How to develop the working capital you need to go into new markets without losing too much control is the challenge though. Investment for MSBs is not well supported by the banking sector, so you need to look outside of that.

At one of the companies I was chairman of, we went on the journey of raising capital, but we rejected them in every case because the investors wanted too much control or their ambitions did not align with ours. We used brokers for this, but even with a thorough evaluation and good introductions we still couldn’t find the right people to work with us. Ultimately, we met a dead end, and further down the road we ended up selling the business and losing complete control in order to find investment. This can lead to a situation where the senior management team leaves, the culture of the business changes significantly, and much of what you built is effectively destroyed. It’s a shame.

Finding the right balance in the business

Employee recruitment and retention is a big component of a successful MSB, so you have to create an environment where they want to stay with the business. If you’re doing a good job and people like working for you, bigger players will want to poach your staff. This is a good sign and, if you’re doing all the right things, more often than not key staff will not be blinded by the big lights and will want to stay with you on your company’s journey.

Getting the governance right in an MSB is also vital. You’ll need the input of executive managers and non-executives to the business but won’t have the structures that larger organisations have. That can lead to an operational bias: too many people focused on running the daily aspects of the business, and not enough people concerned with direction, the future and how to get there.

In an MSB, you often have a chairman or CEO with a long history with the business. These people are quite charismatic, and they have a big say in who else joins the board. It then becomes hard to hold a difficult or challenging discussion around a future direction because they are all too close.

Decision-making should be widely spread, and direction-making should be based on wider inputs rather than the loudest voice in the room.

What’s the impact of getting things wrong in the boardroom?

Some businesses do not operate in the same way that they would like to think they do. People closer to the front line can’t always recognise the view of the business that leaders have. Therefore, leaders can sometimes take a short-term decision based on opportunism rather than a properly worked-out plan. As the chairman, you need to use the strategic plan to hold the tension. A good relationship that holds the tension between operational needs and strategic direction is essential to making good decisions for the business.

There should be more rigour around the strategic plan. If you only look at your strategy infrequently, then you are not addressing the issues you need to. For example, if you are looking at the strategic opportunities for overseas development and identify a target market as the project progresses, there may be local economic or political volatility that is counter to your original assessment. An operations team that wants to press ahead regardless can lead to financial disaster, while a knee-jerk withdrawal can let in a braver competitor. As new information emerges, you should assess it in the light of your strategic purpose as well as the short-term financial implications.

If you do open up your business overseas, you need to have a person in-country leading it – and you must stay close to them. You need to ensure they know your business and they understand and can replicate your company’s values.

Just as in your domestic operation, as CEO or chairman, sidestep management occasionally and have a chat with anyone you see around the office. The more junior the better – they are far more likely to give you the unvarnished truth.

How to recruit your board and make good decisions

Ego often can get in the way of running a business. You have to be very careful who you recruit. Too often you will find people in the team that the CEO can be very comfortable with – they have cloned themselves in their team. You need people who think differently to you. Values are critical but you need diversity of talent and personalities to create the tension in the top team. Accept that you will make mistakes and build a team around you that will save you from yourself.

You need to put a significant investment in market analysis and pulling out data from your business so you can be as certain as possible that you are making decisions based on hard evidence. Too often, businesses make mistakes based on gut instincts – on opportunities that haven’t been properly assessed.

Growth – most of us want to see it. You don’t stand still in business. But too many people get focused on revenue, and it’s easy to increase. More importantly, you should look to increase profit.

This becomes apparent much later in the business cycle and causes management to then spend time explaining why it wasn’t as high as it could have been. It’s part of the symptom of an operationally focused board. You should instead look to increase the cost to competitors of entering the market. Accumulating profit is key to this.

The importance of avoiding too much management

Most companies are over-managed. They have too many people in the middle and not enough people in the field. If you can somehow open up the business and involve your staff more often, then you’ll have a better business. You need to remove the clay layer (the middle of the business) and get senior staff closer to the issues on the front line so they can understand the organisation better and communicate with their teams more effectively.

“Sidestep management occasionally and have a chat with anyone you see around the office. The more junior the better – they are far more likely to give you the unvarnished truth."

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