Background, Issues & My Role
I served as an executive of a growing, soon-to-be publicly traded professional services firm based in the Northeast US with operations around the globe. At that time, the Firm had revenues of $60 million with about 2500 employees and subcontractors. The Firm had recently purchased a risk information business in StateX with a B2B focus. It had also launched a related start-up business intended to provide consumers with certain risk information.
After the Firm had spent nearly a year and had invested many millions of dollars into the startup, including the hiring and training of many managers, analysts, salesmen, administrators, etc., it had no contracts and no revenues.
It had become very apparent to the Board that a re-assessment of the Firm’s investment was critically needed. The challenge to all involved was that this start-up unit was run by a close colleague of the Firm’s President. Many employees believed that the President’s relationship with this individual was less than professional. In fact, she had been the President’s executive assistant at a previous company. Despite these issues, the President had succeeded in bulldozing the Board into allowing his colleague to be installed as Director of the unit. To many, she was viewed as unqualified, but nonetheless, the President prevailed in her appointment. A re-assessment would be highly sensitive and politically perilous. There was a serious danger that the “messenger” might be killed.
The Firm’s Chairman, who was not a fan of the unit Director, approached me privately to see if I would help him to reevaluate the unit, including whether to keep its Director in place. Based upon my prior history of success with the Firm in operations and management, as well as my perceived objectivity, I was formally asked by the Board to help make this assessment despite the fact that I also reported to the President.
After my preliminary review, I advised the Board that the business model appeared to be flawed. Key synergies and economies of scale had been squandered in relation to the StateX operation. Costs were unduly high since the operation was based in a large high-cost city. Overall this operation was poorly managed. My key and most difficult assessment was that leadership had failed and that the Director needed to be removed immediately.
Based in part on my assessment, the Board determined that the current head of the unit was not adequate for the job and she was promptly removed from that position. The Board’s consensus was that if prior loyalties and interpersonal relationships had not interfered in the original decision making process, much of the disaster could have been avoided. While the President was humbled, he accepted the Board’s decision without apparent rancor.
I was then asked to step in and try to salvage the start-up. The Board named me Director of the unit and gave me only 3 months to make the necessary changes and determine whether the start-up had commercial viability. After such time the Board would decide whether to continue the operation or to cut its losses. I initiated a rigorous and intensive period of assessment, evaluation, business planning and corporate re-engineering, including personnel, operational, marketing, sales and technology changes.
After the initial 3 month reorganization period, the Board asked me to continue running the business and merge it with the StateX operation as I had suggested. The combined unit became profitable and was ultimately successfully sold off.
I was able to maintain a positive relationship with the President in spite of these circumstances because he recognized that my assessment had been fair and objective and I believe he came around to see his error. Having turned the business around and successfully merged it with the StateX operation went a long way toward strengthening my credibility and maintaining a positive ongoing relationship with him.
I learned several key lessons as a result of this experience:
- The Board must be able to resist executive pressure when making strategic decisions.
- The Board must be aggressive in putting the right personnel in place
- Enterprises must be nimble and brave enough to change direction quickly if plans are determined to be flawed
- When a hard decision must be made, do not mince words in providing constructive advice
- Objectivity and fair handedness go a long way toward building management credibility