THE ROLE OF BOARDS OF DIRECTORS DURING THE IMPLEMENTATION OF A TURNAROUND STRATEGY
By Dr Kaizer M. Nyatsumba (MBA, PhD), Business Rescue Practitioner, Turnaround Strategy Expert and Chartered Director (SA)
So, you have decided to implement a turnaround strategy in your company to arrest its decline and return it good health? Well done. That is a very wise decision. As they say, a stitch in time saves nine. Implemented appropriately and timeously, a turnaround strategy is certain to stop your company’s bleeding and to set it on a path to a new growth trajectory.
Implementing A Turnaround Strategy
Implementation of a turnaround strategy is necessitated by “a turnaround situation”. Such a situation arises when a company has been suffering a decline in financial performance over an extended period, thus making it imperative that a series of tough, decisive actions are taken to reverse that decline. Failure to take such steps in good time is certain to lead to business rescue or even liquidation.
Therefore, the implementation of a turnaround strategy is a matter of survival, and not a matter of choice. It requires a certain kind of leadership which is different from that which is necessary when leading a stable company.
The Role of The Board of Directors
Section 66(1) of the Companies Act 71 of 2008 confers full authority on a Board of Directors for the running of a company. Specifically, the Act states that “a company must be managed by or under a direction of its Board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise”.
That means that, ultimately, a Board of Directors is directly responsible for a company’s success or its failure to implement a turnaround strategy timeously. However, to be able to oversee the implementation of a turnaround strategy, a Board of Directors must know what a turnaround strategy is, what occasions it and what is expected of the Board during the implementation of that strategy. This is important because the literature on turnaround strategy is emphatic that running or governing a company during a turnaround period is different from doing so during a period or normality.
To appreciate that fact, let’s turn to the words of turnaround practitioner and academic Dr Donald Biebault (1999):
A turnaround situation is an abnormal period in any company’s history. It requires management approaches unique and distinctly different from those of stable or growth management. In turnaround situations, many of the old and proven management tenets, applicable to more stable situations, lose their validity. Basic principles still hold, but their implementation can take on an entirely new, and sometimes contradictory, appearance (emphasis mine).
Does Your Board Know What To Do?
- Given this unique situation, does your Board of Directors know what to do during the implementation of a turnaround strategy?
- Does it appreciate the fact that not everybody can be a turnaround leader, and does it know what kind of support a turnaround leader requires from a Board of Directors in order to succeed?
- Does it appreciate the fact that turnaround strategies are implemented under extreme pressure, when things are not going well and usually at a time when the company is under intense media scrutiny?
- Does the Board know how to conduct itself during the implementation of turnaround strategies, and how much authority to delegate to the CEO?
We at KMN Consulting can help you. A two-hour session with your Board of Directors can help you to be better placed to appreciate the intricacies of a turnaround strategy and to understand how you can best facilitate the successful implementation of a turnaround strategy in your company.
Contact KMN Consulting
At KMN Consulting (www.kmnconsulting.co.za), a Division of KMN Investment Holdings (Pty) Ltd, we are experts at the implementation of turnaround strategies. Not only has our Managing Director, Dr Kaizer Nyatsumba, successfully implemented turnaround strategies during his tenure as Chief Executive Officer of the Steel and Engineering Federation of Southern Africa (SEIFSA), which was a loss-making entity when he joined it in November 2013, but he also holds a PhD in the discipline from the University of Johannesburg. Among the books that he has authored is one entitled Successfully Implementing Turnaround Strategies at State-Owned Companies: SAA, Kenya Airways and Ethiopian Airlines as Case Studies.
A Chartered Director (SA), Dr Nyatsumba holds an MBA from the University of Hull in the United Kingdom and is a member of both the Institute of Directors in South Africa and the South African chapter of the Turnaround Management Association.
Contact KMN Consulting now for assistance with the development and implementation of your turnaround strategy. Send an e-mail to Kaizer@kmnconsulting.co.za or call +27-10-156-2906 now.
For more information, see www.kmnconsulting.co.za.