The absence of a clear recovery since the global financial crisis has dulled the risk appetite of many companies. A two-speed economy and the ever-present risk of the global economy slipping into another recession has many company leaders driving with one foot gingerly tapping the accelerator while the other is firmly planted on the brake.
Given more uncertainty ahead, companies have a choice: they can wait for a break in the gloom, or they can get a jump on their competitors and seize the moment. Adelaide-based television, film and digital production company Kojo has 54 employees and annual revenue of $18 million: managing director Dale Roberts says the company chose to make the move to support future growth now. “We undertook a major review of our business and invested significantly to boost our capabilities ahead of time,” he says. The business, established in 1991, has created two new executive roles – appointing a creative director and a head of digital – and invested in new equipment and technology. “We took a calculated risk and it’s paid off,” Roberts says. “We’re on a sharp growth path and we’re currently 14 per cent of our revenue targets.”
Long time Melbourne businesswoman Rita Avdiev has never known business pessimism to run so deep. Avdiev, the chief executive of management consultant The Avdiev Group , which specialises in the property and construction sectors, says the skittish economy, coupled with disillusionment with minority federal government, has put business decision-making on hold.
“Decisions are not being made, no long-term plans are being made. Everybody’s sitting on their hands, everybody’s waiting for someone else to make a move,” she says. “That’s the mood: we’re all sitting and waiting – for the election and for clarity about the economy.”
Avdiev is sitting and waiting along with everyone else. “Do I redouble my efforts to find new work? No. It annoys people if you badger them for work. I’m not killing myself finding work where there isn’t any,” she says.
Company director and Brisbane businessman John Lyons says the hesitancy is understandable. “It’s normal human behaviour,” he says. “When you’ve taken a whack, you tend to be much more risk averse.”
But with such hesitancy in the business community, now may be the perfect time for companies to explore new business opportunities. For many companies that have been holding out for greater domestic and international economic certainty since 2008, waiting and seeing, or just saying “no” to potential opportunities, has become entrenched in their governance and management structures. Lyons advocates the benefits of bringing entrepreneurial values to the board table to ensure a company’s directors support and encourage their executives to think creatively as well as strategically about growth. “CEOs have a battle on their hands in the current environment,” Lyons says. “They’ve got to justify [pursuing opportunities] to boards that are risk-averse … in some cases boards that are probably being rewarded for not taking risk.”
Lyons, a Queensland councillor of the Australian Institute of Company Directors, says board composition is critical to ensuring boards fulfil their risk management obligations while staying competitive and alert to opportunities. This challenge is magnified for companies that are caught not only in a volatile economy but also adjusting to structural change.
“When people don’t know the scope of what’s to come, it makes them even more risk averse,” he says.
Board composition based on diversity will ensure that “group think” is challenged, Lyons says. This can be achieved by having a director with an entrepreneurial focus, or someone from a non-financial or legal background such as marketing or innovation, or a “maverick” or “eccentric” director prepared to challenge the status quo. “The value of including people who are eccentric, both in their personal demeanour and in their views, is that they provoke new thinking, they provoke people to reflect,” he says. “Having a maverick on the board, someone who is able and willing to challenge, brings diversity of thought to a board.”
Lyons’ entrepreneurial focus was in evidence recently when, as non-executive chairman of Brisbane-based library-management software company Softlink International, he arranged a half-day session in which the company’s five non-executive directors, the managing director and chief operating officer each presented their assessment of possible futures, opportunities and threats for the company.
Like many long-established businesses, Softlink, founded in 1983, is having to deal with not only a global economic downturn but also deep structural change brought on by the digital revolution. “We put everything on the table, everyone wrote a short paper and it provoked the chief executive and other senior management people to really elaborate on their views for the future,” Lyons says. “I came out feeling very confident about the company’s future.”
For companies that approach 2013 as the ideal time to identify and pursue growth opportunities, a fundamental challenge is ensuring that governance and management structures do not predispose them to fail. Executive pay structures that reward short-term results, for example, can stifle innovation and entrepreneurialism. The Melbourne-based director of corporate services at corporate advisory firm DH Flinders, Peter Armstrong , says the alignment of executive pay with performance takes on particular relevance. “Pay should support the achievement of the purpose and strategy of the firm,” he says. “A focus purely on financials or share price growth in the short term is likely to undermine long-term success and sustainability.”
Armstrong warns that focusing on “highly leveraged short-term incentives” could create an emphasis on cutting costs and starving the organisation of resources needed for a sustainable future. Long-term success, he says, requires “a clear and compelling vision, supported by objectives and values and business strategy”, all of which can be incorporated in remuneration structures. “A successful and sustainable pay approach needs to focus on business return in the form of the drivers of long-term value creation,” he says.
The principal of Critical Management Group and a senior fellow at the University of Melbourne’s Graduate School of Business and Economics, Marc Stigter , believes companies “need to rethink their approach to opportunity and risk”.
As the likelihood grows of a prolonged economic downturn, Stigter says “waiting and seeing is not an option”. He is critical of companies that remain focused on cutting costs rather than creating strategies for the future.
“Companies that are cutting costs are giving themselves a false sense of security but they’re not addressing the fundamentals or the underlying challenges of the business and they are very likely destroying value in the business in the long term,” he says. Stigter says corporate leaders need to be mindful of how employees are influenced by an environment of cutbacks and the perception that their employer is behaving like the proverbial rabbit caught in the headlights.
“Employees see people being made redundant around them and survivor’s syndrome sets in; they play it safe and concentrate on their own job and stop thinking about how they can contribute to the wider benefit of their department or organisation,” he says. “So you have a contraction of thinking at a time when leaders should be mobilising their people. Now is a wonderful opportunity for companies to revisit their core value propositions and to become more market and client centric and to encourage employees to think about how they can achieve that.”
A management consultant specialising in leadership and organisational culture, Walter Bellin , chief executive of Sydney firm Corporate Crossroads, says a downturn is “the time when real leadership is desperately needed”. Instead he is seeing a “culture of caution” take root. Bellin warns that the prolonged mood of austerity and acute sensitivity to risk since the global financial crisis – “2008 is a long time ago and not much has changed” – has created a collective mindset of caution in organisations. “Employees see the caution of their leaders and feel the impacts [of cutbacks] in their workplaces and a collective cultural response soon emerges in which the assumption is that they have to be very careful and very cautious in their approach,” Bellin says. “Many organisations are creating self-fulfilling prophecies [of failure]. If they continue in that mode, the danger is that they will raise a generation of managers who think that way.”
As well as the longer-term risk of entrenching an unadventurous leadership culture, Bellin says, companies stuck in a holding pattern risk alienating talented managers and executives who have the skills and desire to seize opportunities overlooked by others. “The people who are more naturally inclined to be entrepreneurial in the way they think will go somewhere else,” he says. “They will either leave to start their own business to pursue opportunities ignored by their employer or they will join another organisation where there are more like-minded people.”
Leo D’Angelo Fisher Columnist BRW
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