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Entrepreneurship: Appraisal of a CEO Who Has Lost His Way...

Entrepreneurship: Appraisal of a CEO Who Has Lost His Way...

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Published by Raju Swamy
Appraisal of a CEO and the President who have lost their way….submitted to the Chairman of the Board, of Over-C Inc. (By Raju Swamy)
Appraisal of a CEO and the President who have lost their way….submitted to the Chairman of the Board, of Over-C Inc. (By Raju Swamy)

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Published by: Raju Swamy on Jan 10, 2010
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Appraisal of a CEO and the President who have lost their way….

submitted to the Chairman of the Board, of Over-C Inc. (By Raju Swamy) A Wake-up Call… to save Over-C Inc. (A Real Life Advisory Note, but with names changed)
In today's optimistic business scene, where business in general is thriving, and where IT and ITES companies in particular are thriving, one likes to hear in Over-C Inc. the sound of galloping horses, of the sound of engines being revved up, and of the sound of heated debates on strategy and action. Unfortunately, I hear only the ominous silence of the lambs... On the second floor, people hardly smile and crack jokes anymore, and others elsewhere always wonder…and keep wondering… I am writing this because I find demotivation and degrees of frustration creeping even into employees considered ‘stable’. On a one-to-one, for quite some time, many have asked me why I do not send Sales Bulletins anymore, why Executive Meetings are not productive, why the company always seems to be in a financial mess, why Raymond and Stanley have no time to address issues other than some issues concerning only Business X, that also only when pressurized, etc., etc. I have always responded as to why you don't raise these issues directly when you have an opportunity, atleast when an Executive Committee Meeting is held. The reply often, and almost unanimously is, “Why should I get into trouble…I might as well quietly get out.... and in any case till then I will get paid, whatever the results”. It is the Stockholm syndrome where you begin to enjoy the freedom of indiscipline, even while you get paid for it, which is a bonus. One of the reasons for this cynicism is also because of total avoidance on answering any question with a clear answer by the ‘Top Management’ (we will refer to this as ‘TM’ in the rest of this note. TM of course refers only to Ray and Stanley). Most of these questions were also asked – and not answered - during the Annual Management Conference: Anne has the list. Let me try and answer some questions: 1. Sales information on ‘Exports’ is not sent anymore because nobody is really in charge of Marketing and Sales. No organized team meetings for Performance Review are held anymore. These Weekly Performance Review Meetings were discontinued because I asked accountable questions, and others heard them, and were influenced by it. Targets have no meaning…nobody knows or cares. In 2005-06, new business targets were not met. In existing business, targets and actuals did not match. Nobody really cared. Stan was accountable for Domestic and Overseas Sales. The results for Q1 & Q2 this year are transparently bad. No new business, and if something goes wrong with our one most loyal customer, that would almost be the end. 2. People within Over-C know that Marketing and Business Development are weak in the company. During the July Training Session on Brand Equity, one of the questions raised was “do we have a Business Development Team?”

3. There is also another side to this debacle: sheer non-performance inspite of almost $1million being spent over the last three plus years directly and indirectly through travel and other costs primarily for business development abroad. No accountable reporting whatsoever, within, or to the Board. 4. A major reason for the above is also because TM targeted Business X as the only pot of gold at the end of the rainbow and everything else was not important. Consequently the overseas business went for a toss with no encouragement and poor leadership. The consequences of this profound policy are being felt now on the cash flow front with Business X projects execution delayed and incurring losses because of inadequate planning, management and logistics jams. Over-C has now become dependent on Business X without a planned back-up policy. Having a ‘Plan B’ is unheard of in Over-C. 5. With our dependence on Business X, and overseas business declining, just for the first four months of this year, cash losses can be estimated to be very significant. It is also important to extract Rev/Empl. and Cost/Empl. to show the stark imbalance between revenue and expenditure and the extent of unproductive employment. 6. If one were to seriously track the company’s record on Business X, you will find there have been significant write-offs and irrecoverables totaling many millions. It would not be surprising to discover that we have never made profits on Business X! If one probed further, on other businesses too, Over-C’s track record on write-offs is pretty bad. Remember the Portal Business? There may be other examples, particularly during the merger process. 7. Frankly, if people are accountable for results, there is nothing wrong with pursuing one’s strengths, including Business X. Unfortunately, Accountability is the weakest of Over-C’s management traits and is most in evidence at the level of TM. The TM culture is strange: Get a project at any cost, ROI is not important. Generating profit for shareholders, meeting other critical financial commitments is not important. Expenditure is the source of management power, not profit and results. Expenditure, using vendor overdues, employee overdues, delaying statutory obligations, and using ‘adjustments’ all around, is the secret of business, and of power. Expenditure is Power. A dangerous management philosophy where you also develop contempt for people you owe money to! 8. Today, one meets expenses of A by depriving B. Or use credit card X to pay credit card Y. Or, even while building a structure, sell the bricks from within to keep going ‘up the down escalator’. Or, use one loan to pay off the other. This is the reason there is a perpetual financial jam: we do not generate surpluses to grow. This is plain arithmetic, and can be verified. Whatever profit is being shown is negligible and even that is dressed up. 9. When performance is not based on accountability, and power to govern is driven by the power to spend and not by the power to earn, there will be many decisions that go wrong and results that will be negative, because unbridled and untrained leadership ‘power’ overrides business logic and management skills. And the more negatives there are, the more facts get hidden. There is more silence and avoidance, and more claims to be ‘busy’. ‘Busy’ with what? ‘Busy’ running away from responsibility? Who will run the organization and make it grow positively? 10. And in this atmosphere of secrecy, of uncertainty, nobody talks of knowledge acquisition, innovation, disruptive technology, and of the future. You not only have a

stagnant management, you also stagnate on technology. People complain of not getting exciting new projects. 11. Vision, Goals, KRAs…what do they mean? And why do we need them?? Ignore. Silence. 12. It is a strange coincidence: both the members of TM are obsessed only with ‘Self’ and do not understand an Organization, and its Management. They are caught in a trap of their own making: perpetually ‘busy’, silent, secretive, and unproductive. They function like little children chasing their favourite toys, and then breaking them, and hiding the broken pieces under the pillow. 13. How do we then get out of this quicksand? 13.1. Ray is the founder of Over-C and the largest single investor/shareholder. However, his role as CEO is that of the Key Manager, and distinct from that of an investor, and for which he is paid a substantial salary. He also gives himself increments, irrespective of performance. There is no appraisal. Stan is also an investor but also draws a substantial salary. He also gives himself increments, irrespective of performance. Again, there is no appraisal. Both of them as managers are selfappointed, as an extension of them being investors. 13.2. As managers they must deliver to themselves as ‘investors’. But, they are paid salaries and their expenses are met irrespective of whether they deliver results against performance targets or whether the company makes a profit or not. Why should they bother about generating profits and dividends for other investors? This is the contradiction of Governance and Governance Ethics. 13.3. Unfortunately, TM’s lack of accountability has rubbed off on the entire organization and therefore today nobody is accountable in Over-C! Increments are given just to hold on to people and rarely for performance. People in the company are aware of this. And as I have stated earlier, many of them are happy making themselves comfortable amidst indiscipline. 13.4. Unfortunately, our TM is unlikely to change their work habits and culture. They are experts in putting a black lining to a silver cloud: converting a good situation to bad by overconfidence, overtrading, exaggeration, poor judgment and poor arithmetic, and believing all that they do as ‘hard work’! 13.5. What we need now is an Accountable independent CEO who can run Over-C exploiting all the market strengths and opportunities that can carry the company to productive growth. Ray can continue to be in the statutory position of Managing Director. Good governance structures allow for the MD and CEO being different individuals. 13.6. We also need Chief Operating Officers for Business X and for Overseas Sales, all accountable positions. 13.7. We need a genuine Marketing and Sales Manager. We need a genuine HR Manager. 13.8. The other functions can then be suitably structured using the current managers, many of whom are good provided they get good leaders who enforce accountability, through personal example. 13.9. I am not clear on where Stan fits in. His primary qualification for the job he currently holds in Over-C is because he is Ray’s friend and confidante. Other than that, if you go by results, in relation to the money spent on him, and what he draws as salary and perks, he has not added value to the company either by way of

increasing business or by way of improving management and work culture. If he has done something, it is a well-kept secret, even by Ray. 13.10. It is difficult to justify Stanley’s trip to China at this juncture to attend the Blue Fish Conference at a few thousand dollars or more of scarce money. Stan’s personal goals seem to far outweigh his interest in the well-being of the organization. The value of last year’s Blue Fish listing is debatable considering that Blue Fish’s comments on Over-C’s concentration on Business X was not complimentary, and would have put off any investor. Stan is aware of this. On hindsight, their observation was not off the mark. 14. The Board needs to be immediately strengthened to hold the top and senior management accountable. So far, the current Board has never been kept informed correctly. 15. Ray, and Stan, as investors, have to play the role of investor-directors in their own interest and leave management to better-experienced and qualified professionals who have run better organizations successfully and believe in accountability. I am aware that finally, my note may break the silence, and provoke an answer. Unfortunately, by habit, it could still be evasive and not factual, and may in fact divert attention to me personally in some manner, as an escape route. This will of course not solve the very serious and urgent issues confronting the company. Finally, should I have kept quiet even as I was aware about the developing crisis? Unfortunately, both the ‘TMs’ have become so thick-skinned and obsessed with their own self-importance that there was no alternative. After all, I have tried many times, and in many ways, over the years, to get their attention on issues requiring correction, but they always knew best. Also, incidentally, apart from my professional association with Over-C, I am also a shareholder and I and many others including employees will be adversely affected if corrective action is not taken immediately. The most urgent step required till the organization can be restructured is for Ray to immediately form a Management Committee to run the company instead of just the two of them. The company needs to be ‘controlled’, stabilized, and put on the right track of management and performance integrity. For this, the Board will also have to be taken into confidence, and will also have to be strengthened. Time is rapidly running out. If there is delay, Ray and Stan will be solely responsible for even more damage that could then become irreparable. On a more personal note, Ray, please come out into the open and help save the institution of which you are the founder. ‘Coming clean’ at this point would be the best strategy to take the right steps to recovery. ‘Coming clean’ would also help people to help you, and themselves, and Over-C. I do hope that you will succeed with getting VC money but that will not change the need for total management reform within the company. There is just too much baggage and damage to take care of first. An emergency meeting of the Board needs to be called to start the process of saving the company.

Raju Swamy Principal Consultant & Advisor to Entrepreneurs & Family Business PROMAG Consultancy Services Apt. 206 Brigade Rathna 42 Ranga Rao Road Shankarapuram Bangalore - 560004 INDIA Tel. +91-80-26676298/ Cell: 9845271498 Email: rajupromag@hotmail.com Promoting Management Action for Growth…. since 1985

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