11/2016 – Effective board of directors needed for business

by Tan Thiam Hock

Saturday, 6 August 2016

THIS year, I surprised myself by accepting invitations to become an independent director in two public listed companies. With my unpredictable medical condition and having multiple projects running at the same time, I should have taken a back seat like what a semi retired guy would normally do.

But I was curious. The invitations came from two ends of my business value chain, my long term supplier manufacturer and my long term customer pharmacy chain. Both owners I have known for many years. And both feel that I can add value and contribute ideas and experience to their board.

Having managed sales and distribution businesses for some 30 years, this was a great opportunity for me to learn the two connecting ends of my consumer value chain. To complete my education so to speak. Hopefully, I can present to the board a different and fresh perspective on consumer trends and branding issues. Helpful insights that can help their management team sharpen their strategies with a competitive edge.

Well, it is easier said than done. I am actually learning from them more than they can learn from me.

Their companies are well managed with a solid operating structure, financially sound with an experienced management team in place, all long serving.
But like all businesses nowadays, intense competition have resulted in reduced margins and higher operating costs. The future looks uncertain. How much disruption will e-commerce change the consumption pattern and shopping habits? Malaysian consumers are now buying online with skin care and cosmetics being couriered directly into Malaysia from Korea, China and God knows where. The whole local supply chain will be affected in one way or another.

Imports delivered directly to consumers will definitely be cheaper as they do not have to factor in the local supply chain and operating costs. As the global market opens up, border less trading bypassing traditional distribution channels is made possible via digital market place.

The good news is not all consumer products will be affected by e-commerce. The services sector though will be the first to be totally disrupted. It has already started and it is snowballing. Banks in Europe are closing branches by the hundreds as their consumers adopted online banking. Retrenchment of service staff by the thousands.

Similarly, our local banking groups will be adopting the same strategy of consolidating their branch network and moving their consumers to more online and mobile banking. Future investments will be to more online activities and adopting fintech strategies into their banking world.

Cutting costs means closing down physical branches and reducing workforce by the thousands. That is the reality and impact of the disruption that is happening now.

In a way, traditional businesses that refuse to recognise the need to change are normally businesses that have been successful for so many years doing the same things.

The owners and directors are cocooned in their comfort zone. If it is not broken, why fixed it?

The reality of the situation is that technological advancement is moving at the speed of light. By the time the owners and directors wake up, someone has taken their lunch. Nothing broke. It was just taken away.

I truly believe, now more than ever, that an effective board of directors should include experienced personalities of similar industry, a visionary technology expert and a sharp ex financial controller.

Let’s just take as an example my all time favourite company subject- Malaysian Airlines.

What if 10 years ago, they had invited to sit on their board a group of independent directors comprising a retired CEO of a successful budget airline like Southwest, a retired CEO from premium airline like Singapore Airlines, a technology expert with a visionary understanding of digital capabilities and development and a sharp finance guy with global exposure.

I can imagine the board meeting sparks as they strategise on the forward direction of Malaysian Airlines.

Can they compete with the cost structure of budget airlines which will be their main competitors? Can they stay premium like Singapore Airlines? How can technology help Malaysian Airlines increase sales revenue, lower operating costs on a reduced manpower structure? Comparison of cost inputs, fuel efficiency and minimizing leakages?

The independent directors will have the collective experience and vision to help the management team to plan and move forward a more cohesive and clear strategy as to how Malaysian Airlines should be positioned.

From a position of financial and operating strength, it is much easier to manoeuvre the company through changing market forces and fierce competition.

Instead, faced with financial difficulties, loss of market share and unclear positioning over the years, the various management teams were just reacting to problems, offering short term solutions which seems hap hazard on hind sight.

This mess is a collective failure of all stakeholders, from the government to the shareholders, to the board of directors, to the management and to the unions. It could have been avoided if proper governance had been implemented right from the top early on.

I am always encouraging young entrepreneurs to seek viewpoints and advice from experienced entrepreneurs or industry experts. Always value a different perspective of reason if the advice means well. Compare objectively with what you believe in, think it through and decide on a course of action. You might need to adjust your strategy, pivot left or pivot right, it does not matter. As long as you have a clear vision of the path ahead, you are much better prepared to face difficult situations emotionally and physically. It is much easier than reacting to unexpected problems.

In the meantime, I am engaging with many young technology and digital entrepreneurs hoping to learn from them what the future world will be like.

The market trends are changing so fast that I am afraid to even blink. Or the world will passed me by.

If I am unable to forward fresh perspective and vision, I will be of no value to the Board. Taking gaji buta is just not my forte.

Published: http://www.thestar.com.my/business/business-news/2016/08/06/effective-board-of-directors-needed-for-business/

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