Cut your losses or run with them? – a dilemma

While we are editorial independent and recommend the best products through an independent review process, we may receive compensation if you click on links to partners we recommend.

Sections of this topic

    Graham worked as a management consultant assisting the national operations of a company that has grown over twenty years acquiring ‘non-family’ shareholders who now account for 40% of the capital. The founder’s son, who owns 10% of the shares, heads an overseas division and is a director. The founder retains the remaining 50% and is a ‘passive’ investor.

    Graham’s work helped the company grow market share, revenue and profits. He was offered, and accepted, a board seat. He was elected unopposed at the next AGM. Graham performed little due diligence as he knew the domestic operations well and they account for most of the activity.


    Once on the board he discovered that the overseas division is very unprofitable and has been losing money for years. The salaries paid to staff in the division are well above market rates. Market demographics and local regulations suggest the division will make losses even if costs are cut. Graham raised this at a board meeting and was informed by the son of the founder that the long established strategy of ‘loss leadership’ for developing this market cannot be questioned or changed. The Chairman closed down the discussion asking for more information to allow informed discussion at the next meeting.

    After the meeting the founder sent Graham an email stating that his son was exempt from board oversight and that he, as the major shareholder, was happy for the overseas division to operate at a loss. Discussions with senior staff alert Graham to the fact that the son does little other than attending occasional board meetings (allegedly for the opportunity to combine travel with a holiday and shopping) and is married to a senior executive in his division who is a native of the host country. The Chairman calls Graham and informs him that the major shareholder wants Graham to resign from the board immediately.

    What should Graham do?

    Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, for the first time, we are posting an unpublished case study and inviting YOU to respond.

    If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Graham. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.
    The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction. The first volume of newsletters is published and available at http://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

    What would you advise?

    ________________________________

    Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.au or visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO