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Godknows Hofisi
Business & Law
This article seeks to give some advice to company executives on how to handle situations where a company they work for has changed shareholders or directors.
Such situations can easily be minefields or career limiting if not handled carefully.
Where there is change in shareholders
In mergers usually different investors come together to form one bigger company. In acquisitions new shareholders acquire shareholding in a company. In acquisitions current shareholders may be diluted or they exit completely. In some situations existing shareholders increase their shareholding to become significant or majority shareholders.
It is also quite possible to have a management buy-out whereby current management is offered the opportunity to acquire shareholding in the company.
The result may be that some of your fellow managers may then become both shareholders and executives in the company.
They would have gone up the food chain.
New shareholders usually dissolve or vary the existing board of directors and appoint their own trusted representatives to direct the company in line with their vision. The same shareholders may want the company to change direction, for example to focus on certain businesses or markets, etc.
In the early stages of a merger or acquisition the shareholders may pay closer attention to the business in order to understand and protect their investment.
They would want to ensure the company progresses in line with their vision. The shareholders may appoint directors or become the directors themselves.
Where they are directors the extent of involvement may even be higher and may interface with executives or management at regular intervals.
If the shareholders have other investments they may want to bring cultures or ways of doing business in their other businesses to the newly acquired company. So there will be change.
Where there is change in directors
A new board may be appointed by new or existing shareholders. For government linked companies such changes are quite common where for example a new minister appoints a new board of directors. A new board of any company usually has a mandate from the shareholders. It is usually to improve the fortunes of the company. The shareholders may have certain perceptions about management.
They may want certain executives removed or kept and may instruct the board to do so.
Key positions that may be affected, depending on the nature of the business of the company, may include the chief executive officer, Finance, operations, company secretary, human resources, etc.
During the early stages there is usually closer guidance and supervision, which at times may be viewed as interference. But who sets the standard?
At the instance of the shareholders, the board of directors usually pushes for a quick turnaround of the company. Where shareholders are borrowed the directors may push for dividends.
The same board of directors may push for a certain way of doing things such as culture, strategy, reporting, organisational structure, recruitment, staff welfare and others.
Pitfalls to guard against when there is change
The only constant thing is change itself. If you do not change you become redundant. So management should embrace positive change. Below are some of the pitfalls to guard against.
Shareholders
Shareholders are advised to guard against wholesale retirement of the board of directors including some well performing or experienced non — executive directors.
Shareholders should appoint directors who have the skills, knowledge and experience to take the business to another level.
Board of directors
The directors should be careful not to make wholesome changes to management including removing some performing ones. It may be advisable to blend some current employees with new ones to influence the culture and yet have continuity in the business.
The board should give assurances where necessary or possible so that key staff who may have options elsewhere do not leave the company due to uncertainty. Great care should also be exercised to avoid deciding in favour of or against executives on the basis of organisational politics.
There could be politics at play for survival or recognition by management. Management usually has practical knowledge of the business including customers, suppliers, processes, markets, regulators, and the new board should take time to understand and listen to management.
Management
Management may make the mistake of resisting the directors or even the shareholders. This may be worse if management had the opportunity but failed to acquire the business. Management may continue to be loyal to the previous board or shareholders and even share disclosed sensitive information.
It is also common for uncertain executives or management to also create uncertainty in the minds of customers or suppliers or even divert business. Some immature executives may resist new board members. During meetings, executives may try to embarrass a director. Do not forget the director has influence or power. I remember one executive telling a new board member that “that is not how we do things here”.
He was asked “You as who?”
He was uprooted.
Senior executives should be very careful in the first 6-12 months. Some boards are vicious and strike like lightning or a bit like a black mamba. Others are chess players or prefer the python approach where they squeeze you slowly until your days are over.
Conclusion
Where the shareholders change, the board and management should guard against The mistakes explained above. It is all about change management and corporate maturity.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected].
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