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Clarity on strategy between the board and the executive - Peritia Business Consultants

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Case Study
Clarity on strategy between the board and the executive

Assume nothing- How the Board and CEO needed a strategic review to move forward.

Introduction

I was doing a remuneration review for the Chairman on the executive directors of a small capitalisation listed Oil and Gas exploration company. The company was well placed through some well-timed exits which left them with plenty of funds to look at future projects as well as some prospective projects in play.

When interviewing the MD, I couldn’t get clarity on his KPIs and how they linked to performance targets, so I asked him, “How do you know if you are doing a good job”.  He reflected for a while and said he didn’t really know.  Everyone was on very good terms but there was lack of clear direction.

What had transpired was that the MD was left to run the business and the other directors, a very experienced oil and gas Chairman and a Technical director, had provided little guidance except that they said they didn’t want to be an “Operator”.

After some discussion we determined a strategic review was essential to get clarity on how to build the company going forward and they engaged me to facilitate the process.

The Strategic Review-Two days

When I facilitated the review we mapped out a timeline of the pipeline of projects that would be needed and the various stages of development they would be at.  It was a competitive environment for good projects and costs were high for investors who were non operators in a joint venture.

What was evident was that there were plenty of good exploration projects held by companies with no experience in  joint venture operations and they were looking for good operators. Good operators were in demand and able to negotiate favourable terms with holders of good projects.

The MD had been ignoring these projects as he heeded the boards advice about the company being a non operator. When hearing this the other directors said, “ No we are happy being an exploration Joint Venture  operator. We have plenty of experienced and are quite skilled in this”. The Directors had meant we didn’t want to be an oil and Gas Producing Operator.  This was a huge step change from exploration and would have meant transforming significantly. This very small terminology understanding was actually holding back the company.

The Resolution

The point of difference of the company and the company objectives became very clear after this. This was:
  • We are highly skilled in managing oil and gas exploration Joint ventures
  • We will market ourselves as JV operators and target good projects that need JV operating partners
  • We will add value to the projects and exit prior to production development

The Result

Once this blockage was cleared the board very quickly determined how they were going to move forward with targeted projects at various stages of development.
Over the two years that followed the share value increased approximately 700%.

Learnings

Assume nothing.

If there is not clarity between the board and the chief executive, then there may be two things going on:

  • a lack of direction by the CEO; or alternatively
  • where there is a dominant CEO, the board may not understand the underlying objectives of the CEO

Both scenarios add risk and potential devaluation of a business over time.