Non-Executive Directors & Strategy: A personal experience
“In preparing for battle I have always found that plans are useless, but planning is indispensable.” Dwight D. Eisenhower cited in Nixon, Richard M., Six Crises (New York: Doubleday & Co., 1962), page 235.
In 2008, I was appointed to a newly established Arabian Gulf investment bank as the sole independent non-executive director. No sooner had our capital been raised than we faced the first of three existential challenges. The early wafts of crisis in 2007 were not expected to hit the Gulf countries. But, our second board meeting took place in November 2008. There was no doubt that the entire financial world was in chaos.
My fellow directors began an immediate and vociferous debate. A loud minority argued to immediately shut the company and return the capital. This would mean booking a loss on their investment without having closed a single deal or served a single client. The staff would be laid off, pre-establishment expenses crystallized with no recovery, and premises abandoned with the value of tenant improvements lost forever.
The managing director, a man of modest means, had his life experience and net worth invested. Closing would be a personal disaster.
The majority of dependent directors probed the risks. An obstreperous few played the devil’s advocate in the debate without providing much help.
So there I was, the sole foreigner. The only non-native speaker of Arabic. The only person with no money at stake. And, perhaps one of a few who had spent time on the proposed strategy. I took it upon myself to do what any good basketball coach would do when faced with a faster opponent, slow down the tempo. Armed with the business plan and strategy that the investors had bought, I sought to ask the dumb questions and engage the managing director. Good manners meant that the “close-the-doors” team gave me some time to get answers. In reality, I was guiding the managing director to his defenses.
The first defense became clear. Market valuations were heading to low points. Never having invested meant that the firm was not saddled with historic mistakes like those already booked in the personal portfolios of many of the connected directors. Investing, albeit indirectly, in the aftermath of the crisis would create an opportunity to re-balance their portfolios. The new firm would let them stick their toes back in the water. It would also help the management to appear quite clever to the investing public.
The next defense followed. Arabian Gulf investors were not always well advised. A fresh face, coming in with a clean reputation and buying low was an opportunity for disgruntled investors to change advisors.
And, finally, the strategy was not cast in stone. Those parts that seemed like frills to the “close-the-doors” team could be ignored or deferred. Those parts that showed the most promise could be the new focus.
We did not shut down the business.
There were two key adjectives in this story: independent and non-executive. As the independent outsider, I was able to buy time for queries, not instructions. This helped the managing director keep the doors open and start the business. As a non-executive, my line of questioning was not job threatening, I did not show an interest in his position, which one dependent director did. This provided him with a path to negotiate which parts of the strategy were essential. This allowed the “close-the-doors” team to save face with some wins.
In my next episodes, I will discuss how changes in the market would again impose a return to redrafting our strategy and repositioning our business. These would require hard choices by the firm, and a different form of engagement with management.
Abdulkader Thomas is a non-executive director and consultant to the financial services sector. He volunteers as a youth basketball coach and organizer in Kuwait.
