Are you swimming naked? Lack of Strategy in a Slowdown exposes your business

'It's only when the tide goes out that you learn who's been swimming naked,' so says a letter by a Chairman to his shareholders this year.

No it's not an Eric Cantona-ism and yes if a guy in the pub said this you might want to shuffle away muttering you want to be closer to the peanuts. However, you may be mildly surprised to know this was an extract from a letter to the Berkshire Hathaway shareholders from none other than the 'Sage of Omaha' himself, Warren Buffett.

Has Buffett Lost the Plot?

I picked this out of an article in this month's Director Magazine by Jane Simms entitled 'An absense of strategy'. The article rightly points out that around about now there will be a lot of questions being asked in Boardrooms as the slowdown in the economy bites, profits are squeezed and the awful spectres of cost-cutting and redundancies loom. The questions will relate to how on earth did they not see this coming and what are they going to do to get out of this mess?

Buffett's reference makes a little more sense in this context. As the good times recede, now you will find who has not planned properly within their business to be left exposed to the vagaries of the slowdown.

'It's the Global Economy, stupid'

So cries Alistair Darling and Gordon Brown. Right, that same economy you said Britain was resilient to because of our wonderous fiscal policies masterminded by you. And so in the Boardroom - blaming an economic slowdown isn't an excuse and it is hardly likely to help resolve the situation. The fact is, you should have seen this coming. In previous blogs I have argued that despite eminent opinions by gurus like Taleb and his Black Swans, the Credit Crunch was a foreseeable and avoidable situation and individual, corporate and government greed chose to ignore the obvious and allow it to develop into its inevitable collapse.

Many companies, as in previous times, just kept on believing that the boom years would continue and so plans were always looking for expansion and more of the same. No one really plans for a downturn, do they?

Setting aside the people who run banks who for the life of me I just don't understand why people still employ the idiots who behaved like slathering sheep, those companies who actually have a strategy for a downturn may not only survive this mess but actually be ready to ride the wave back up long before others have finished cutting costs, restructuring and re-focusing on core competencies and other management-speak for manning the pumps while someone looks for a plug.

93% of Statistics are Rubbish

In the Director article, Jane Simms quotes Cranfield research that 85% of Non Executive Directors (NEDs) lack a shared view of the vision and competitive advantage of the companies they are on the Board of.

Frankly, whoever paid for that research may as well have looked into the fact that ice melts 100% of the time when exposed to temperatures above 15 degrees C. Nobody for one minute believes that NEDs are anything more than just names to put on the Annual Report and possibly turn up once a quarter for a cursory meeting with well manicured pseudo Board resolutions based on glossy Powerpoints and then get their free lunch, early-doors shares and 'expenses'. Look at Tony Blair on the Board at Morgan Stanley advising about 'Globalisation' for an alleged £million fee - why?

Sadly, even small companies do it, packing their websites and prospecti with the names of successful entrepreneurs, politicians or peers. I have sat in on 'Board' meetings where we have had pre-Board meetings to 'sex-up' the figures and reality with Campbell-style skills to make sure the NED does not start questioning things.

When Enron went into meltdown, Lord Wakeham was not only on the Board but also on the remuneration committee. Nothing to do with the power station in the North of England which was installed when the Tories were last in power, I suppose, but he easily proved he had no knowledge of any of the wrong doings because no one did tell him anything. We have had the Blunkett saga and many more.

NEDs are a fiasco in the UK and it is only when the slowdown bites that people look are around the Boardroom and realise the chap eating all the biscuits saying, 'So things are going as well as the last Board Meeting, are they?' is about as useful to them as a bubble-blowing machine.

'Serial or Professional NEDs'

It isn't any surprise that Cranfield also noticed that one of the reasons NEDs are ineffective (academic speak for useless) is that they are so busy. That's because they have to juggle so many Board NED appointments while making enough time to supervise their portfolio of fees. Again, there are actual agencies who place NEDs almost like after-dinner speakers. You try getting your name on the list and you realise it's run by a person who is one of crowd of 'names' who crop up on multiple Boards. It's a closed shop unless you sell your business prominently and make millions - then you are awarded honorary membership.

The research shows it is not uncommon for NEDs to have as many as 7 to 10 NED appointments. I am no genius but what possible value can such an NED give to any of the Boards it is on while getting paid more than the average wage of the emplyees of that company to be in the Annual Report?

The code for appointing NEDs was supposedly updated but the reality is that little has changed. As Michael Grade quipped, the difference between a supermarket trolley and an NED is that the trolley at least has a mind of its own.

What Are NEDs Supposed to do?

Well take the Banks for instance. If they had NEDs on their Boards who a) turned up to Board meetings and b) actually asked about the strategy rather than what was for lunch, someone at say, Northern Rock, might have noticed the management had quite literally mortgaged the company and that they had a massive liquidity problem. All it needed was........... no that will never happen.

Time for Change

It really is time for companies to change and get in NEDs in who not only have some experience in their market place but can contribute actively in developing the strategy of the business, and have enough time on their hands to do so. That means someone who is prepared to educate themselves as to what the business is about, the value proposition, competitive advantage, the competition and how the market is developing. Then they can apply their experience to understand what are the pitfalls, pose potential issues, help develop more resilient plans and still have a free lunch once in a while.

And smaller companies should not fall into the same trap in getting big named, serial NEDs onto their Boards to make the letterhead look better. It really does not help your business while the investment community really are focusing on you as executives. It's a frivolous expense at best - much better you find individuals who have real management background that can help and there quite literally are thousands of well-qualified retired, semi-retired or even still employed managers who have a wealth of experience but no peerages who would love to help.

Personally, I believe that there should be a limit to the number of Boards any one individual sits on in any capacity, but what do I know.

Appointing an NED

The traditional way is an invite onto the Board. How daft is that? Surely, there should be an interview process which at least tests whether the person has the latitude to afford the time as well as possibly contribute. And their contribution has be worth those free shares, fat fee and free lunches.

After all, you really do not want to be caught swimming naked.