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Home / ... / Out of Control - Business Dilemmas Case Study 3

THE PROBLEM This company had dynamic but uncontrollable management and was being run in quite an erratic manner.It had been funded by a group of private individuals and a Venture Capital house. Its rapid expansion, both organic, and by acquisition, as well as continuing operating losses, meant it consumed financial resources quite rapidly.

I was appointed to the Board following one of a number of fundraising missions.

The quality of the company’s management information, where it existed at all, was appaling.

The senior management, who were majority shareholders, seemed to have just two ideas:grow, grow, grow and spend, spend spend.

In addition to spending substantial amounts of money on acquisitions, mostly poor ones, huge amounts were being spent on key-money for leases, fit-outs and branding.

Many contracts were entered into without the knowledge or approval of the Board, which made the whole operation impossible to control.

In addition, the ongoing operating losses were causing huge tension at Board level as well as draining away the company’s cash. There were ongoing meetings with bankers, investors, and professional advisers, with no solution forthcoming.

WHEN ENOUGH WAS ENOUGH ... Eventually, the Board decided that enough was enough. The senior management were “persuaded” to step aside. It wasn’t an easy task, but it had to be done, and a new Managing Director was appointed.

Many outlets were sold or closed and other cost cutting measures implemented. However, the company was still racking up huge losses and wasn’t out of danger.

Whilst we were still grappling with ongoing issues, a small Venture Capital company made a takeover approach. This was unexpected given that the company had no knowledge or experience of this sector. We quickly agreed to a sale.

The sole reason for this crisis and conflict was sheer bad management.

My main contribution to the company was to bring much needed common sense and hard-headed business discipline to the organisation.

Eugene Greene is a former President of the Institute of Chartered Accountants in Ireland He now specialises in conflict resolution in business. His booklet, “Solving Business Dilemmas”, is in stock in the ICAI library.