Last month we started this series of articles called Common Threads to highlight some of the more subtle reasons why businesses fail. These are the strategic lapses that – as we said last month – slowly lead the business to a position where winding it up or selling as a shadow of its former self was the only thing that can occur.
Last month we considered the problems occurring when ‘No New Blood’ is injected into a business and the aging business owner, who has run the business for years, has no succession plan, and eventually comes to a time when he or she wants to leave the business, but has no plan or opportunity to pass the business to someone else or to get his or her equity or goodwill out of the business.
This month we look at a position where almost the exact opposite may be true – where there is no one in particular is in charge.
No one in charge
When we say No one in charge, we do not mean literally that the business is running or careering out of control with no one at the wheel – though we have seen this happen. We mean a situation where the business is being run by a committee approach, where no one person takes responsibility for coordinating the common approach and ensuring that things get done. This is a situation where too many people are at the wheel, and they are all pulling in different directions.
When you consider that most large businesses and pretty much every public company has a CEO (or someone under a similar title), and that CEO is quite literally in charge of the business, you can start to see that a ‘person in charge’ approach does seem to work. Even professional partnerships have managing or senior partners that foster a common approach, and then have the authority action the common plan.
Small one-owner businesses have someone in charge and hopefully he or she actually takes charge. They are the boss and he or she gives direction to the business. Whether this is done well or not is not the topic of the article.
It is the business model that runs – or tries to run – on a ‘completely agreement’ approach that can run into great problems when an impasse (or no agreement) is reached. There is nothing wrong with a committee approach on a macro level.
One person gathering all of the facts, using their limited experience in forming plans and making all of the decisions solo may work, but usually will not get the best results. Forming a committee to expand the known facts, to combine experience and to give advice is great, as long as the result is an absolute agreement on what should be done. Without that absolute agreement, nothing gets decided and stagnation will result. This business model needs someone to stand up and take control, to break the deadlock and move forward based on that advice.
We mentioned last month that we have based all of these descriptions of common threads on cases that we have worked on. So what have we worked on with these types of issues? The answer is many:
Partnership breakdowns leading to Court appointed receiverships; and
Director and shareholder deadlocks – leading to provisional liquidations
Frankly there are too many of them to describe here. Some have been wound up because of the disputes between the parties being irreconcilable. Some have been wound up because they ended up insolvent due to the lack of direction – leading to a lack of profits and to a lack of solvency.
If all parties involved are not prepared to have someone gather the common or majority approach and actually take charge one or both of two things will probably occur:
1. nothing may happen. The business could sit idle and stagnate and that will eventually kill it; and / or
2. anarchy will rule as non-agreement turns to disagreement and then to argument. This too will eventually kill a business if not resolved.
Businesses need someone in charge.
More next month ..