Control

Different defensive approaches are available for local teams to deal with annoying corporate controls.

The first set of reactions in case of deep focus on a particular performance indicator is to shout out loudly “all is fine, pass your way!”. This type of reaction can be supported by unforeseen swings in the numbers. Suddenly, you notice that your SGA level has not been accounted for properly. You correct immediately the level  SGA downwards and proportionally increase the level of COGS: “all is fine with our SGA, pass your way”.

This tactic of “swing” in the numbers is unlimited. When the corporate focus is put on subcontractors, you can imagine a sudden euthanasia of thousands of subcontractors. Gone. Working outside the plant, no need to count them. Similarly, when the focus is put on absenteeism, you can envisage a big drop in the numbers by taking out flu or dengue epidemic peaks. Creativity is astonishing, whatever the area of focus. Believe me.

Another defensive approach you can envisage is to show past performances on the indicator at stake.  This allows you to show your figures without any sudden swing. The tactic is to highlight progress made over the last couple of years. After such big efforts, progress can only be marginal. It is a scientific fact: the curve of progress is an asymptote. We are done. No more fat. We are healthy. In great health.

Last but not least, you can make sense of the indicator at stake. If you chose this approach, let me tell you that you have to really, really (I mean really!) prepare your arguments.  Once you feel really (really) good about your story, you can try to be bold (and humble): “We are asking for more resources, but it will bring additional volumes, revenues and profits”. It is good to spend money. Believe me.

Being defensive against corporate control can bring the bad and the good.

But what about the ugly?

Focussed control within large corporations implies generalization and standardization of the way to measure and compare performances across a variety of business divisions and business realities. If your division is more capital intensive than the other divisions, standardized formulas for resource allocation may be quite harmful. If you cannot advocate for derogations, you may find yourself with a level of resources which will lead to the slow death of the activities. While some corporations fail to be decent shareholders for some of their business units, it is quite recurrent that the same corporations are not either decisive to separate these units from the rest of the group.  This paradoxical attitude can only lead to a situation where there no longer exists any available option for the business unit. Ugly.

But let’s not digress too much. Let’s come back to the core message of the story. To be “in” control.

When I joined the steel industry at a time of its internationalization, I was in charge of pension and benefits for the group. As a first mission, I was asked by my boss to go around the different locations to gather all information about the existing plans, from the design to the financing and related liabilities.

Tactics to avoid passing on the relevant information were varying in their forms, but with the same aim: stay away from “my” pension business.

Some units would just postpone forever the possibility to meet and discuss the subject matter. No time, too busy! Some other units would warmly welcome you and would definitively treat you like VIP guests. You would see the entire plant, eat in the best restaurants in town and clearly, you would have no time to get to the point. Another technique was the overload of documents. You would come back with so much to read that you were lost even before starting the analysis of the documents. Amazing.

I was lucky enough that rating agencies threatened our corporation to be downgraded because of its pension liabilities.  And lucky a second time that one of our competitors was scrutinized by these rating agencies before us. Based on the data gathered against all odds and looking at the arguments used by the rating agencies to downgrade our competitor two notches down to junk bond, we managed to just be on a watching list for a year. Pfiou…the cost of our debt did not increase. Saved by the gong. And my job had suddenly become more important than before. Lucky me!

And this was just the beginning…my area of expertise was to become even more important than I could have imagined.

One consequence of being on a credit watch list was that we created a pension committee co-headed by the Chief Human Resources Officer and the Chief Finance Officer. And me, of course, to do the job. As we had been in the focus because of our pension liabilities, my role was to kill those pension liabilities. When it became clear that killing such liabilities would involve an important amount of cash, the CFO of the group tempered my duties to “protecting the risks” rather than “killing the risks”: “Johanna, I need the cash to invest in China, South America and other emerging countries. I am sure you understand. I have no cash for pension and benefits.”

Well, this was originally the CFO speech.

But for one or another reason, the group did not manage to invest their cash in emerging countries as planned. And it was a good cycle period for the industry. The group was full of cash but had difficulties explaining to analysts that they were sitting on such a big amount of cash. And what is your strategy, Mr CFO?

Well, after missing another important acquisition, Mr CFO thought he needed a plan B. And suddenly, I was called in to spend as much money as I could to finance our pension liabilities. This was plan B. Hurry up, Johanna! The external world believes we have no strategy…

We had cash. We did not manage to be convincing for the future of the company. The stock price was lagging low. We did not watch our back. It was a momentum for others to take advantage of this great opportunity. It was time to lose control. And we did.