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Evolutionary Governance - Practical Case Part 4


Governança Evolutiva - Caso Prático BLOG DMS

Marco Villas Boas – Senior Partner at DMS PARTNERS


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We previously saw how our company in the poultry sector went from a family-based structure to a company with an external minority partner.


And now?


Keep everything the same, since the founding family remains controlling?


Or will this association, in addition to creating a company with greater capital, change the way of distributing results, will require changes in strategy, decision-making, management, remuneration, relationship with society, and everything else ?


These are strong questions that the founding family asked themselves.


Obviously all of this has changed. The founding family not only needed to understand that this would happen, but also be prepared to deal with differentiated governance and management.


A challenge! And there are more challenges ahead!


Where to start?


First of all, recognize that, more than ever, if before perhaps there was a mixture between the company and the family owner - in itself inappropriate under any circumstances - now this condition is inconceivable. A company is a company, partners are partners, and founding partners/family are entities that remain in business history, with merit for their pioneering spirit and the trajectory that ended when the new association was signed.


This phase is over.


So how to conduct yourself? Despite being a majority shareholder, the founding partner is no longer solely responsible for the organization. Even though we have had an advisory board for some time, it is essential that its members are people who, in addition to understanding the business, have strategic vision, intellectual and technical independence, ability to interact and work as a team, and personal financial independence – there cannot be that thought “I can’t lose this position.”


Office?


Counselor is not exactly a professional position. The director receives a mandate from the shareholders who elected him at a meeting – including in privately held companies. It is not enough to look at the results in the rearview mirror, but to look forward: the mandate involves strategic guidance and supervision, direction for the company, guidance for managers, general monitoring of activities, with permanent reassessment of paths, threats, opportunities and results, and redirection that such analyzes require.


We can observe that none of these activities express management.


Of course, because the board is a governance body and not a management body. Management is the prerogative of executive directors and their teams. They are responsible for planning the actions derived from the board's strategic guidance, executing them and reporting their results for the board to evaluate.


During this transition, the partners realized the need to reconstitute the advisory board, which, initially, was expanded to five members, one from the founding family, one from the minority partner company and three independent members. Those members suggested by the partners were chosen in order to meet the requirements of personal values and skills – knowledge, skills and attitudes – as mentioned above. A director should not be an honorary position, nor should he “legislate” in favor of those who appointed him: his commitment is to the company, so his deliberations must consider this condition only.


The names that the assembly endorsed were that of the founder, due to his previous knowledge of the business, plus that of an experienced advisor in the poultry sector - recommended by the new partner - plus three names of independent advisors recruited from the market: one with knowledge in international business, one with a more visionary profile and the other with good experience in people, all three with no previous ties to the company or its shareholders or family members. The relatively complex task was entrusted to a market hunter.


And the management? How was it?


First, the partners agreed not to mix the roles of management agents with the roles of governance agents: they decided on non-simultaneous positions. No board member held executive positions, nor vice versa.


So, the question became “Who are we going to elect as chief executive officer (CEO)?”


In the case of a merger of two companies, it would be natural to search among the executives of the two original companies for the name of who this person could be. It is not always easy, there may be bargaining to occupy positions, which is not recommended. It is best to carry out a skills assessment of potential internal candidates and, if the candidate is not satisfied, turn to the external market. In the case in question, there was convergence towards a market name, with the support of a people assessment and hunting company.


This manager was responsible for proposing the functional structure to be endorsed by the council, and proposing names to fill it.


There are still many aspects of governance and management to be analyzed: how the new statute was written, what the dynamics of the board should be like, what are the main regulatory provisions to guarantee board-board relations, supervisory bodies, conflicts to avoid,



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