Two stories in 8 days – Emeco and iiNet – confronting the same issue. In each instance the Board has supported a strategy which is now being roundly questioned – or condemned – by major shareholders.
This reinforces a message I posted a couple of weeks ago where I highlighted the need to explicitly incorporate shareholder expectations into the strategy conversation. This issue has played out in the press over the last two weeks.
Sounds simple; hard to do. Why is it so?
The first was a shareholder revolt at Emeco. Two major shareholders – holding a combined 22% of the shares – are reportedly up in arms about a proposed acquisition of Rentco – a truck rental company. According to the West Australian (18 March) they declared the buyout poorly timed and overvalued. And “to make an acquisition when you haven’t yet demonstrated your ability to get a return on the assets you’re already managing is incredibly presumptuous, not to mention irresponsible”. Apparently they don’t necessarily disagree with the strategy: just the timing.
The second is the shareholder reaction to the proposed take-over of iiNet by TPG Telecom. iiNet’s biggest institutional shareholder is reportedly “staggered the Board and it’s advisers didn’t argue stronger … for an alternative deal”. iiNet’s board, chaired by the highly regarded AICD President Mr Michael Smith, is playing catch up trying to engage more widely with the shareholders. iiNet have responded that they effectively had to present the offer to shareholders to meet their fiduciary duty.
I’m not close enough to know whether these deals are value creating, but a constant in my MBA strategy teaching is the simple mantra: being 'right' is never enough: it is a necessary but not sufficient condition. But in truth, there is no 'right' in strategy. It is a classic 'wicked problem' which means there are no right answers, but some answers are better than others. And so it is in seeking to meet shareholder expectations: there is no right answer, just a 'best' answer in the circumstances.
But back to the front: without shareholder support even value creating strategies can be thwarted.
There's another blog post waiting to be writ on expectations, including dealing with sometimes unrealistic expectations.