Walking on Eggshells – When Subsidiaries Overstep Their Bounds

When subsidiaries overstep their bounds

Met with a prospective client today and heard some familiar and distressing themes. It involved what is functionally the equivalent of a family owned corporation, although in this case it involves shareholders from a given community, but it is a small community dominated by a few families.

Their concern was that subsidiaries of the parent company had gone rogue, off spending monies without authority and apparently (I haven’t reviewed their legal documents) violating legal covenants governing their structure. They wanted me to do an intervention involving training and coaching of the boards and principals with the intention to restore order.

There must be demand for change

My counsel? You won’t be successful in a training or any other intervention until the pain from the current way of doing business gets to the point that there is demand for change, either from the board(s) directly or through shareholders indirectly. The game of politics and power is taking precedence over sound business. This may enable you to survive if politics alone gets you business, but once you enter a competitive market, you won’t be competitive and won’t survive.

I have witnessed countless family owned and closely held corporations go through this transition. It is never easy. The focus on politics is rather like an addiction. You have to reach bottom before you demand change. The question is how long will it take and at what cost.

What to do?

My advice was to simply put the facts before the board re. the profit that has been lost and promises to shareholders that won’t be kept. If they bite, you have a teachable moment. If they don’t, the next level of pain/cost will be required.

The disheartened client I was meeting with is witnessing all of this and feeling powerless to stop it. They are totally at the effect of it currently. I empathized with them, saying “walking on egg shells is a terrible way to make a living and very costly to a business”.

I’m interested in your questions and any experience in this area, please send us an e-mail.