HDA

Board/Executive-level Capability/Talent Analysis – SME (early stage Diamond Mining Industry plc

Background

HDA was commissioned by the client’s Non-Executive Directors to review its existing   leadership and operational structure, given the current stage of the business, and a high degree of senior disagreement about the future strategy and structure of the organisation.

The business had been in operation for 5 years, (listed on AIM) and was about to generate its first mining revenues. Its HQ is based in the UK, with activities carried out in southern Africa (recently commissioned operational mine), Finland (prospecting), Canada (prospecting) and Australia (prospecting). The leadership team and Board comprises individuals of global renown in the mining/diamond trading industries. Despite the leadership team having significance presence in the mining industry and significant commercial experience, the organisation exhibited many of the characteristics of an early stage business which has outgrown the structure of its original leadership team, with a high degree of leadership ‘’churn’’ and a destructive political environment in evidence.

The scope and activities of the organisation had changed considerably from the time when it was initially set up; from a one-location exploration business to an exploration, construction and soon to be production and marketing company in Europe, Africa, Finland, Canada and Australia. Many, but not all, of the problems the business was experiencing were symptoms of a reliance on the skills, practices and infrastructure of the past.

The Non-Executive Directors were very concerned about significant Board-level rifts, and the threat of key leadership resignations; which - given the stage of the business - could be potentially fatal to the organisation.

Objectives

The brief required that HDA address the following areas key to the business:

• Role & Structure : Board and executive roles

• Remuneration & Fees of key roles (a source of considerable political ‘’churn’’)

• Contractual Obligations : control over contractual obligations of the group

• Office locations (primarily a resourcing/structural issue)

The brief provided HDA access to all Board members, outsourced resources, employees, and required documents. HDA was instructed to provide recommendations in the first instance, to the Non-Executive Directors.

Key Activities Undertaken by HDA

HDA set out to identify a) immediate leadership opportunities and areas of general agreement, b) immediate areas of disagreement and Board impasse, c) expected due-diligence matters (linked to future growth, future funding, future contracts, and future key skills hiring), and d) potential corporate governance and Board integrity exposures.

HDA’s consultancy process was conducted in four parts

1. Structured Interviews: using a structured questionnaire, interviews were conducted with all stakeholders, including the Board, executive-level managers, and key employees based in the UK, southern Africa, Australia and Canada. Our experience was that, without exception, interviewees were well informed about the process and willing to provide frank opinions when responding to the specific questions covered in the interviews.

2. Key information: key information about the business, including key documents and internal communication, was requested, and obtained where it was available. Where documentation was missing – eg. Business Plan, Business Models, Scenario/Contingency Plans, and Board Minutes – this was also taken into account. Where information was not available, this was seen as adding weight to the due diligence and corporate governance recommendations made by HDA.

3. Analysis. Stakeholder interviews were analysed in conjunction with information provided or missing.

4. Benchmarking: Results were benchmarked against known best practice. This includes reference to expert guidance from organisations such as the Institute of Directors (IOD), appropriate remuneration surveys, and head hunting firms experienced in Board and senior executive placements and packages.

Outcomes

Following the above process, HDA’s recommendations included the following:

1. That a formal Business Plan be agreed and written to ensure that there was clarity around the business’s strategy and operational support plans. (That a comprehensive Business Plan had never been previously written was a source of some dismay to HDA given that the business had already successfully obtained a number of rounds of funding, and had listed on AIM).

2. That the client make bold changes to both its Board and operational management structures to ensure the future success of the business.

a. It was very obvious to HDA as independent observers that the roles of CEO and Chairman in particular needed clearer definition - and decisive decisions needed to be made about the existing incumbents and their likely impact on the success or failure of the business as it entered its first period of revenue generation. HDA provided three scenario proposals for the CEO role including: i) the introduction of an interim CEO role over the following 6 months, ii) the development of the current CEO via an intensive coaching programme, and iii) the structured replacement of the current CEO and the hiring of a new CEO.

b. It was obvious to HDA that the role of the Board (including non-executive directors) was somewhat compromised from a governance perspective, and needed a number of changes to be made.

c. It was obvious to HDA that the existing organisation structure below Board-level was very much a work-in-progress, which had reached a point where it was debilitating to the business, it needed to be changed immediately - to i) remove confusing accountabilities and role disconnects, ii) to reduce the impact of these on existing relationships, and iii) to remove governance and due-diligence gaps.

3. That the organisation make key remuneration and office location decisions based on the organisation’s best interests, in the context of our structural recommendations, vs making these decisions based on poor

‘’politically’’ motivated judgement, (eg. HQ location relative to the City, vs location relative to the CEO’s home). In this regard, HDA commissioned a third-party benchmark industry-wide salary survey, and identified a number of anomalies.

4. That the organisation deal with its contractual obligations via the implementation of effective controls (policies, levels of authority, accountabilities, sign off procedures and associated systems) in order to avoid the ambiguity and potential for risk around the company’s contractual obligations.

As a result of HDA’s intervention, the Board made a number of immediate key decisions at its next Board meeting, including the following significant structural and commercial adjustments:

• the temporary installation of an interim CEO,

• the appointment of one of the NED’s as COO ahead of the planned future hire of a new CEO

• the appointment of the incumbent CEO to the role of Executive Chairman, and the shift of the incumbent Chairman into an NED role

• the replacement of a number of outsourced resources

• the writing of a detailed and realistic business plan which would both pre-empt any future funding due diligence, and which would focus the Board’s attention on a sustainable and rationalised strategy.

The organisation has started production and continues to face a number of challenges – primarily internal, and at senior management level. HDA’s intervention was however seen as instrumental in ensuring that the Board and organisation did not ‘’self-destruct’’ at the time of its intervention, as a result of avoidable leadership disaffection, an underdeveloped business strategy and an underdeveloped organisation structure.

For more information on any of the above or to understand how HDA can add value to your organisation,

Please contact Melissa Nealon, Client Partner & Project Manager – man@hda.co.uk / 0207 484 5065