Source of article: The Business Times

Writer credits: Uma Devi

In summary:

A strategic business review is normally undertaken when the Board envisages that the growth and/or profitability of the group’s existing business(es) is tapering. Such reviews are also conducted when the group’s assets are not giving the company a commensurate return vis-à-vis the financial benefit or gain from divesting or realising the company’s historical investment(s) in such assets. The Board must decide if re-deploying the company’s financial and other resources to new businesses is likely to enhance the group’s turnover that will achieve longer term or better profitability for the company. At times, a strategic review could also be conducted to keep pace with technological developments, such as making a major investment decision to digitalise the operations of the company to be in tandem with market expectations and customers’ future needs.

The Boards of companies that have undertaken structural and major operational changes for the group’s business(es) following strategic reviews must have the gumption to see through the decision to revamp the business(es) of the company, irrespective of short term disruptions that could affect the profitability of the group and shareholders’ returns. It is inevitable that trade-offs and short term sacrifices are necessary to achieve longer term profitability and more sustainable growth. The Board must be able to properly explain and persuade shareholders to support their decision to make fundamental changes to the group’s business(es) and resource re-allocations, and to accept consequential disruptions such as lower profitability, weaker returns, and paltry or no dividend pay-outs in the transitionary period.

Better growth and profitability following a strategic review and major changes to the company’s business(es) is not a given. At the end of the day, directors must make the commercial judgement and be fully accountable to shareholders for the decision to make a major revamp to the existing business structure and operations of the company. The Board must disclose material information to the market in a timely manner. Shareholders should actively follow-up on the corporate developments of the company. Boards who are tardy in making commercial decisions for the company run the risk of shareholders selling their shares and depressing the share price of the counter. Disgruntled shareholders may also requisition an EGM to replace non-performing Board members. I shared my views with Ms Uma Devi in the attached front-page story of the Singapore Business Times published on 15 August 2023.

My post on LinkedIn is here.