Can Joe make the frog jump from the hot water?

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Evonia Muzondo

RUDOLPH Giuliani, an American lawyer and businessman once said:  ‘It is in times of crisis that good leaders emerge.’   The former Mayor of New York City’s observation echoes the widely-held view that crises create conditions conducive to the emergence of leaders. Yet systematic evidence on what leaders should do after organisational failure remains sparse.

 

An obvious and often prescribed recommendation is to ‘apologise’. However, ‘apologies’ communicate two distinct messages; responsibility or taking blame, and regret or expressing remorse.

 
People generally appear reluctant to take blame — even though doing so could help demonstrate or confirm their leadership qualities. l. Rudolph’s research suggested that recognised leaders took blame more often than others, but overally, blame-taking was still quite rare.

 
There is ongoing debate in the country on whether the dismal performance of some corporates is a result of the hostile economic environment or to a large extent  poor management and leadership at the corporate helm. To what extent is management to blame for corporate failures? Surprisingly, when organisations fail or perennially underperform,  this is usually followed by some suspicious management resignations and board changes which seem  to confirm the notion that management  is to a greater extent responsible for organisational underperformance.

 
In Zimbabwe, it is not widely publicised  if a leader has failed. He or she usually resigns quietly, unlike in the developed world where such an event is  made public and in some cases followed by a public apology  to shareholders and other stakeholders.  However, in our beloved country, some executives are even rewarded for failure and often walk away with hefty golden handshakes despite shareholders having endured serious loss of value on their investments. The departure of some leaders and the coming on board of others has positive and negative perceptions for companies. For those companies listed on the stock exchange, this is reflected in  a share price’s response in either direction.

 
Starafricacorporation is one company on the Zimbabwe Stock Exchange that has surprisingly failed to perform since dollarisation . It is surprising in the sense that the company has very little local competition but has failed to capitalise on this. The company has failed to adapt to the new environment and it is sad to note that although it was a ‘blue chip’ company a few years ago, it is now on the penny stocks list. In June 2011, the Starafrica group surprised the market when it unveiled an ambitious plan to rid itself of debt and recapitalise operations.  Although the asset disposal programme started well, plans have been stalled by the current liquidity crunch. Starafrica has been undersupplying the sugar market for years despite strong demand for the product, which has led big customers to resort to imports which are relatively cheaper and in some instances of better quality.

 
StarAfrica’s full year results to March 31 2012 showed a loss of US$8,4 million, albeit an improvement from the restated  loss of US$17,1million in March 2011. Profitability continues to be  eroded by high finance charges from  a massive debt of more than US$30 million. This has also been made worse by low throughput owing to plant inefficiencies and power outages.

 
Peter Senge, an American scientist and director of the Centre of Organisational Learning, wrote 20 years ago about the analogy of the boiled frog. When you throw a frog into a pot of boiling water, it jumps out.  Throw it into cold water, it swims around; heat it up and it is happy till it boils.   The imagery is somewhat gruesome but the lesson is clear. Like the frog, our internal apparatus for sensing threats to survival is usually geared to sudden changes — not to slow, gradual changes. And it appears that Star Africa has been happy and content in the slowly heating pot, unaware that there is a possibility that at sometime it will boil. It is funny that everyone else in the market has been seeing that,  but not them. The question is, will they make it out of the pot, given recent corporate changes?

 
On July 21 2012, the market woke up to news that industry veteran and former Delta CEO Joe Mutizwa would be joining the troubled sugar manufacturer as a board member. Given Joe’s successful track record and several achievements under his belt, the news was received positively. This ties in with the introductory paragraphs of this article where I said leaders are at the forefront of corporate success and their perceived ability or lack of it thus has a strong bearing on a company’s future. As was expected, the share price of Starafrica has been firm ever since, rising from 0,8 US cents since the announcement of the appointment of Joe, to the current US$1,21 . However, it could also be the celebration of the exit of group chief executive Pattison Sithole, who has been at the helm of the company since 1997 and chief operating officer Tendai Masawi.

 

The former CEO appears to have lost his zeal when the economy dollarised and to have run out of ideas to turn the company that was once a force to be reckoned with, around. This takes us back to Senge’s  parallell  of reacting to sudden changes whilst ignoring the gradual ones.  I bet the outgoing executives still blame the economic environment and not themselves. Well, according to  Giuliani, the best remedy would be to apologise, which in this case would perhaps be asking too much.

 
Without trying to belittle Mutizwa  and his achievements and what he is going to bring to the StarAfrica table, it is obvious that major investments are necessary to get the group’s production to capacity. The existing plant needs a major overhaul in order to increase efficiencies and produce the right quality of sugar to compete with imports.  A concrete plan is also needed to get the company out of its crippling debt, otherwise it will continue to limp. It is beyond doubt that a new shareholder with financial muscle must come on board.

 

But with the liquidity crunch and an underperforming economy, it will be an uphill task for the newly-reconstituted board to bring in a new liquid shareholder. Also, given the logistical issues in the country, would it not be better to set up a new facility in the area where the sugar is grown? These are some of the decisions on which the new board will have to deliberate..

 
However, I have no doubt about the expertise that Mutizwa will bring to the table through his exposure and experience at Delta, though Delta had the advantage of having a shareholder with strong financial muscle. But since he is non- executive, performance cannot be solely pinned on him but depends on the extent of his influence. A lot depends on who will be appointed to replace Sithole. Mutizwa could even be perfect for the job.  All that would be necessary   would be that the Mutizwa that was once at Delta  would be the same  Mutizwa at Starafrica!

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