Gospel According to GaaS (6/25): Strategy-Led Operational Oversight
Each morning, I wake up with an objective and spend breakfast developing a strategy and plan to achieve it. Lunch is for executing the plan, and dinner is for reflection. Rinse and repeat the next day.
The essence of governance is encapsulated in a deliberate and structured approach to objectives. These objectives are neither arbitrary nor transient for an investment company; they are the cornerstone of its existence.
Continuing the Governance as a Strategy (GaaS), one of the main objectives of an investment company’s business model is focusing on operational objectives by enhancing the value of their investee companies (the companies they invest in). Improving their investee companies’ value is the business’s largest growth lever, which is why a lot of resources are allocated here.
The metrics for this success are balance sheet growth (increase in assets owned by the company), profitability (balance left to shareholders after all other stakeholders have been settled), scale of operations, and dividend to shareholders.
The second operational objective is to integrate the individual businesses of a network of companies, which creates an ecosystem. The main goal with this objective is leveraging economies of scale, an effective loyalty system, an optimised treasury system, cross-selling, unique identification, single sign-on, etc. Now, the ecosystem angle to a proprietary investment company is quite compelling, and it has great potential to grow the investee companies synergistically significantly. That’s the alpha return potential of a proprietary investment company like VFD Group.
One of the main reasons investors prefer core shareholder status with a proprietary investment company is to leverage that investment and its associated standing to enhance their profile and reputation in the economy and market. So, the third operational objective is to elevate the shareholders’ standing. As such, whatever strategy we deploy has to grant them notable and strategic board seats, equipping them to discharge their board-level activities alongside all associated entitlements effectively.
The fourth and final operational objective of a Proprietary Investment company is to grow value, benefit stakeholders, and then give back to society. Regardless of the scale of success, any corporate success that does not have a human-angle impact is void of a soul and purpose.
As a business leader, you must wake up daily to these objectives. They do not change daily, but strategies and circumstances surrounding their achievement change frequently, thus challenging our abilities. Once the above objectives are known and might vary for you, the next task is to develop a strategy and plan for success.
Using the investment company as a case study for the above objectives aligns with its business model. However, the most effective strategy will be one that oversees the investee company’s activities from the Board level without operational involvement with the company’s affairs. At face value, this is an impossible task based on countless examples of companies run by management at the expense of their investors. One can argue that our cultural orientation does not support such passive investment. On the contrary, I firmly believe an investment company’s stock in trade is their investee company. It does not make sense to extend the investors’ resources to become operational. This should not be an option.
This is where GaaS comes in. It details how this can be achieved through a coordinated oversight process guided by a board-approved strategy and other associated frameworks.
GaaS provides the framework, policies, and processes necessary to achieve the company’s and its stakeholders’ stated objectives. To ensure effective implementation, the investee company’s activities must be limited to the Board to prevent disruptions and distractions for management. The ‘strategy-led operational oversight’ approach is also cost-effective, as it clarifies the operational and cost implications for the company as well as the benefits.
The first step, barring all due diligence related to investing in the company, is to get management to commit to an objective, agree on the requisite strategies and plans to achieve it, and execute as approved by the Board. Sometimes, it might not go as planned. In such cases, as will almost always happen, there will be a framework for review and strategy revamp, and the process will continue.
The investment threshold dictated by GaaS grants the IC at least a Board seat, the basic instrument required to initiate oversight. Such a threshold should grant the status of either “Core Investor” or “Significant Investor,” ensuring they are almost guaranteed a Board seat.
With the benefit of a Board seat, the shareholder can influence things on the following levels;
- Board Meetings and Board leadership positions
- Board Committee and Committee leadership
- Board-commissioned works by consultants
- Policies, processes, and empowerment documents approved by the Board for implementation
- Appointments, retention, and remuneration of Executive Directors
In subsequent releases, we will provide more insights on how a Director can, using the positions above, work in concert with other like-minded Directors to implement an effective oversight. The diversified investment company funded by proprietary capital is critical to the success and effective functioning of the capital market and, by extension, a nation’s economy. Its business model suits the status of a core or significant investor, effectively deploying capital and providing “strategy-led operational oversight” that enhances the growth and success potential of investee companies.
As of today, VFD Group is the only listed diversified investment company (“DIC”) on the Nigerian Stock Exchange. I hope these articles will help more companies understand how to leverage this business model for the benefit of the market and the economy.
I understand that just one person cannot adequately do justice to this topic, especially not through a single article. Still, it is essential to kickstart the conversation and debate that deepens and enriches the perspective that GaaS has initiated.
One thing I always say is that a great plan and flawless execution are as close as we can get to being like God.
Happy reading
