Article: Lessons from the Vatican: How indecision can destroy shareholder value

Watercooler

Lessons from the Vatican: How indecision can destroy shareholder value

The Pope's election at the Vatican reveals that boards failing to take firm decisions can become the singular reason to shake stakeholder confidence
Lessons from the Vatican: How indecision can destroy shareholder value
 

While circumstances might compel an organisation to delay decisions, there are some things it can do to hedge the risk of market reputation

 

The Pope’s election at the Vatican reveals that boards failing to take firm decisions can quickly become the singular reason for shaking stakeholder’s confidence

News came from the Vatican this morning that black smoke poured out of the Sistine Chapel at the end of the first day to elect a new Pope. The conclave of cardinals has failed to come to an agreement on who should be the successor to the present Pope. As the doors to the conclave closed, the world waits in anticipation and hopes that the conclave arrives at a decision soon.

Multiple news channels have deployed 24-hour vigilance at the Vatican, monitoring the chimney which will signal the outcomes of a day’s deliberations. Along with them, thousands of devotees from various countries have gathered in the alleys of the Vatican to wait for the decision on who would become the next leader. As the conclave comprises cardinals from various nations, it is not too far-fetched to state that the election involves sentiments of national pride and honour for both Christians and non-Christians internationally. Governments in many countries are walking on an administrative tightrope hoping that a quick decision is made to avoid any international unrest and potential law and order problems.

The situation is similar to what happens between stakeholders and the board during times of critical organisational decisions. Columnist Patrick Gray recently wrote an article in the technology publication, Tech Republic, arguing that management indecision can quickly become one of the primary causes of shaking stakeholder confidence. Gray reasons that the most critical responsibility of organisational management is to take quick and firm decisions, and failure to decide an appropriate course of action leads business stakeholders to believe that the organisational management fears commitment. In the fast changing and dynamic business environment of today, such a management error can have catastrophic implications.

The Chartered Institute of Management Accountants (CIMA) published a paper conducting a factor analysis on the key indicators of shareholder value. Among the leading indicators of shareholder value, ‘perception of control’ comprises one of the primary factors for the market to evaluate businesses. Perception of control is dictated by the resoluteness of the organisational management to take quick and firm decisions. A board that takes a long time to arrive at a consensus or regularly demonstrates a non-committal approach to take radical decisions is perceived by the market as a ‘weak business’.

While circumstances might compel an organisation to delay decisions, there are some things it can do to hedge the risk of market reputation.

Create a“before-after” template

HR can play a pivotal role in facilitating decisions by creating a template that compels the board to provide a before-after document after a meeting. The template should contain elements outlining the purpose of the meeting, the outcomes, and the key reasons why a decision was taken or not-taken. The template should be in a format that can be easily tweaked into a press-release, if needed.

Inflect data-driven decisions

A key to enhancing shareholder confidence is to rationalise a board’s decision through objective measures. Many times a board may decide to “act” or “not act” based on internal constraints or the external environment. The decision to “not act” may often be construed by shareholders as indecision. Gray argues that objective data-driven measures to a great extent can clear the air around the perceived ambiguities surrounding board decisions to “not act”.

As the world waits with bated breath on who would become the next Pope, HR can take a leaf out of the chapter to understand how to maintain shareholder value by inflecting quick and firm board decisions.

Topics: Watercooler, C-Suite

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