LESSONS FROM MY CAREER: SYNTHESISING MANAGEMENT THEORY WITH PRACTICE – PART 32

Previous episodes

In the previous episodes, I described the many challenges I faced after accepting the position of Managing Director of the Merchant Bank of Sri Lanka. It was a daunting task. The Bank had recorded a loss of nearly rupees one billion in the previous year.

I knew exactly what I was getting into, but the prospect of a serious challenge lured me into accepting the position—despite my wife’s strong objections. Her concerns were not unfounded. My office was on the 18th floor, and above it an Air Force unit equipped with anti-aircraft guns was posted. Because of its height, the building itself was considered a prime target for the LTTE at that time.

Previous episodes related to my implementing a new management style and a new management culture.

Restructuring continues: The capital reduction

The final stage of the restructuring process was a capital reduction, aimed at reducing the number of issued shares. This was not a straightforward exercise. It required careful study, and we therefore commissioned a leading law firm, together with capital market experts, to guide us. There were many obstacles to surmount such as getting shareholder approval, getting a court order in support, and finally the approval of the Registrar of Companies.

Our company secretary was deeply involved in studying the required procedures as very few professionals in Sri Lanka had prior experience with capital reductions at that time. I myself had been involved—albeit in a limited capacity—in the capital reduction of Dockyard Ltd, where I served as Vice Chairman, representing the interests of the Employees’ Trust Fund, of which I was Chairman during the 1990s.

After extensive research and consultation, we finally arrived at an appropriate formula. However, we soon realised that the process itself was extremely complex. Under the old Companies Act, the proposal had to be submitted to the court first, and only after obtaining court approval could we apply to the Registrar of Companies to proceed.

During my own internet research, I came across numerous examples of capital reductions from around the world. I learned a great deal from these case studies. The Singapore examples, in particular, were remarkably precise. One example even provided exact timelines—specifying the precise dates on which the court order would be granted and when the Registrar of Companies would issue approval. Subsequent events, however, proved that such meticulous planning was impossible in our context.

The Extraordinary General Meeting (EGM)

We cleared the first major hurdle by obtaining the lenders’ approval. The next step was to convene an Extraordinary General Meeting (EGM) to secure shareholder approval. Unfortunately, the EGM did not go as planned.

The meeting was delayed because the Chairman arrived late and shareholders were becoming increasingly restless. For an event of such importance, I had expected the Chairman to arrive early, mingle with the shareholders, and personally explain the necessity of the capital reduction.

As the delay dragged on shareholders began shouting demanding that I take over as Chairman and conduct the meeting myself. I was frantically trying to reach the Chairman by phone, but there was no response. His secretary eventually informed me that he was held up at another “important meeting”.

When he finally arrived—half an hour late—he walked into an openly hostile gathering. I immediately sensed that this mood would affect the smooth passage of the resolution. My fears proved justified.

I had prepared a very detailed presentation explaining the past, present, and future, and outlining exactly how the capital reduction would work. In simple terms, we were cancelling a portion of the shares held by shareholders, but they would not lose value.

To explain this, I will use a hypothetical example with imaginary figures. A shareholder holding 10 shares at a market value of LKR 10 per share would, after a 50% capital reduction, hold five shares. However, each share would then be valued at LKR 20, once the market adjusted to reflect the reduced number of shares. In other words, we were only eliminating what lacked real value. The shareholder’s total investment value would remain unchanged; only the number of worthless shares would disappear.

As I continued my presentation, I noticed that most of the senior shareholders appeared disinterested. Only a handful of younger participants showed any real engagement. At that moment, I realised a hard truth: a technical presentation was completely lost on this audience. They were emotionally charged and had little interest in logic or financial theory.

When the resolution was finally put to the vote, chaos erupted. My attempts to provide further explanations were futile. After nearly half an hour of confusion and raised voices, another Director—a highly respected individual—stood up, took the microphone, and addressed the shareholders.

He said simply:

“I know most of you, and most of you know me. There is only one issue here. If you want MBSL to continue operations on January 1 next year, please vote Yes. If you want it to shut down, vote No. So please raise your hands now, those in favour?”

A few hands went up immediately, followed by the majority. Only a handful voted against the resolution. The motion was carried.

Lessons learnt

That meeting taught me three important lessons.

First, shareholders are extremely sensitive stakeholders. If they feel disrespected, they can behave irrationally. Keeping the waiting for half an hour was disrespectful. Second, technical presentations are better suited to younger audiences, whereas emotional appeals resonate more with senior audiences.
Third, chairing a hostile meeting requires enormous experience, patience, and excellent listening skills.

Years earlier, while following a course in Japan, I had learned techniques for handling hostile subordinates and difficult teams. Had I been chairing that meeting, I would certainly have drawn on those lessons.

Obtaining the court order – and how the tsunami almost destroyed our plan

The next phase was obtaining the court order. After extensive preparation, we made the final court filing and waited anxiously. It took time, but eventually we were informed that the court had approved the capital reduction.

Once we received the court documents, the final step was to apply to the Registrar of Companies. All documentation was completed, and we followed up on a daily basis. On one particular Friday, we were informed that approval would be granted on the following Monday in December 2004. Then, quite unexpectedly, the tsunami struck.

The country descended into chaos. Nothing moved. Sri Lanka was in shock. Many people lost their loved ones. We were unable to contact the Deputy Registrar who was required to sign. When we finally reached him on Tuesday, he was in the South searching for his missing relatives. Understandably, he was in no mood to attend to official matters.

We empathised deeply with him but time was running out for us. If the process was not completed before December 31, 2004, we would have had to start all over again—a delay of several more months. We simply could not afford that. The bank was still haemorrhaging, and we desperately needed a closure of this exercise.

After many anxious moments, the approval finally came through on December 31, 2004, just moments before the deadline expired. It was an extraordinarily close call. There is no doubt that the stress and pressure of those days took a toll on our entire team’s health.

Closure and recovery

With the capital reduction completed, our balance sheet was finally clean. We announced a debenture issue, which was reasonably well subscribed, and we were able to refocus on core business operations.

Over time, we generated sufficient profits to pay dividends to shareholders, restore the staff bonus scheme, and reinstate all benefits suspended earlier. Trade union members once again participated actively in organisational activities.

My job was done. The promises I had made—to the Board, the staff, and the stakeholders—were honoured. I must say that this was not my single effort but a team effort. The team supported me at every turn, and remained committed until the end. It was a wonderful team and a wonderful Board.

The decision to leave MBSL

I was concurrently serving as Non-Executive Chairman of Dankotuwa Porcelain, a company with majority control by Japanese investors at that time. During that period, one CEO resigned after three days, another after one year, and a third also resigned prematurely. The Japanese shareholders—a consortium of three companies—told me that finding a suitable CEO was proving extremely difficult. They requested that I take over as full-time Chairman and Managing Director.

This request was made while the restructuring at MBSL was still on-going. I made it clear that I would not leave MBSL until I had delivered on my commitments. Once the restructuring was completed, they approached me again and asked, rather pointedly, “Now what is your excuse?” I had none.

I decided to move on to Dankotuwa Porcelain. I had always enjoyed working with the Japanese, and I felt completely comfortable with their management style. My experience at Dankotuwa Porcelain will be the subject of the next article.

Many people had raised their eyebrows when I first joined MBSL. “Are you mad to take the helm of a company in deep trouble? It is like flogging a dead horse” they told me. As I mentioned in an earlier article, even Mr Ken Balendra, the Chairman at the time, warned me that I was wasting my time and ruining my reputation.

Ironically, when I decided to leave, the same people asked, “Are you mad to leave a stable, profit-making company?”

I will cherish my time at MBSL for as long as I live. It was a tough assignment, but also exhilarating and deeply rewarding. When I later met Mr Balendra at the Golf Club, he simply said, “I knew you would do it.”

My personal policy has always been this: leave when people still want you, and never overstay until people have had enough of you. Equally important, I believe, is creating space for subordinates to move upward and grow. The next episode will cover my period at Dankotuwa Porcelain.

(The writer is a Consultant on Productivity and Japanese Management Techniques
Former Chairman/Director of several listed and unlisted companies
Recipient of the APO Regional Award for Promoting Productivity in the Asia-Pacific Region
Recipient of the Order of the Rising Sun, Gold and Silver Rays, Government of Japan
Email:

bizex.seminarsandconsulting@gmail.com)

By Sunil G. Wijesinha