Why have the leading EPCs replaced their CEOs and leadership teams over the past two years but failed to remedy their strategic problems? In our view, the core reason for failure is wrongly structured top management teams and Board of Directors.
J.P CHEVRIERRE & ANABEL DAILY – GLOBAL ENERGY WRITERS
By J.P. Chevrierre, Transmar Consultants & Anabel Daily, Daily Thermetrics – Global Energy Writers
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New realities require attention
Why are the leading EPC and technical service companies not adapting to new realities? Why have the leading EPCs replaced their CEOs and leadership teams over the past two years but failed to remedy their strategic problems?
In our view, the core reason for failure is wrongly structured top management teams and Board of Directors. Accordingly, the result is that both structures are not performing well. In fact, we can learn valuable lessons by reviewing a bit of history regarding these organizational schemes.
Father of modern management organizations
Georg Siemens, a 19th-century German lawyer, was the Father and creator of the modern top-management organization.
For example, at an early age, he was put in charge of the failing Deutsche Bank Company. Siemens thought deeply about the top management function and soon realized that it was distinct from other kinds of operational work. Moreover, top management was full- not part-time work.
Thus, Siemens believed that an effective top management was essential for success. He set out principles for developing it, consequently leading to Deutsche Bank becoming the major financial institution in Europe within a decade. His favorite motto was, “an organization without an effective management is only so much office furniture, only fit to be auctioned off.” Unfortunately, this motto is apt for some contractor organizations of today.
The Siemens Principles
Let’s review the fundamental principles of Georg Siemens. Indeed, they are the foundation of all successful companies and are currently missing from many contractor managements:
First, an effective top management group is a team, not a committee
Each member of the team should have primary responsibility for their area of competence. Moreover, the panoply of issues that management must address include: business strategy, ethical matters, government regulations, ceremonial, crisis management, key personnel, and building plants.
For Siemens, it was clear that no person could do all these top management tasks. Thus, an effective one-person top management is an impossibility. Therefore, a competent team is required.
Second, top management tasks are unique and recurrent but not continuous
Issues regarding key personnel, building projects, acquisitions, or government will occur from time to time and are recurrent. Furthermore, they are not continuous. Moreover, addressing any unique issue requires that the primary competent top management members be the deciding voice. However, all team members are interdependent, and they need to understand what the other members are doing. Thus, intense communication between team members is imperative.
Third, contractor staff service departments provide support to operations
Besides the data generated by service departments such as finance, marketing, proprietary technology, legal, and more, top management requires specific and unique data, information, and insights as nourishment to the company’s “brain.”
To provide this brain food, Siemens invented the “Executive Secretariat.” In fact, this is a group whose mission is to solely provide strategic information, formulate questions, and stimulate the top management team’s thinking.
Role of Board members
A healthy and effective contracting company needs a Board of Directors that contributes to and monitors top management’s performance. Therefore, one that works closely supervising the top management team performance.
In past days, strong executives and their families owned contracting companies, like Brown & Root, Lummus, CF Braun, KTI, Jacobs, Halliburton, etc. Hence, their Board of Directors were strong individuals with a real stake in the business.
Today, contractor companies have public owners with very diverse shareholders. Therefore, Board members are often recruited friends of senior executives, key celebrity or well-known public figures, company bankers, lawyers, and such.
Similarly, these members are on multiple Boards (10-15) and cannot do the serious homework required to be effective. Thus, these people do not assess top management’s performance, work with the top management team, fire non-performing top executives ,or help recruit new top managers.
Intelligent executives in the global hydrocarbon industry should follow a spirit of ratio cognoscendi (a need to understand why). Moreover, this spirit is essential to move toward an understanding of the consequences of the Shale Revolution.
The shale has fathered several transformations, and contractors, in consequence, must possess a well-functioning top management team. However, most contractors do not have one. If they did, they wouldn’t be losing money, frequently facing bankruptcy, and missing the shale’s emergence.
Solutions for EPC contractors and industry
Our solution or remedy to the contracting industry’s problems is to take these steps and establish a much needed and effective top management team:
- Understand that top management is a team, not a committee.
- Top management work is a full-time job.
- Create a strategy and research to support the top management team.
- Recruit an effective performance-oriented Board as part of the top management system.
Therefore, these are significant changes that can reverse the contractors’ decline serving the petroleum and chemical industries in a post-shale world. Change must, however, start at the top. However, does the will and courage to make such changes exist? The choice to win entails the will to prepare. Finally, as the old management axiom says, “trees die from the top, not the roots.”
