Well it didn’t take long into 2018 for there to be the first major boardroom shakeup following the leak to the media of serial disappointing financial results and profit write-downs, leading to the mass exodus of the Board and CEO of troubled real estate business McGrath.
John McGrath has stepped in as the interim Executive Chairman and there are a number of media commentators predicting that the company will look to privatise but that may be easier said than done. The company has faced numerous challenges since it floated on the Australian Stock Exchange including losing several high profile sales agents who set up a rival real estate business in Sydney called The Agency.
In the meanwhile, the Board needs to be reset and this time around there is little room for error, as to assume things can’t get any worse for McGrath would be foolhardy. Unfortunately, I suspect that the same old same old will be appointed to the board, but it would be nice to see a mixture of top talent including Board Directors who have actually worked in the real estate industry on the board versus investment bankers and analysts who have struggled to turnaround the business.
The McGrath board implosion is reflective of what a number of top ASX boards are going to face in upcoming years. The old guard style appointments are not able to deal with business disruption and the challenges that a business like McGrath has faced. A strong Chairman is required to deal with founders who serve on boards and effectively want to operate like a part-time CEO when it suits them. The board has not been nimble in making critical decisions, the CEO was unable to get traction with the turnaround strategy and get the business back on track. The turmoil in the boardroom has been present for several months, and as the outgoing Chairman Cass O’Connor stated to the media, it has been one bushfire after another.
Now, if I had the brief to hire the new Board of Directors, I would be starting by appointing a couple of the top franchise owners to the Board. The franchise owners have outperformed the company owned branches of McGrath hands down. That practical knowledge and insight of how to run a profitable local real estate agency needs to be heard at board level.
There is no doubt that the real estate industry is ripe for disruption but many technology plays have come and gone making little impact. The bottom line when it comes to selling houses, people will trust the agent that offers to go the extra mile to sell their house. Where The Agency has capitalised in the Sydney market is in the recognition that at the heart of the real estate industry is the relationship between the seller and the agent. Something that has got lost along the way in the turmoil of the last few years for McGrath. When you have mass walkouts of top sales agents (and it was not just high profile agents that left McGrath) then you have to look at your human capital practices and strategy to retain top talent. I would like to see a Human Capital strategist on the board, someone that can really help the company capitalise on its most important asset – its people.
I would like to see proven business entrepreneurs on the Board of McGrath, successful wealthy individuals who have grown businesses, taken them through to IPO and operated successfully in a listed-environment. With the previous board, there was a lack of entrepreneurial background and there is a range of options that could be considered here. An advisory board made up of Australia’s top digital strategists and other domain experts could also be helpful given the shakeup that is currently occuring at REA and Domain.
Finally, I would be bringing in a trusted high profile Chairman and at least one Private Equity, Venture Capital banking expert to help navigate the investor relations and market conditions ahead. The pathway to privatisation is not a straightforward one for McGrath. The share price is at an all time low, but now is the time to take a calculated risk and appoint the A-team to McGrath’s board. Hire the right combination of skills, experience and capability and there could be upside on this one yet.