PROCESSES AND DECISIONS

In addition to the examples of positive influence mentioned above, the minutes reveal a lower intensity than would be expected in some interventions, resulting from the roles played and areas of influence of board members in the organization. For example, in discussions about the business strategies of the trade division, there are proportionately few PoB interventions, even though his role as chairman of the group indicated that matters relating to that division would also be his ultimate responsibility. At the same time, VPoB intervenes little in discussions regarding SIs directly related to the industry division, possibly less than would be expected from an executive of his seniority and power within the organization. There seems to be an implicit agreement between them that one should not interfere in matters related to the responsibility of the other. As a result, discussions on the strategies of these two divisions record a much higher proportion of interventions involving IND2, as a specialist in matters related to strategy, and PoB, in the case of the industry division, and of IND2 and VPoB, in the case of the trade division.

consequences of this crisis to the group’s financial results. The mechanisms created to direct and channel discussions during board meetings were also responsible for the identification of SIs. As of the fourth meeting, a segment of the agenda was dedicated to reviewing the financial results of the group and its business units. When the economic crisis hit the group and the financial results started to deteriorate, issues associated with the operational and financial performance of the most problematic business units emerged, which began to be regularly discussed in board meetings. Some SIs were discussed by the board due to the sponsorship of a director, who demonstrated personal commitment to it, considered the issue important because of its close association with the director’s responsibilities in the organization, or both. An example of personal commitment would be the idea that the layout of the group’s largest manufacturing plant should be reviewed and that the group should explore the synergy between its retail and manufacturing arms, both issues championed by IND2, one the independent directors. An example of SI initially considered by the board due to its importance vis a vis the responsibilities of a director was the debates on the creation of a new retail technology business, defended by VPoB, the head of the trade division. As described earlier, some issues emerged sequentially, as the board, engaged in a sensemaking effort associated with an already known issue, identified other complementary issues which were then deemed worthy of consideration.

The minutes show significant variation in the mechanisms by which the board deliberated whether one new SI should be confirmed, and therefore incorporated into the board’s agenda, or not confirmed, and as such not to be brought to the attention of the board at future meetings.

Issue sponsorship by an influential board member, such as PoB, VPoB or IND2, often caused the issue to be included on the board’s agenda, with the issue scheduled for discussion at subsequent meetings. Likewise, issues arising from sensemaking exercises on other issues, which took place at one or several board meetings and involved multiple board members, were generally considered important and therefore included on the board’s agenda. When the board was created, several SIs were already being dealt with by the group’s senior management and, therefore, were automatically incorporated into the agenda of the board. Examples of these issues were the implementation of an ERP solution, the creation of a formal risk management process and associated structure, and the creation of an ethics code for the group. Some issues, especially those associated with or triggered by a crisis, were swiftly assessed, with few resources spent on their analysis and consideration, and then incorporated into the board’s agenda; an example would be the decision to address the issue of theft in chains of retail stores dedicated to high-tech products, which had reached alarming proportions. Often, issues that

underwent consideration were later incorporated into the agenda of the board, with very few being explicitly discarded.

In some situations, however, the decision to incorporate an issue into the agenda of the board was not a straightforward one. For some SIs, reaching consensus on their existence and on the need to incorporate them into the group's strategic agenda involved significant debate.

And in some cases, even after being debated in several meetings, there seems to be no clear consensual perspective regarding their incorporation into the strategic agenda of the board. An example is the debate on the strategy for some of the business units in the trade division.

Drawing on his expertise, IND2 repeatedly gives his perspective on this matter, stating that the goals and objectives of the division, mostly associated with revenue increase through the opening of new stores, were not based on a sound strategy, in which considerations of the competitive landscape and positioning of the group’s retail operations were accounted for in a systematic and comprehensive manner. This perspective was strongly contested by VPoB, the head of the trade division, who insisted that the business divisions did indeed have strategies, supporting this assertion with the presentation of some tools frequently used in strategy formulation, such as vision and mission statements, definition of target customer segments, and SWOT analyses. Ultimately, the repeated debates pitting these two conflicting perspectives on the formulation of strategies for the retail businesses led to the incorporation of the associated issues – first, what constituted a strategy and, second, what was the strategy for these business units – into the agenda of the board.

Most of the time spent in debates on SIs was used in the issue interpretation stage. The proportionally longer time spent in issue interpretation was due, in part, to the difficulty the board encountered in reaching consensus a) on the meaning of the SIs it addressed, after the (explicit or implicit) decision to incorporate them into the board’s agenda, and b) if responses to these issues were necessary. Several examples have already been provided; another one involves the discussions on expanding exports of furniture manufactured by one of the group’s business units, to overcome the problems experienced in the domestic market, which was strongly affected by the economic recession. While advocated by IND2 and, at least in theory, supported by PoB, the president of the group and the head of the industry division, no final consensus has been achieved on the feasibility of this initiative, due to concerns expressed by PoB and other members of the organization, on whether manufacturing costs could be reduced to make additional exports profitable even in the face of possible future fluctuations in exchange rates, or whether this initiative could create potential future liabilities for the group, thus aggravating the losses already incurred in that business unit.

One of the consequences of the difficulty in finding shared understandings about some SIs is the progressive accumulation of issues on the agenda of the board, which must discuss and deliberate on them. As the time capacity of the board for dealing with SIs is limited (the board meets approximately 10 times a year) and few issues can be addressed systematically in one meeting, the handling of many issues is spaced out, and many have their discussions postponed to future meetings, repeatedly in some cases. Postponement decisions, however, also appear to be part of a deliberate process, in which more contentious issues or issues for which owner-managers do not expect or desire the intervention of the board are scheduled for discussions in the distant future.

One strategy the board has used to manage the size of the strategic agenda it must contend with was the termination of SIs. The minutes record decisions to discontinue the discussion or the follow-up of SIs, providing, in some cases, explanations as to why this discontinuation occurred. This is the case of the issue of the layout of the group’s largest factory. Originally raised by IND2, it was briefly discussed at the third meeting, when it was decided that the issue would be discussed again at the next meeting. At the next meeting, PoB (ultimately responsible for all issues related to the industry division) informed that a new development in the plant would potentially enable an improvement in layout. Based on this information the board then decided to postpone the discussion of the issue, scheduling it for six months in the future. The discussion was then repeatedly postponed, until the decision to terminate the issue was recorded in the minutes of meeting 16, as the issue had been “surpassed”. In other instances, however, the minutes do not record the termination of the issue, which simply disappear from the board’s agenda. SI disappearances occurred predominantly at the boundaries between the periods in which I divided the meetings, which will be presented later in this document.

When the board reached consensus on the interpretation of a SI, it then decided on whether a response was required. For all issues confirmed by the board (i.e., the board did not decide to terminate the issue) a response was deemed necessary; in other words, no issue was considered only demanding monitoring. In many cases, the decision to demand a response to the issue was not explicitly recorded in the minutes; but could be inferred from the activities that follow them. For instance, the idea of creating of a new retail technology business was initially brought to the attention of the board by VPoB at the second board meeting, and his intervention immediately incorporated this issue into the agenda of the board. At the next meeting, VPoB again requested the attention of the board to this issue (that was not scheduled for discussion at that meeting) and after some deliberations, obtained the agreement of the board

to pursue this business opportunity – the board confirmed the SI and decided that a response to it (the exploitation of the opportunity to create a new chain of retail stores) was required.

The next stage in processing SIs was response design. As explained earlier, the difficulties experienced by the board in reaching a shared understanding about the SIs discussed and, consequently, about the responses to them, resulted in a smaller number of issues reaching the response design stage. And while in some cases the design of a solution was achieved with relative ease, in others it required extensive discussions and lengthy deliberations, sometimes involving actors other than board members, inside or outside the organization. An example of a response quickly designed (in this case by the board itself) was the creation of a “crisis committee”, composed of several members of the top and middle management of BG A, to search and implement retrenchment initiatives such as cost and asset reductions, during a particularly difficult period for the group at the height of the economic crisis the country was facing. Other responses involved lengthier procedures, either to search for and select among several alternative the most appropriate response for a particular SI, as in the case of the selection of the ERP solution to be implemented, to adapt a ready-made solution to the particular circumstances of the group, or to develop a custom-made response to a SI, as in the case of the development of a new code of ethics. For SIs that demanded custom-made responses, in no case was more than one developed.

The minutes do not allow observing the process through which responses to SIs were developed, when this development was delegated to other members of the organization who do not participate in the board meetings, such as middle managers, or to external entities, such as management consultancy firms. In general, however, the minutes record that the process they employ is materialized in instruments such as formal reports and presentations, which are then submitted and appreciated by the board. Such instruments, however, were not extensively used when the board discussed and deliberated on responses to SIs under the direct responsibility of board members, especially PoB and VPoB. Besides not being supported by these formal instruments, designing responses to SIs under the direct responsibility of the board members proved to be more complex and time-consuming. In many cases, debates are recorded in several meetings, in which information is provided, proposals are formulated, and positions are expressed, often repeatedly, without the board being able to make significant progress in the analysis and decision on available alternatives. An example can be found in the discussions about the negative performance of the group's DepStores, recorded in the minutes from the first to the last of the meetings. This issue has been characterized as strategic from the outset, but the magnitude of the problem increases as the stores' results worsened, influenced by the

economic downturn that has an amplified effect on consumers' discretionary purchases. Several attempts to establish a shared understanding on the measures necessary to reduce losses are recorded in the minutes, with initiatives such as closing stores, selling items with low inventory turnover at a discount, and training and motivating store managers, being proposed. However, the board does not reach a consensus on the actions required for a turnaround in the stores’

performance. The lack of consensus in the selection of turnaround initiatives for DepStores led VPoB, on its own, to implement limited solutions on several occasions, which were not able, at least during the time interval in which minutes are recorded, to counter the losses from that business unit.

Once the response was designed, and especially if this activity was performed by outside parties, the board then deliberated on its approval. The minutes record approvals for most response designs presented, but also record a few instances in which the response was not approved. This was the case, for example, with the group’s code of ethics. The initial version presented to the board by the middle managers responsible for its development was evaluated and severely criticized during one of the first board meetings. The board did not approve this initial proposal and requested a revision, within a period of two months. After this deadline, the team involved presented an updated version, which this time was considered adequate by the board. The board then gave the team involved a new deadline for the complete development of the code of ethics. A few meetings later, the code was then presented in its entirety to the board, along with the planning for its communication and implementation and the governance structures defined for its management. The code of ethics, the governance structure, and the plan for the implementation of the code were then formally approved by the board.

When the response was developed by a board member outside of regular meetings, or by the board itself during meetings, the response approval process was less formal and structured, if at all. An example of a board member-designed response in which the response to the SI is not appreciated by the board is the launch of the new chain of technology stores, mentioned earlier in this document. Once the board’s consent was obtained for the launch of these stores, VPoB proceeded to design the store's concept and, subsequently, to start the launch of the first stores. An additional example, this time demonstrating a response designed by the board and which had formal approval, is the redesign of the organizational structure for the group. Initially developed by a management consultancy, the original design is rejected by the board. The board takes it upon itself to design a new structure for the group and devotes attention to debating and analyzing alternatives for this new structure. This effort culminates in the selection of a new

organizational design, which is approved by the board. The board delegates to the CEO (PoB) the task of communicating and implementing this new approved structure.

Once the response to a given SI is approved, the board in some cases engaged in monitoring the response implementation. Not all response implementations were monitored by the board; in other situations, the board exercised a minimal follow-up of the implementation.

For example, after the final version of the code of ethics and the plan for its implementation were approved, none of the minutes of subsequent meetings recorded any discussion of this issue. In other cases, however, the directors tracked the progress of the implementation; this is the case with the implementation of the selected ERP solution. Monitoring the implementation of the ERP, however, was not carried out systematically: few meetings record presentations of the project's progress, and these few presentations and ensuing debates, besides not taking place regularly, suffered several postponements. It is important to note that these delays in monitoring the implementation of the ERP seem to reflect not a low importance attributed by the board to the project, which represented an expressive investment for the group, but was more likely a consequence of the difficulty in managing numerous SIs that, simultaneously, demanded the board’s attention. It is also worth mentioning that, since the board struggled to develop shared understandings regarding the SIs and the responses to these SIs, few approved responses reached the implementation stage, when compared to the total number of SIs identified in these meetings.

The minutes reveal that the board of BG A also decided, on some occasions, to terminate the responses to SIs, either in meetings in which their design was discussed, or later, during the implementation of the approved responses. These terminations occurred when the conditions that led to the decision to approve the responses changed, or some unexpected event made the board members rethink their understanding of the issue and associated response. One example of termination after a response was approved and under implementation occurred when the board decided to halt the implementation of a new chain of retail stores, Stores X, which was designed to sell merchandise from a single supplier of consumer electronics and smartphones.

These stores would be in direct competition with another chain of stores the group owned, Stores Z, which sold similar products from another leading international brand. After the board consented on the launch of the second chain of stores and their implementation started, the group was warned by the manufacturer that supplied Stores Z that it would cease to sell its merchandise to BG A if the group proceeded with the launch of the new retail stores. The following excerpts record the discussions that took place in the board when the reaction of the

supplier of stores Z to BG A’s initiative to launch stores that would sell products from its main competitor became known.

Meeting 6:

VPoB: comenta sobre os últimos acontecimentos do negócio da abertura das lojas X.

Explica que os gestores da empresa Z entraram em contato e informaram que BG A não poderia abrir lojas X, sob pena de a empresa Z não fornecer mais produtos para as lojas do grupo.

Explica que pesquisaram sobre os litígios da empresa Z e concluíram que é uma empresa famosa por sua veia contenciosa. O contrato com empresa Z hoje não pede exclusividade. Para tanto, quer saber a opinião dos demais conselheiros sobre abrir ou não as lojas X, considerando o risco de a empresa Z passar a abrir lojas próprias e o grupo ficar sem Z ou X.

VPoB: diz que terá uma reunião com os gestores da empresa X, estreitando laços, mas dirá que não poderá abrir as lojas da marca, apesar de achar que seria um ótimo negócio. Diz que está pensando em abrir mão do negócio das lojas X, mas quer negociar novo acordo com a empresa Z, com maior prioridade para o BG A, a fim de compensar o negócio perdido.

...

IND2: diz que a situação ideal seria a empresa ter todo o portfólio de tecnologia nas suas mãos, como é com as grandes revendas de automóveis, por exemplo, para não perder os clientes, que não são mais tão fiéis a marca e sim às últimas novidades. Diz também que a empresa poderá fazer novos acordos com a empresa Z, mas quando o contrato terminar eles podem dar as cartas conforme seja mais interessante para eles, independente do que se havia falado.

VPoB: diz que nesses contratos deverá haver a previsão de indenização caso haja descumprimento de algo acordado. Garante que as lojas próprias da empresa Z não abrirão próximas às lojas Z de BG A.

IND2: diz que amarraria o crescimento das lojas Z nas cidades de médio porte. Diz também que acha uma boa ideia vender produtos da empresa X dentro das lojas de departamento do grupo. Finaliza dizendo que o melhor seria ter garantias maiores com a empresa Z, como aumentar o tempo de contrato, melhorar a priorização de fornecimento, entre outras garantias.

CC: decidiu que a empresa deve continuar com as lojas Z e vender produtos da empresa X dentro das lojas de departamento.