A Short Reflective Learning on Thomas Cook and its Board of Directors

As I look back on this week, it seems to have been overflowing with unexpected news. However, the downfall of Thomas Cook, the iconic British travel company, was not one of them. Indeed, I believe it might be worthwhile for us Corporate Governance nerds and Board Directors to have a look at this company as a reflective learning case. (NB! As always, I urge us to remind ourselves that we do have a limited amount of insight and knowledge of the actual situation. Nevertheless, applying our knowledge and develop learning points from these real life examples, is a great way to progress in our profession .) 

The history of this company starts in 1841 with a gardener/cabinet-maker/Baptist missionary named Thomas Cook who had aspirations as an “Excursion Manager”. His proactive, strategic thinking on what people desired from travel propelled into a global business. Innovations continued as the company grew: hotel coupons, round-the-world tours, publicized European train timetables, newsletters, telephone sales, pleasure trips by air, etc. 

Today the thomascook.com website reads

“Thomas Cook UK Plc and associated UK entities have entered Compulsory Liquidation and are now under the control of the Official Receiver.”

As a result, 21,000 employees have lost their jobs, holiday makers are stranded all over the world and chocked, sad, angry voices are heard. How could it all go belly-up?

What if we choose, say, a 10-year perspective (from the day the company was only 168 years old, that is) when we search for clues. They seem to be quite a few, over the last decade or so: 

1. Inertia: What happens if you keep running an analogue business in a digital world? Strategic development has obviously not been a strong competency at Thomas Cook the last decade. No, or little, capability to reinvent its business model when digitalisation changes customer behaviour and everything that can be digitalised, will be digitalised. Focusing on operational efficiency, productivity and financing (for example, taking ownership of more hotels to get more of the margins) instead of rethinking how their offering can adapt in a changing market, with changing communication patterns, and new behaviours. The customers obviously moved on, and Thomas Cook did not.
2. CEOs and the Board of Directors: Four CEOs have passed through Thomas Cook in a decade. One of them lasted just a couple of years. Correct, we need to be bold as Board of Directors to change a faltering CEO in time, but if CEOs repeatedly are changed, maybe we (the Board) need to ask ourselves questions like: “Have we been clear on what we expect from the CEO? Do we have a clear candidate profile when we recruit? Are we persevering and letting the CEO follow through (which might take time)? Are we showing the CEO our full-hearted support (how can the CEO otherwise feel brave enough to do what is necessary in a change process like Thomas Cook’s)? 
3. “Weak trading, poor financing, too warm, feeble sterling, staycation”: Some top management quotes from the decade past, whenever the company has been in trouble, seems to indicate that there has mostly been a more "external" reason for the troublesome situation. In between the lines, we might read that there is not actually a problem with the strategic agenda (if there ever was one) or the business model as such. It is actually more related to "the Stock Exchange, share price, weather conditions, force majeure, people don't go abroad anymore", or the like… (With reference to #1 above.) As Board Directors we need to actively contribute to sober insight into our own pathology.
4. Refinancing (In Retrospect Futile) Efforts: All sorts of efforts have been made the last ten years to restore the financial capabilities of the company. None of them have obviously done the trick. None of funds raised have been used to solve the root cause of the company’s situation. Neither have they properly solved a recurring milliard-billion pound debt problem. In 2011, the company was saved by an emergency loan from a number of banks, led by the Bank of Scotland. In 2017, the debt situation had almost returned to its 2011 level. But in 2019, refinancing failed. Perhaps, it is rumoured, due to demands from the Bank of Scotland, whom the former CEO is said to blame. In a similar situation, would you ask yourself as a Director who is to blame? Would injecting cash (again) make the situation any better?
5. Ill-Considered Pay-Outs and Dividends: As one might expects, Thomas Cook stopped paying out dividends in 2011 when debt was piling high and an emergency loan settled. Seems sane. But why on earth did the company pay dividends in 2017 and 2018? As a Board of Directors, it is our responsibility to proactively make decisions for the best of the company, to ensure long-term and short-term sustainable business development and value-creation. It is of course, easy for us to be wise in retrospect, but would you then pay out dividends in a similar situation and operating in a possibly disrupted industry? In addition, would it feel reasonable to pay out at least ￡20m to executives in the last five years, of which ￡4m to the Board of Directors? Take a few minutes and just quickly reflect on what that would signal to your employees back then, and what it signals today. 
6. (Here you could probably help me with more clues, I am sure!)

Maybe the overall conclusion is simple, from a Board process perspective. Maybe Thomas Cook's Board and top management was too focused on satisfying the London Stock Exchange and therefore had too much of a short-term, share price, dividend focus and just happened to forget about the business and its operations. (Unfortunately, I do not think the shareholders are particularly thrilled right now...) Maybe they just did not remember that the strength and endurance of a business, even a publicly traded one, is built on the small steps of change taken by each and every one of the employees everyday, towards the strategic goals of the organisation. It is our job, together with the top management, to set that strategic vision which will guide the employees. If you as a Board, or top management, fail to see this, to guide, to support your people, to listen to your people, to communicate why and into what we need to change, I believe that this just might happen: a 178-year old previously innovative business dies. 

So, let us learn as much as we can from this case, and prevent, as far as possible, similar downfalls.

Maybe Thomas Cook in some form or another will resurface. To all Thomas Cook employees, thank you for your service and dedication whenever I have travelled with you. I hope your competencies come to great use elsewhere. 

I look forward to more upcoming news, both expected and unexpected, and what we might get the opportunity to reflect upon next ;-)

_________

I am a Professional Board Director, a Board Trainer, a Corporate Governance practitioner, Business Strategist, author and speaker, a.k.a. TheBoardTrainer. Here I share thoughts, anecdotes and question marks on the topic of Corporate Governance and Board work.