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When owners pilot the plane

Stelios Haji-Ioannou, founder and non-executive board member of EasyJet, also comes from a business owning family. He has publicly criticised the management of the British low-cost airline and refuses to approve the 2007 annual report.

With a 27% stake, he is the major shareholder. In his opinion, the management of EasyJet is wrong in its plan to further expand the airline while the number of travellers is going down globally.

"We have to focus on good cash flow perspectives instead of growth of the number of passengers," Mr EasyJet said. He wants to appoint two members to the board through which he hopes to change the company's direction.

What could be some reasons for the disagreements between EasyJet's management and the founder/major owner? And what lessons can we derive from them?

One reason for the disagreement could be a different position on risk. Higher risks may lead to higher returns, and therefore more shareholder value. This is typically a strategic driver for companies. Often, an owner/manager or business owning family has a different concept of risk.

They want to protect the downside risk. Too many risks may put the whole investment at stake over the years. In turbulent times like these, owners may also want to grow the business but realise that the base needs to remain solid. EasyJet states in its mission statement: "To achieve this [growth] we will develop our people and establish lasting
relationships with our suppliers."

Another reason could be a classic example of letting go. A founder remains concerned about his creation although he may have handed over executive responsibilities to others. When the management chooses a direction that does not fit the founders' ideas, he may look for ways to better control the company.

In the case of Stelios, there is still the emotional attachment because the major owner also sits on the board and is closely involved in the direction of the company. It is unlike the first company he founded, Stelmar Tankers, where he is a significant owner but not on the board anymore.

The public statement could perhaps be a symptom of a longer lasting disagreement among the board members and he can't convince the other board members of the priorities the company should set in these times of economic crisis. The "gut feeling" of the founder/entrepreneur conflicts with the 'analytical and financially driven' rationale of the company's management. Good reasoning becomes a special skill for both sides.

The case of Stelios and EasyJet demonstrates that despite a good governance structure and regulations, there is no guarantee for harmony among the board, especially when major owners are involved. Is more regulation and control needed? Not likely.

In our view this example demonstrates the need for an articulated ownership vision and a constant alignment between that vision and the company's strategy.

It is difficult to come to a commonly accepted vision with a listed company that has dispersed ownership. But with a major owner who is concerned with long-term continuity it is worthwhile to make extra efforts to align the company strategy with a clear ownership vision and communicate about both.

Maybe the corporate governance codes for listed companies needs to be changed. That is a major effort, but it worth looking into. A shared ownership vision has a positive impact on company performance. The board and a significant owner together hold the key to both ownership and business strategy.

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