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Tracing its roots back to 1906 as a farmer-owned cooperative,[1] UGG was a mature organization entrenched in its own bureaucratic business model. There were numerous business units operating under the UGG umbrella but all reporting in a hierarchical command and control structure straight to headquarters. By the early 1990s, the company had become financially distressed – UGG was in breach of its bank covenants and losing cash. Under consideration in 1990 was the idea of exiting or selling certain noncore business units. An internal study of one business (farm supplies) produced a stark picture of not only that single business, but an entire organization, including operations, and its unresponsiveness to customer needs. The report was a candid assessment of the organization that equated the firm to a geriatric patient 85 years old in need of major care if it expected to survive. Written by the future CEO, the report projected that without dramatic change the fluid and dynamic forces taking place in the entire agribusiness sector, coupled with UGG's weak balance sheet, would simply overwhelm the cooperative in a matter of a few years.

The financial imperatives critical to survival were fixing the weak balance sheet, recapitalization, and addressing bank covenants that had been breached. Access to cash and the capital markets was of paramount concern. One way to access the capital markets efficiently was to demutualize and become a publicly traded company. While it literally took an act of Parliament to demutualize, UGG went public in 1993.[2]

The UGG Annual Report in 1994 indicated the transformational shift in thinking by the new CEO that would set in motion a series of events that propelled the company to greatly improved operating and financial performance:

We have also taken definitive steps to organize our business so that the decisions which most affect customer service are made by the people who deal directly with customers. In the last year, we turned our organizational pyramid upside down. We can't be prompt and effective in the era of market-driven agriculture if all the decisions that impact on customers are made by senior managers, sitting in Head Office, at the top of the organizational pyramid. In the country – in our core grain and inputs businesses – we've tipped the pyramid over. Our management team now provides support and planning services to the people who deal with customers, therefore enhancing services. This change was perhaps the most profound rethinking of our business approach in many years.[3]

Improved operational and financial performance would not have been possible without building an executive team of trusted partners who also embraced the need for change. Turning the pyramid upside down and allowing UGG staff interfacing with customers to respond quickly to their needs required a cultural shift – from the previously hierarchal management structure to one that delegated decision making and fostered personnel development. A new chief financial officer, with working experience in publicly traded companies, was appointed to help develop and implement the financial disciplines and tactics necessary to achieve the company's business strategy.

Turning the pyramid over to improve customer service also required a completely new approach to management information technology (IT) systems.

Like the oil in an engine, lubricating support processes are needed for any business to operate smoothly UGG also eliminated its need for mainframe computing over the past year. While the Company incurred the double cost of carrying both our new "client-server" and mainframe for a good part of fiscal 1995, from fiscal 1996 forward we will realize material benefits from this shift. UGG won international recognition from the Smithsonian Institution for innovation in applying computing technology during 1995 for the successful completion of this project.[4]

Over the decade and a half following the decision to demutualize UGG, the transformation in management philosophy and the executive team's implementation of strategic decisions proved successful in realizing the company's objectives: The confidence of the board of directors was gained progressively and cumulatively and developed into an effective partnership with management; it was decision-making capital built up over time that created a culture of welcoming and listening to new and innovative ideas – ideas that could better serve UGG's customers and other stakeholders.

Of course, no company has a straight line to success, and UGG was no exception. The ERM program was one example. Before risks can be managed and opportunities considered, they have to be identified. It is commonplace today, but, mindful of expenses and time constraints, the mandated (Toronto Stock Exchange, UGG Board, and CEO) risk identification process and subsequent risk rankings at UGG were accomplished in a single daylong meeting. The composition of this meeting exemplified the company's departure from hierarchy: Participants were selected not by the seniority of their rank in the organization but rather for their knowledge and experience of the business; they ranged from frontline representatives to vice presidents, all given an equal opportunity and showing an equal propensity to contribute to the process. However, the road to ERM would take more than two years, which, once the company's major risks were identified, included intense analysis, evaluation, and quantification of the company's principal risks. There were headwinds along the way. The process was temporarily delayed by (1) a major flood in UGG's home province and (2) a hostile takeover attempt by a combination of two competitors (which, after their failure to acquire UGG, merged to form Agricore Cooperative).

UGG did not embrace ERM as a risk management destination, but as (an important) part of a process that would support executive management's risk- adjusted decision making. It evolved as a logical progression that had begun eight years earlier with the company's strategic vision for its future and the development of a more inclusive management style.[5]

  • [1] UGG was formed in 1917 by the merger of the Grain Growers' Grain Company, founded in 1906, and the Alberta Farmers' Co-operative Elevator Company of 1913.
  • [2] The United Grain Growers Act was approved by the Canadian Parliament in 1992, allowing UGG to become a public company with both members (the former cooperative's members) and public shareholders.
  • [3] 1994 UGG Annual Report, Chief Executive's Report, and interview with Brian Hayward.
  • [4] 1995 UGG Annual Report, Chief Executive's Report, and interview with Brian Hayward and Peter Cox.
  • [5] Interview with Michael McAndless.
 
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