Key Issues

Managerial leadership in the global age
Best use of external legal advisers
Regional Airports in the 21st Century

Managerial leadership in the global age

The competitive world of the globalised economy places enormous performance pressures on leaders in both the public and the private sectors.

Private sector managers have a duty to their shareholders to achieve mastery of all elements of the business environment that impact on the corporation’s business opportunities.

Globalisation has been accompanied and enabled by a great deal of privatisation, deregulation and economic reform, yet government remains a key element of the business environment. The influence of government remains pervasive throughout the developed and developing world, and has been complicated by new and emerging issues – national security concerns, corporate governance abuses and the emerging pattern of new trade agreements to name but three.

At the same time, new procurement demands by government, either through the outsourcing of existing functions and processes or to meet new government needs, and new government programs, are creating major new opportunities for business.

In this environment, all business leaders have a requirement to deal expertly with government as legislator and regulator, with government as program and service deliverer, and with government as customer. An insider’s view of government processes and requirements is an indispensable part of the business armoury.

For their part, public sector managers must conduct their business in such a manner as to minimise the effect of regulation and of business processes on Australian business, and to deliver on the government’s undertakings to business concerning transparency, probity and equity of access for competent providers, whether they be Australian or foreign owned, large businesses or SMEs. They must have the capability to engage effectively with their private sector clients and providers. In many cases this vital capability can come only from a current and well-informed understanding which cannot be obtained solely from formal meetings, social intercourse or the daily media.

On both sides of the public-private sector divide, a high level capacity to deal with the other is an essential tool for strategic success.

Best use of external legal advisers

High-level strategic decisions usually entail the need for tailored legal advice which most often is to be obtained from external sources. Choosing the suitable legal adviser on the right terms and then delivering the right briefings to that adviser will often be key to success on the project. But in the absence of strong in-house law capacity, the decision-maker may face challenges at both points in this law strategy.

To deal with these challenges and to use external legal advisers to good advantage, the decision-maker can be assisted by an independent adviser on law strategy who is part of the legal environment and is aware of the client’s business and strategic objectives.

Senior professionals know that on any client project there is always a variety of alternate ways of proceeding that broadly correspond to alternate definitions of success for the assignment. The client’s strategic requirement might be for a permanent solution, or alternatively a short-term holding remedy, or perhaps a ‘quick fix’ or maybe a showcase win.

The issue for the professional and the client alike should always be, what is the alternative that the client chooses after an informed discussion designed to educate the client on the available options, the associated risks and costs, the level of expertise that is necessary and available, and the professional’s own recommendation as to which option best suits the client’s definition of success on the project. This selection process will work best if it is driven jointly by the client and the legal adviser with both having an understanding at the outset of the client’s criteria for success.

In the selection process the client must consider how the legal adviser will handle the implicit objectives and the likely changes in success criteria as the project matures.

Some law professionals who win their project assignments through a tender or panel process may think that they have stepped around these issues. Having successfully tendered for the project or panel they and the client may be tempted to begin work according to a work plan submitted for the purpose. This will almost always be a mistake for the project is never only about what was said during the tender process. There is always confidential information, usually entailing client and industry politics, that will have been held back until after the selection process is concluded and ‘the ring is on the finger’. Having to deal with the politics is not just an occasional part of professional life at the higher strategic level – it is a constant, is central to effective performance, and will affect strategic success like no other factor. Good professionals are equipped for this aspect. Full and frank briefings at the strategic level after the legal adviser is engaged will save time and avoid cost and strategic error.

Regional Airports in the 21st Century

A feature of all airports, common to many infrastructure businesses, is their capital intensive nature. Airport assets are notably expensive, are ‘lumpy’ to install or replace, they impact on the environment and are highly specialized in nature.

Airports are businesses where for each dollar of revenue generated in a year there can often be as much as thirty dollars in gross assets on the balance sheet. Moreover, the unique nature of airport assets creates its own exposure to risk for owners operators and financiers. Depending on the configuration of the airport and the limited range of meaningful alternate land uses under the local jurisdiction, the special nature and lack of options for an airport’s assets will likely result in a substantial write-down in value and thus a loss for stakeholders in the business should it cease to operate as an airport.

In these circumstances one of the most difficult decisions facing any airport owner operator or financier, and by extension any director or independent expert involved in the governance of an airport, is the timing and the quantum of capital expenditure.

The challenge is magnified by trends apparent now in our privatized economy –

Increasingly owners and investors in airports require them to earn a rate of return relevant to the market, to generate dividends and to grow in value.
Costly additional security requirements imposed not only by regulation but also by customer expectation must be handled within relatively short timeframes.
Regional aviation operators, the principal customers of the airports, are much more vulnerable to pressures of cost and safety regulation in the new millennium.
Both customers and regulators are demanding increased levels of reflection, planning, action and disclosure by airport owners and operators as their facilities compete with other transport modes for passenger and freight volume.
The strategic importance of any airport within its community, and the ‘halo’ effect observable when any airport is functioning well, is real but often over-emphasised or alternatively misunderstood by planners and investors alike. The environment within which planners and investors must operate is made more difficult by the evident lack of a coherent policy framework for regional aviation and failures at all levels of government either to understand the strategic role of the regional airport in the furtherance of local economies, or to seek to capture the potential benefits that regional airports present.

CEO Collegiate adds a high-level capacity to assess and handle the impact of these challenges for airport and airline clients looking to maximise strategic success.

Airports are interdependent with their principal customers the aviation operators, and especially airlines providing RPT (regular public transport) services. But airline operations involve costly and very mobile plant and personnel which can ‘follow the dollar’ with little downside as markets and opportunities evolve. Airports on the other hand are marked by a high level of capital intensity invested in lumpy and immobile assets, local community pressures, and long planning horizons. Airports and airlines have very different strategic goals. We assist with the tightly focused strategic thinking that is essential where regional airlines and regional airports look to evolve and operate to mutual advantage.