Reflecting on a decade of change at SGS

Posted November 19, 2019

SGS Economics and Planning Andrew Mc Dougall

As we prepare to celebrate 30 years in business, SGS Economics and Planning Principal and Partner Andrew McDougall reflects on the exhilarating and somewhat challenging process of shaping and governing a purpose-driven, public policy consulting business.

Describe your career at SGS

I joined SGS 20 years ago when SGS won a major consulting contract that was right in line with the topic of my master’s thesis – industry clustering. Over the following decade, I progressively moved through the consulting ranks; building my skills in financial and economic analysis, business case development, infrastructure investment planning, economic development, and public policy advice.

In 2008 I left SGS and worked elsewhere for a few years. Fortunately, I realised there was something truly special about SGS and found my way back. I returned to SGS as a Partner and soon after became a Board Director. I’ve served as an Executive Director on the SGS Board since, while also continuing as a principal consultant.

What changes have you seen in the industry during this time?

Well, change has certainly been constant throughout the past 20 years. Four major patterns stick out for me. First, large datasets and complex analytical techniques are now pervasive. We have integrated these into our business and work with our clients to ask the right questions so they can gain insights for informed decision making; not volumes of data that add unhelpful complexity.

Second, clients are far more stretched for time than ever, and in some cases, have limited technical background across projects they need to deliver. Hence our way of working has morphed from responding to set briefs to more collaborative teaming with our clients.

Third, when clients are procuring consultants, they often have one of two mindsets. Some want advice that supports a position, whereas others are truly looking for independent advice to help shape future projects. SGS works much better in the second domain. As a values-based business, we seek to work on projects that are in the public interest and independence is key to this.

Fourth, there has been a tremendous rise in young consultants searching for real meaning and purpose in their work. Everyone wants to be paid well and feel part of a team, but many also want to contribute to something worthwhile. We’ve restructured SGS to ensure that this occurs, and our ongoing B-Corp accreditation regularly brings external scrutiny to this claim.

How has SGS adapted to these changes?

I won’t wax lyrical about how SGS’ services have evolved over the past two decades, other than to say that we work to bring truly integrated disciplines to solving client problems relevant to community, economic and place sustainability.

Another significant change is the restructuring of our business which has just been completed. The restructure included selling the ‘old SGS’ to the ‘new SGS’. This was a deliberate move by the SGS Partners at the time to ensure the company’s structure aligned with its purpose, provided financial sustainability and invested in longer-term succession planning.

Before restructuring, SGS was a successful public policy advisory business. However, the business:

  • was tightly owned by a small group of shareholders, who were also the business’ leading consultants and executives
  • was structured as a unit trust with no effective ability to retain profits to invest in future development or guard against market downturns
  • lacked a professional management focus, as the leading consultants wanted to work ‘in’ the business not ‘on’ the business
  • found it increasingly difficult to attract and retain new leaders given the mandatory and substantial buy-in price, which was linked to a market valuation of the firm’s units, and
  • faced an operating conflict in that it needed to meet the return expectations of its major unitholders while existing to serve the public interest.

To their credit, the SGS unitholders recognised these issues and found the courage to act decisively to remedy them. Luckily for me, I’ve been involved in SGS’s governance long enough to have witnessed the restructure progress to its ultimate fruition.

“Now that the restructure is complete, SGS can now genuinely claim to be an employee-owned, professionally governed and managed company, with a structure that aligns with its purpose."

What did the restructuring of SGS involve?

The restructure required enormous goodwill. It required financial sacrifice by the major unitholders with the trade-off being reduced financial risk and a visible pathway to firm succession. This relied on a willingness to transfer ownership and, therefore, control of the business to a broad base of the firm’s employees.

“Without a true commitment to SGS’ purpose by all of its major unitholders, I doubt these changes would have been possible."

If you’re interested in the specifics of the restructure, my view is that the following key changes underpinned everything else:

  • We established a propriety limited company which bought the old SGS from its former unitholders.
  • We separated the roles that the firm’s leaders played as a) consultants within the business, b) owners of the business, and c) governors of the business.
  • We committed to employing a professional CEO so that a rigorous approach to developing the business was enabled.
  • We appointed an independent Chair and another Non-Executive Director to a streamlined SGS Board, creating a truly diverse and focussed governing body.
  • We decoupled team progression from firm ownership, meaning the mandatory buy-in became a voluntary shareholding, and not a barrier to career progression.
  • We removed the rights to future capital gains from SGS shares, meaning that an affordable buy-in price could be offered to candidates who had demonstrated a committment to the values and purpose of SGS.
  • And finally, we agreed that SGS shares would earn only a modest dividend, ensuring the company could build its retained profits, invest in the future and prioritise the rewarding of all team members for their contributions to the company’s success.

The restructure seemed to be well-executed. Did things really go to plan?

Definitely not. Almost immediately after the stages of the restructure in 2011, there was a marked decline in SGS’ fortunes; just as there was across the whole professional services consulting industry.

There was a general market downturn. Redundancies were rife throughout the industry, with overall employment in professional, scientific and technical services across the nation falling by 38,000 between June 2012 and June 2015, and industry profits before tax falling by almost six billion dollars. This added additional pressures across the team in a time of change and transition.

What lessons can other SME’s learn from SGS’s transition to an employee-owned, purpose-driven business?

I have already referred to SGS’s clarity of purpose. This purpose has always been very well communicated at SGS. It has also been backed by the company’s values and operating protocols. Without the widespread buy-in into the purpose, it would have been very difficult for the restructure to be achieved successfully.

“Recently there has been growing interest in and development of companies with a social purpose - exemplified by the rise of Benefit Corporations (B-Corps). This has been standard practice for SGS; a company with a clear social purpose since its inception."

Another lesson would be ensuring that unintended consequences are better identified and explored at the outset. While we relied on professional advice when planning the restructure, we may have been a little naïve about all the things that might go wrong. We should have proactively engaged with similar companies that had lived this experience. Why not enjoy the benefit of hindsight available in likeminded enterprises?

Related to this, we learnt that maintaining goodwill amongst Partners is essential. When it counts, the relationships between the business’ leaders are what really matters. These relationships need proactive investment, and more could have been done to prioritise these relationships during the restructure.

Finally, there are reams of paper dedicated to the value that non-executive directors and professional CEOs bring to companies. Nonetheless, for small companies, this can be resisted given the scale of investment required. I urge these doubters to go down this path; our non-executive directors and professional CEO undoubtedly saved the company during market downturns. Without them, we may well have delayed some of the difficult decisions we needed to take and, in doing so, compromised the company’s solvency and vision.

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Andrew McDougall

Principal & Partner

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