What should Tom do about the under performing activity in which the CEO was involved?

Discuss the failures of leadership demonstrated by the firm's top management. Additionally, in responding to the question above, present what Tom should do in terms of key strategic actions required for effective leadership.

After a number of years in banking and with an international auditing company, Tom was ready for a change. He received an offer to become the CFO of a family-controlled company. In addition to the decent salary, Tom was attracted by the opportunity to work directly for and with the owners of the company. His task, according to the family CEO, would be to professionalize the firm. Soon after joining the company, Tom realized that the firm had a very unique structure and he started to understand what it meant to be the CFO of a family firm. He realized that family topics interfered with his activities in various ways. For instance, Tom needed to establish a more in-depth and transparent reporting system. Without solid figures, it was difficult to compare the different activities and to increase the level of accountability among the different business units. This system showed that some of the firm's activities had been in the red for years. When Tom presented these figures to the management board and sug- gested that these operations come to an end as quickly as possible, the family CEO did not oppose Tom's suggestion. However, the CEO was unwilling to actually make this decision or to communicate it to the relevant departments. The decision was postponed--part of the CEO's hesitation had to do with his own involvement with a certain part of those busi- nesses. Tom realized that there was not much he could do, and he decided to accept the underperforming activity because the losses were minor when seen in relation to the overall size of the firm. The firm was owned by 15 family shareholders stemming from three family branches. The first family branch owned 55% of the firm, while the second held 35% and the third held 10%. Each branch had one representative on the board of directors. The family CEO was representative of the first branch. As a producer of dental implants, the firm was quite profitable and paid out roughly 40% of its net profit to the shareholders. The dividends had risen steadily over the years. However, when Tom met the shareholders on various occa- sions, he realized there were two rival groups: the shareholders representing branch 1 and the remaining shareholders who together controlled 45% of the firm. Despite the increasing dividends, the second group appeared to be dissatisfied, and members of that group were latently (and sometimes overtly) suspicious of the majority owners and the CEO. Moreover, Tom was surprised to realize that, as CFO, he was partly responsible for the management of the family's private wealth in addition to running the firm's finance depart- ment. Apparently, the family shareholders had concluded that the CFO should handle some of their private financial matters. His department therefore had to manage the private wealth of some of the shareholders and file tax returns for others. Not all shareholders took advantage of this opportunity. For those who did, it was unclear whether the firm should charge them for the services. Tom felt uncomfortable with the situation-he was not an asset manager. What if his team backed the wrong horse when allocating private family assets? The problem threatened to get out of control when those shareholders who had not previously used these services decided to hand over their financial affairs to Tom's depart- ment, as the services seemed to be of good quality and were free for the shareholders. This trend was worrying for Tom, as the services consumed nearly an entire full-time position on his team Tom's collaboration with the family CEO worked well and the two seemed to like each other. However, one day, the CEO mentioned a private investment project to Tom. Apparently, the CEO's wife wanted to invest in a hotel project that had nothing to do with the firm's operations. To finance the project, the CEO asked Tom to prepare a loan con- tract in which the firm would lend S400 000 to the CEO. The CEO mentioned that he had approval from the board of directors and that he would repay the loan within two years. However, Tom was hesitant. The amount was manageable for the firm, but it was clear to Tom that this was beyond any good governance standard. How should he approach the topic? The CEO was his boss and one of the firm's majority owners. These questions were disturbing for Tom, as there was simply no textbook answer about how to solve them. He had never considered the possibility that such issues would become relevant for him as a CFO one day. Probably the trickiest challenge Tom faced was when he was invited to a board of director's meeting to present an acquisition project. The company was exploring an opportunity to buy a firm in an industry that was relatively unrelated to the current activities. The business outlook for the acquisition target looked fine, but the board members ended in a heated debate about whether to acquire the company. The rep- resentative of family branch 1 complained: 'This new business is not sufficiently close to what we are currently doing. There are hardly any synergies. Moreover, we are known as a producer of dental implants and have been in this industry for more than 50 years. Why should we dilute our image?' The representative of family branch 2 saw more advantages than disadvantages: 'We are so concentrated in a single industry. This is a great opportunity for us to diversify our business and thus limit the risks to our wealth? The representative of the third family branch was more hesitant: 'Our part of the family does not see much value in diversification. We can diversify on our own. For many of us, our investment in the firm today primarily has financial meaning. Toward the end of the discussion, Tom was asked for his opinions and feedback on the different points of view