Dear reader,

Welcome to the March 2014 edition of The Director’s Dilemma. To read this email in your browser, go to www.mclellan.com.au/newsletter.html and click on ‘read the latest issue’. 

Later this month I shall be visiting Perth, Melbourne and Brisbane. Details are below and I look forward to meeting as many readers as possible during my brief stay in each city.

This month our dilemma concerns the tricky process of board appointments. As always, it is a true story. Feel free to email me with dilemmas of your own and articles of interest about boards and governance. By sharing our problems, ideas and experience we can all advance. Consider: What would you advise a friend to do under these circumstances?

Effie is a qualified but inexperienced director and, having done the relevant courses in her home country, is keen to embark on her NED career. She is a member of a superannuation fund and would like to stand for election to that board. Her recent experience as an investment analyst at a private venture capital fund follows several years assessing grant applications for government industry assistance programs. She is sure that her skills would add value to the board.
In her due diligence Effie sought out one of the current directors to ask him about the culture and operating practices of the board. The director was horrified and assured her that only candidates who had been put forward by the nominations committee could access such information. She then sought out the nominations committee chairman and was told that to access the information she needed to stand for election; only if she gained election would she be authorised to talk to any of the directors or to access any information other than the usual reports that are issued to all members.
Effie is unsure how to proceed. She has no desire to be on the board if they are not operating effectively or embracing increased standards of governance. She also has no desire to stand for election and then decline the position if she finds the cultural fit to be wrong for her. This situation is nothing like the ‘two way street’ due diligence process that was discussed in the governance course. There it was asserted that both the director and the company would undertake careful assessment of the alignment of interests before any appointment would be made.
How can Effie move forward and is this board a good place to start her NED career?

Bob’s Answer

A simple non-disclosure agreement (NDA) would cover both parties by defining what was and was not public information. Nominations committees should value candidates volunteering themselves, and the directors should support this action as it fulfils the first barrier of 'interest'. 

For Effie the business of directing should not to be taken lightly. Initial issues to resolve including the board’s position on: 
- diversity (is Effie being run around as a female?) 
- culture (is the board so rigid they have achieved bureaucratic stasis?) 
- opportunity (will the board properly induct and work with Effie?) 
- career (will the board support Effie as a fellow director?) 
As a minimum there is much to challenge possibility of success as a director. 

Review points are pertinent to any new directorship with the two way being 'what does Effie want to achieve on the board?' simple representation to gain experience, in my thinking, is not a good reason to seek election.

Bob Clarke is Executive Director - HR Strategy at 7 Point, a strategic advisory and operational support company. He is also a director and board secretary of the Canberra Symphony Orchestra.

Julie's Answer

This is possibly not a good place to start a NED career. Effie needs to find a board where her skills are valued and the other members support her desire to learn governance in practice. Effie should consider what it was that attracted her to this board and then start to develop a ‘hit list’ of other organisations with similar characteristics. She can then try to meet the directors of those organisations and talk with them about the challenges the organisations are facing and how they, as directors, are responding to those. She can offer her insights, first as an informed acquaintance, then as a friend, and then as a prospective director. Eventually she will find a board that both needs and appreciates her.

Effie’s instincts are warning her that this board is opaque and possibly dangerously so.

Effie’s fund could simply be protecting itself by ensuring that she is serious before according her application any investment of effort. However, that does not help Effie to make a good decision. She will harm her reputation if she stands for election and then resigns after only a short time on the board. She will also harm the fund as they will then have to either run with a board that is one member short of optimum or find and appoint another director to replace her.

If Effie really feels that she has something good to add to this board then she can persevere in her efforts to help without standing for election. She should ask the Nominations Committee chairman if there are any volunteer roles where she could be of service, offer some free consulting, befriend and mentor a manager, and get to know the organisation before she makes any decision about standing for election.

Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

David’s Answer

Organisations can suffer when members lobby directors to support their ascension to the board. An entrenched like-minded group of power brokers is often prey to group think and unable to rapidly identify changes in the marketplace. It is important to develop a process for board renewal that allows for diverse skills and experiences on the board. The current process is open to all members who are interested and ensures that all aspirants are treated equally.

Often members’ associations need to operate differently to listed companies and this is one of those areas of difference. Although a nominations committee may exist and may conduct analysis of the skills required at board level that is more likely to drive training and/or recruitment of staff or consultants than to influence board composition.

This is a more democratic organisation than listed companies or other ‘for-purpose’ organisations. It is only fair that all members have an equal right to stand for election to their board and that means that the process must incorporate measures to prevent the current board members from anointing successors and retaining power within a small self-perpetuating group.

With her background in financial analysis Effie should be able to see if the fund is performing based on the public data. Once she enters the election process she will receive information in the same way and at the same time as all the other candidates. That is a fair process. If she does stand for election and subsequently find poor governance processes or signs of financial problems Effie can either withdraw or alert the appropriate people to monitor, define and fix the problems. As long as she does not delay in doing this she will not be held accountable for issues that were not of her making.

David McLellan is President of Danish Connect, and a director of InterAcct Solutions and Agitur Capital. He is based in Sydney, Australia.

Disclaimer

The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

What's new

Presenting to Boards Course - I am really looking forward to touring Australia in March delivering this course in each of the capital cities. The course is run by Konnect Learning and there are still a few spaces available in some cities. Visit http://www.konnectlearning.com.au/event-landings/presenting-to-boards/ for more details.

Book review - The New Breed of Independent Corporate Directors by Dr Larry Taylor
Intriguingly subtitled ‘personal glimpses and perspectives of the tone-at-the-bottom’ this book appears to have a picture of a sewer on the front cover. As expected, it breaks into a terrain that is at once unmapped and yet familiar - the need for directors to play a vital strategic role and to go from setting ‘tone at the top’ to enforcing ‘tone at the bottom’.
The book acknowledges that this role does not absolve directors of their need to provide internal oversight and external accountability. We all know that role is not sufficient to ensure good outcomes. Larry’s hypothesis is that by enabling and aligning human motivation through careful attention to the tone at the bottom a well-connected board can drive greater value creation and build a more robust organisation. Read more

Available at Amazon.com in kindle and paperback editions.

Inspirational quote - I have subscribed to a service that delivers an inspirational quote every day. It is a good way to get into a positive frame of mind for the work day ahead. I thought I would share my favourite quote each month. This month my favourite quote was:

“And how is clarity to be achieved? Mainly by taking trouble and by writing to serve people rather than to impress them.”

~Frank Lucas, British scholar and writer


This is great advice for all people who report to boards or ‘help’ by preparing minutes, agendas or travel documentation. If you find it hard to follow this advice then I recommend the ‘Presenting to Boards’ workshops!

If you would like to subscribe the service is run by Darren La Croix at: http://365inspirationalquotes.com/.

This newsletter - If you have any ideas for improving the newsletter please let me know. If you are reading a forwarded copy please visit my website and sign up for your own subscription.

Suggestions for dilemmas - Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Farewell until the next issue (due 1 April 2014).

Enjoy governing your corporations; we are privileged to do what we do!

Best regards,
Julie