Dear reader,

Welcome to the May 2018 edition of The Director’s Dilemma.

Please help me continue to increase the positive impact of this newsletter by forwarding a copy to a board colleague (or aspiring director) with a suggestion that they may wish to subscribe.

To read this email in a browser, go to www.mclellan.com.au/newsletter.html and click on 'read the latest issue'.

This month our case study protagonist risks being swept into a disaster that is not of her making. I hope you enjoy thinking about the governance and strategic implications of the latest dilemma:

Zoe chairs a large government-owned company. She is proud of her board's skill. Board policy ensures directors receive governance training; Zoe has credibility with her portfolio department, and her opinion is sought about the skills required when director succession occurs.

The last director appointment, however, has been a disaster.

She nominated skills her board needed, and public advertisements attracted well-qualified applicants. Two months after applications for appointment closed she heard that Cabinet had received a nomination and approved appointment of her board's new director. A few days later a daily newspaper published an article alleging that the successful applicant had not formally applied for the role and that her CV had been given to the Treasurer only days before the cabinet meeting. Other papers picked up the story and questioned motives for the appointment of this director to Zoe's board.

The Premier and portfolio Minister have both made public statements that cabinet process was followed, that the applicant's CV had been previously submitted to the government in application for other roles, and that the appointment has gone to a well-qualified individual.

The new director has called Zoe and asked for a coffee meeting to get to know each other (it is common for government board appointments to be made to directors whom the chair has not met). She apologised for the negative publicity and requested, as she has no board experience or training, that the company pay for her to attend an expensive residential company director's course before her first board meeting.

Zoe has set up a date for the coffee and is worried about the training. If the press discover that her controversial new director has been sent for training they will mock the announcements about the 'well-qualified' director appointment. If the new director doesn't receive training she may struggle to add value immediately, causing other directors and senior executives to lose respect for her, and Zoe will breach her board's own policy.

What can Zoe safely do?

Brian's Answer

Dear Zoe,

Relax, you're good.

From a legal perspective, the appointment issues are beyond your scope. From a training perspective, what is customary and usual is appropriate for your new member:

  • Training in the specific Statutes that cover your entity regarding process, roles, meetings, minutes, disclosures and such. This would be provided by your legal counsel. Avoid generic or public company training that could mislead your new member.
  • Training in the specific accounting methods and financial statements for your entity. This would be provided by your internal accounting and auditing teams, government inspector general (including a review of past reports), and/or external auditor. To the extent that some of your accounting practices are more general, you might find it helpful for your new member to attend external auditor-sponsored board member roundtables. This can be useful for understanding the process of asking insightful questions based on footnotes, period-to-period changes, and business dynamics (e.g., influence of competitors on margins or changes in volumes).
  • Even for board members with "industry expertise," a specific company is different. Thus, needed are meetings with functional or regional department heads, site visits, job shadowing, and other interactions to learn specific processes from the "front line" to gain the "muddy boots" perspective. If your board has regularly scheduled site visits, the new member might just need to catch-up on the past few months of visits to be on the "same page" with the rest of your board when discussing a topic.

Brian Barnier is Director and Head of Analytics at ValueBridge Advisors. He is based in Greater New York City area, USA.

Julie’s Answer

Shareholders appoint directors. Zoe's job is to lead her board. Her situation is no different to that of any other chair who has recommended a director appointment and had shareholders make a different decision.

Zoe must ensure that her board and management team do not inadvertently make matters any worse. She should remind them not to comment on cabinet decisions and to say they are unable to comment if approached by journalists.

It is important to be pro-active as, in a low-news environment, a technical issue of bureaucratic process may be the most scintillating content the media can find. A new and inexperienced director may need a clear explanation of communication protocols. Zoe should also explain the heightened sensitivity of government shareholders to negative publicity and the speed with which a situation can become politicised if directors speak on political decisions.

Zoe should then consider her board's policy on director education. It is important to give the board the best possible chance to form as a team. That means she should encourage her directors to consider each other as equals. She must make sure that she complies with her own policy and treats each director equally. If the policy sets a budget limit, specifies topics, or requires directors to prove a need for the governance training then she must apply that policy equally to her new colleague.

Prima facie the evidence would suggest that with no experience or training the new director would greatly benefit from the training. If the expense is an issue, then Zoe should explain what the policy will provide and invite the new director to cover any shortfall. It is clear that this director brings a skill that Zoe's shareholder wants to see on the board; Zoe must find and use that skill. Her focus must be to safeguard the organisation and to build the skills and cohesion of her board.

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

Margaret's Answer

Zoe has to do the best job she can for the organisation with the board she is given by the Premier and portfolio Minister.

Zoe should have the suggested initial coffee meeting with the new director and work out the most appropriate training course for her.

There are many training options open to Zoe for the new director and the expensive residential company director's course is only one of them. Although the training of the new director might result in more bad publicity for the organisation and the government Zoe needs to comply with her own board policy around governance and optimise the performance of all the directors on the board.

Ongoing training for directors is commonplace and should not be seen as a negative. The perception that the organisation might come under public criticism for giving the new director training is somewhat misplaced.

The Premier and the portfolio Minister have both stated publicly that the new director is well-qualified therefore we should take from that, that she is well qualified and an expert within the field of the organisation or has appropriate skills to make a meaningful contribution to the board. This should give Zoe confidence to approve appropriate board training for the new director.

Zoe's decision to give training to the new director is justifiable to the public and consistent with the organisations board approved governance policy.

Margaret Walker is an independent audit committee member of the Suburban Land Agency and the Australian Institute of Marine Science, she is Chair of Cystic Fibrosis Queensland and Body Corporate Grosvenor. She is based in Brisbane, Australia.

Book review - Presenting to Boards

The Director's Dilemma case studies are excellent brain teasers for board directors. Like crossword puzzles, Sudoku or any other thought-provoking exercise, these short case studies challenge the readers to explore alternative solutions for directors facing difficult circumstances. Regardless of individual analysis or group analysis of the case, the readers gain significant analytical benefits.

Julie used several dilemma case studies to engage an entire audience of corporate directors at a recent forum hosted by the National Association of Corporate Directors in Las Vegas, Nevada USA. It provided an outstanding learning environment. As subscribers, we look forward to reading and analyzing each monthly edition of the Director's Dilemma case study.

Larry Taylor, PhD. - Chairman, The Creighton Group, Inc., Board Member, National Association of Corporate Directors (SoCal), Honorary Director General, Institute of Directors (India), Board Member, LA84 Sports Institute

Available in soft or paperback format through Amazon.com

What's New - In April

I spent most of April recovering from the high number of conferences, conventions and summits attended in March!

I enjoyed an excellent and thought provoking session on Charismatic Leadership with IE Business School. This was followed by a hypothetical on the response to an unsolicited takeover offer at PWC's Many Hats Board of the Future event. Then I enjoyed presenting my 'Presenting to Boards and Senior Executives' workshop and 'Advanced Club Governance' workshop.

Then I ended the month as it started with a great convention: Filex, which is now owned by Fitness Australia, before heading to Europe for some family business.

I am always keen to work more and will be delighted to hear from you if you would like to arrange a board strategy workshop, education session, or board performance review!

Inspirational quote for May - This month my favourite quote is:

Reader Highlight - Director's Dilemma readers are always doing interesting work: Several readers are members of Australia's RegTech Association and have been busy organising the association's annual conference Accelerate RegTech 2018. This will be an excellent introduction to compliance and regulatory technology for directors who are starting to incorporate technology into their board processes. It will also be a great chance for the vanguard of technologically enabled directors to keep abreast of the latest developments in the field. Details at:
https://regtech.org.au/page-18082.

A note on names - A few readers have asked me where I find the names for the protagonists in each case study; I 'borrow' them from people I meet or things that I read. Zoe is an old Greek name that means 'Life'.

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. I could not write this newsletter without your help and without the generous help of all the experts who respond each month to the case studies.

Be a contributor - if you would like to attempt a response to the dilemmas for publication you will be most welcome. Simply reply to this email and let me know.

Let's connect - I use LinkedIn to share information about boards and directorship with my friends and acquaintances. If you use LinkedIn and we are not yet connected I will welcome a connection from you. You can find me at linkedin.com/in/juliegarlandmclellan.

Let me help you - If you would like me to speak to or train your board, staff, audience and/or group please contact me at julie@mclellan.com.au.

Farewell until the next issue (due 1 June 2018). I look forward to greeting you again then. In the interim I hope you will enjoy health, happiness and hard work.

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

Best regards,

Julie

 

Photo Credits:
Personal images in this newsletter are provided courtesy of the contributors, course attendees and conference participants.
Stock photos illustrating case study and quote of the month are provided courtesy of Shutterstock.com

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 and do not constitute legal advice. 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.

Privacy:
I am privileged to have your contact details and keep them as safely as possible. I will alert you if they are ever accessed by any unauthorised person (the technical staff at ayuda help with publishing and issuing the Director's Dilemma and have access so they can send the newsletters to you). I do not sell your details to anyone; they are kept only for the intended purpose - sending you this newsletter and helping to build the judgement of company directors by providing a safe way to consider potential responses to real life events.