Welcome to the May 2011 edition of The Director's Dilemma.

The newsletter provides case studies that have been written to help you to develop your judgement as a company director. The case studies are based upon real life; they focus on complex and challenging boardroom issues which can be resolved in a variety of ways. There is often no single 'correct' answer; just an answer that is more likely to work given the circumstances and personalities of the case.

Although these are real cases, the names and some circumstances have been altered to ensure anonymity. Each potential solution to the case study has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

Consider: Which response would you choose and why?

Zack has been recently appointed to a board as the nominee of a government department. His nomination is the result of years of work on an industry association board where he impressed his colleagues (and apparently also the Minister) with his pragmatism, dedication and skill. While discussing the potential appointment Zack was told that the plan was for him to be voted in as chairman by the other directors, all of whom have been nominated by government departments or by industry associations. The board is to govern an international technology standards harmonisation body.

This was a great honour and Zack was thrilled.

The thrill turned to horror at the board's first meeting: Many of his colleagues were reading emails on their phones during the meeting, two left the room to receive phone calls, one answered a call at the table and two left before the meeting had finished because "the items they were interested in had now been addressed".

Unfortunately he was voted in as Chairman at item two of the Agenda before he could witness this behaviour and, anyway, he was reluctant to let down the Minister who had placed considerable trust in him.

After the meeting concluded Zack broached the topic of the use of phones and reading of emails with one of his fellow directors. This director felt it was culturally inappropriate to restrict people's access to their means of communication and that, as long as the agenda was covered and the decisions made, there was no problem. It appears that different generations and nationalities have very different views on the issue.

What should Zack do?

Richard's Answer

Zack has a problem. As background, two or perhaps three of the Canadian banks, I believe, have banned smart-phones from board meetings, because of the intellectual distraction. Ontario recently made it a highway traffic act offence to text whilst driving based on a study finding that an individual is four times as likely to have an accident when speaking on the phone or texting, because of the intellectual taxation involved.

The problem is that Zack is a new director, and doesn't want to appear non-collegial out of the gate. The chair is part of the problem as the chair sets the norms and culture. Perhaps Zack could have a word with a few other directors, or bring the subject up gently, or see what practices exist within peer companies or in other jurisdictions.

Zack also has an option of presenting (or nudging) a solution. I was in a board meeting a few weeks ago where the entire board had iPad tablets. This was the first time I had seen each director with technology. It was a company in a very risky industry and had made the decision to train directors on digital reading and note-taking and attempting to go paperless versus a hybrid solution (some directors on laptops, for example).

I think tablets (Blackberry's Playbook or Apple's iPad) are better than laptops for interaction and engagement (as the laptop creates more of a barrier), and appears to be where the technology is heading. On another board, the CEO recently brought a laptop to meetings. When two hands are used to type (as opposed to one hand to take notes) with the back of the laptop facing colleagues, the body language and reading of non-verbal cues is off kilter. I had advised the CEO to go back to paper for the time being, and the Chair to consider tablets for all directors.

Another board made the decision a year ago to purchase iPads for all directors. I think universities should go in this direction too, as it reduces carbon footprint (one governance course I taught had two large binders of material) and the technology is much better now than it was five years ago.

The tablet idea might not totally address Zack's issue of distraction, but it bundles several issues up in the form of a solution, which might be better received by peers.

Richard Leblanc is an Associate Professor, Governance, Law & Ethics at York University in Toronto, Canada. He is the co-author of Inside the Boardroom which was reviewed in The Director's Dilemma in May 2008.

Julie's Answer

Glowing screens are irresistibly seductive; it is hard to resist an immediate response. In some cultures it is a mark of honour to return emails promptly and be available when senior executives request your input. However, in boardrooms, there can be no consideration of anything other than the needs of that board, company, shareholders, and decision at hand. Directors must concentrate or risk being derelict in their duties.

Directors with no training in governance often assume a board meeting is the same as an executive meeting where they are responsible only for 'their' agenda items. It is common for nominee directors to believe that they need only further the interests of their nominator to discharge their duty. Many directors on industry bodies are experts on their industry but ignorant of corporate governance or board obligations.

Zack's first task, as chairman of a newly formed board, must be to educate his directors in the responsibilities and duties of their role. Once his colleagues learn that they are personally liable for actions of the company even if they are not personally culpable (and even, or especially, if they were out of the room or distracted at the time) they will be more likely to apply appropriate diligence.

Zack should provide the directors with a suitable reference book (Prof. R Baxt's Duties and Responsibilities of Directors and Officers, David Fischel's The Book of the Board, Carter McNamara's Field Guide to Developing, Operating and Restoring your Non-profit Board, or my own All Above Board; great governance for the government sector). He should start the next meeting with an education session. He could also benefit from the use of a case study (such as Bennetts - summarised by Macquarie University at http://www.pers.mq.edu.au/pmh/24/2401B.html ) to focus the discussion and the assistance of an external expert facilitator.

After the session the board should discuss how they wish to operate given their new understanding of their legal duties. Designing their own 'operating protocol' will give the directors a sense of ownership. They should discuss how they will handle the phone and text issue. They may opt for shorter but more frequent meetings or for longer breaks at scheduled times so that messages may be checked and returned. Cyber meetings are also a possibility but only if the directors commit to concentrate. Zack can assist by ensuring meetings are well chaired and there is no superfluous content on the agenda.

If he acts fast, before bad habits are formed, he can build a good board after this poor start.

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

Pankaj's Answer

The problem that Zack has is that he has no formal power and is presiding over equals. He cannot simply make rules and expect that others will fall in line. He must address the root causes of the problem. He would probably find that people are genuinely busy and take their attendance at the meeting as an imposition out of which they get no satisfaction.

In order to get his colleagues involved he has to ensure that they have greater input into the way the meetings are transacted. A starting point may be to ask the other directors to suggest how the meeting should be conducted, followed by their suggestions on how the business could be transacted quicker. It would also help if Zack were to make sure that everyone is invited to speak up and no one is ignored.

There should be an attempt to define what international technology standards harmonisation means and what exactly the role of the Board is. An enquiry of this nature would help cut out useless activities and people would be able to direct their valuable time towards what is really important.

An attempt on Zack's part to administratively control the use of technology is likely to fail and he would only succeed in getting people off side. On the contrary if he is able to improve the meeting process, and everyone can see that he is serious about it, they might on their own reduce self-induced distractions.

Pankaj Rai Mehta is Supply Chain Manager at MM Kembla Products in New South Wales, 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

Book reviews - Finding books that meet the needs of directors and aspiring directors is no easy task. Many glossy publications have little substance. Here is my review of David William's new book Growth Whispering. It is a useful and practical book for improving your own performance and understanding where you may be holding yourself back.

Success tips for board presentations - My new book "Presenting to Boards; practical skills for corporate presentations" launched last month. You can get a copy through Amazon.com or from independent book retailers. I was thrilled to receive the attached review from Ralph Ward, one of the world's leading experts on Boards and Directorship and the author of The Boardroom Insider

Where's Julie? - A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now share my travel plans each month.

DatePlaceActivity
3 May Sydney Australian Institute of Company Directors; Fellow's Dinner
5 May Sydney Australian Institute of Company Directors; Briefing on 'Preparing a Company for Transition'
10 May Hobart (Tasmania) Australian Institute of Company Directors; Company Directors Course
13 May Sydney Australian Institute of Company Directors; Company Directors Course
17 - 22 May Beijing Australian Institute of Company Directors; Company Directors Conference
1 June Terry Hills Kimbriki Eco House Grand Opening
15 June Sydney Australian Institute of Company Directors; Briefing on 'The Audit and Risk Committee'
22 June Internet Seminar for Australian Business Women's Network on 'Would you, Could you, Should you join a board'
23 June Sydney Australian Institute of Company Directors; Company Directors Course

Please call or email me if you would like to schedule a meeting or find out more about attending one of these events.

This newsletter - If you have any ideas for improving the newsletter please email me your thoughts. 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 June).

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

Best regards
Julie

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711