Dear reader,

Welcome to the April 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’. 

This month our dilemma is about what a director should do with information received from staff but not through the CEO in the context of a board meeting. Our respondents disagree on the process; it is a matter for individual judgement. As always, it is a true story which has been made anonymous so that we can all benefit from the learning experience. I am truly grateful to the reader who sent it in to me. 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?

Fadi has been a board member of a statutory corporation for nine months. He has found the work rewarding; his co-directors are collegiate and knowledgeable, the executive team are hardworking and professional, and the company provides an essential service with a potent beneficial effect on society whilst generating a reasonable return on assets. The Minister is progressive and supportive; the company is making good progress on all fronts.
He has been appointed to a committee which at times brings him to the office to work with a few of the managers. During his last visit he was surprised when a young team member referred to one of the executives as “Dad”. On asking about this he discovered that the young person was still at school and was doing a period of work experience with the company. It became apparent that senior executives created opportunities for their children to undertake work experience at the company and considered this to be an entitlement. 
Fadi asked some more junior staff how they felt about this practice and discovered that it was deeply resented. It was not available on merit or openly. Senior executives’ offspring simply appeared and gained experience in interesting positions that were created solely for them.
Fadi raised the issue with the CEO at his earliest opportunity and discovered that the CEO was aware of the practice and excused it partly as a way to foster strong community ties and partly because the executives were paid less than their counterparts in private industry so “needed perks to keep them loyal”.
Fadi is worried that this is an unethical practice and also that it could cause the loss of middle management staff that were aware of, but did not benefit from, the arrangement. What should he do about it?

This one's easy. Work Experience is a CRITICAL part of a child's development, particularly in understanding work ethic as demonstrated by their parents and other responsible adults. All businesses should have the ability and the motivation to allow all staff to introduce their children (and other children) to work experience - through local schools or even better, that motivated kid that makes a direct approach. If you are big enough to have an HR department, that's where it's run from. If you're not, it's still possible to have a written policy that emphasises transparency, flexibility and keeps the business in control. These kids can provide a surprising degree of new thinking and energy to a workplace if it's well managed.

A note on "staff resentment" - plenty of "more junior staff", when quizzed on an issue by a BOARD member, will see the approach as an opportunity to play games. That's not to say that the above comments about developing a system with transparency and protocols above aren't correct, but reported "staff resentment" on a non-random sample should be seen as what it is - only a vague guide coloured by internal politics. Make decisions on the issue, not on a one-board-member 'survey'. Plenty of CEO's have been inappropriately skewered that way.

It's a CEO policy approved by the Board, with any complaints being taken up at Board level. The Board should also set strategic direction in relation to Community Service Obligations (which is what work experience IS). So Fadi, set the strategic direction, ask to see the policy & governance, make sure your insurance covers these kids, and get on with it....

Joanne Sillince is Managing Director of Pets Australia and Director of Accent Business. She is based in Sydney, Australia.

A good board director must fit in and yet stand out. Fadi needs to decide which he will do in this case and must trust his own judgement based upon his assessment of the value that the practice delivers to the organisation balanced against the potential for harm. Boardroom life is full of dilemmas and this is one with no clear ‘legally right’ answer but several that might suit the circumstances which only Fadi and his colleagues know in detail.

First Fadi must make sure that he has all the necessary information which includes the relevant internal organisation HR Policies, the current government policy on work experience, the company’s stand on child labour and any reporting of this such as the GRI, the number of placements offered each year and the relationships (if any) between the recipients of work experience places and staff of the organisation, how many years this program has been running and where the children from previous years went following their experience, what relationships exist between members of staff and members of the current government, any former reports that the board may have received on the program and what the stated aims (if there are any formal ones) of the program are. Knowledge is needed before decisions.

Once Fadi has the information he will be better able to decide on how to proceed. He may decide that the program is beneficial but needs more formality so that it passes muster if investigated and so that the best applicants may receive placements rather than those with the closest family ties. He may decide that the program is more risky than merited by the potential benefits and should be ceased. In either case he should raise the issue with his board colleagues and get their input in the form of a properly minuted board decision. If the Chairman and/or CEO feel that this should be discussed with the shareholder before enacting any decision they can minute that and proceed accordingly.

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

In my opinion, this is a storm in a tea cup.

Fadi should mention his concerns to the Chairman and the Chairman should let the CEO know that the CEO needs to formalize the arrangement or stop it. The rest is up to the CEO.

If the CEO ignores the Chairman's request, then it is up to the Chairman to determine the next step and deal with the CEO in an appropriate manner.

Better for Fadi to be thinking of business strategy than getting all knotted up with the lower levels of management and worrying about their wants and needs.

I sincerely believe there needs to be a clear line that Directors do not cross, otherwise each Director starts to question the CEO on how he/she runs the Company, and that is just not healthy.

Robert Chautard Jensen is CEO of Tiger Systems an IT Services Integrator and Managed Service Provider based in Cairns, Australia.

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.

Book review - Amplifiers by Matt Church This book is about leadership which is a key role of the board. The ability to lead by inspiring and influencing is key to success in the egalitarian world of the boardroom. This book explains how that is achieved. As with all Matt’s work, it is well researched, comes with plenty of references for additional reading on the topic and is packed with insights that extend current knowledge. Unfortunately it is written for the individual rather than for the group and, as such, requires a little translation to become relevant to a board. It is, however, well worth that effort and immensely valuable as it stands. 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:

“To reach a port we must sail, sometimes with the wind and sometimes against it.  But we must not drift or lie at anchor.”

~Oliver Wendell Holmes

Directors and boards cannot afford to stand still; that is the way to stagnation and decay. Even if doing nothing appears to be an option, it is usually a poor one.

If you would like to subscribe the quotes service is run by Darren La Croix at: https://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 May 2014).
Enjoy governing your corporations; we are privileged to do what we do!

Best regards,
Julie