Dear reader,

Welcome to the May 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 the complex structures of boards in some not-for-profit organisations. As always, it is a true story which has been made anonymous so that we can all benefit from the learning experience. I am, as always, 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?

Genna is a member of a professional association and works at a senior executive level in a large consulting firm. She has recently decided that she would like to become a non-executive director and has taken some courses of study to qualify her for those roles. A mentor suggested that she put her name forward for service as an elected member of the board of her professional association to gain experience. Her firm has strict rules prohibiting commercial directorships but encourages staff to take on community or professional roles.

On doing some due diligence Genna discovered that the association had changed its governance arrangements recently and now has State Committees elected by the members in each state reporting to a national CEO. Committee Members are elected for a two year term with the option of renewal for a further two years subject to the consent of the CEO. The CEO reports to an elected National Board with members elected by all of members nationally with elections every two years.

Genna is puzzled. She doesn’t like the idea of an elected body reporting to an executive. Further, there are no links between the State Committees and the National board with members of either one obliged to resign if they wish to nominate for the other. She doesn’t know if she should aim for a national role where the governance arrangements are clear or if she should start, as she had intended, at the State level.

What should Genna do?

It seems that the governance arrangements are that the members have agreed that there will be a series of advisory committees to the CEO; members are kept in the loop by electing those advisory committee members. The professional association itself is run by the National Board, to which the CEO reports.

If Gemma wishes to gain experience as a NED, clearly she should aim to be elected to the national board of the organisation. The state committees are just that - committees that advise the CEO (presumably on matters of local relevance).

The only benefits to Gemma of being involved in a state advisory committee are gaining detailed understanding of the association's business and issues facing it at the state level, and raising her profile within the State membership, which could improve her chances of being elected to the national board.

Megan Dyson is an Environmental Lawyer, policy consultant and board member specialising in mainly government sector and NFP boards. She is based in Adelaide, Australia.

Genna needs to ask herself ‘Is she keen to help her local fellow professionals or just to get some board experience?’ That answer may help her more than any governance theorising!

To include the governance arrangements in her decision-making she must read the constitutions of the State Committees and the National Board to understand how they fit together.

Many ‘federal’ structures use local committees that report either to a state manager or a national CEO. These can add value to the organisation by allowing members to provide input and guidance; especially concerning the type, timing and cost of service delivery.

Sometimes these committees are linked to the national governing committee and one member (usually the state president or chairman) has a seat on the national board. The ‘nested’ governance structure helps coordination but create conflicts of interest (often arguments when apportioning budget across the states) and some federal type organisations prevent membership at any one time of both state and national committees by an individual.

A difficulty may arise for Genna if the governance rejig has not resulted in a national organisation with supporting committees but in a ‘half-way’ situation where the by-laws constrain the power of local bodies by subjecting it to the control of the national board via the CEO. Joining a state committee with governance responsibilities and being prevented from acting freely to discharge these could be dangerous. Much depends on the quality and ethics of the people concerned. Genna should meet as many as she can before deciding anything.

At the national level governance is clearer as the national board appoints and manages the CEO and can discharge its governance duties without fetter.

Genna is right to consider first serving on a committee as a good way to help the organisation without overstretching her relatively small governance knowledge. She may also find, if she asks, that the members vote for national board members who have previously served on state committees.

There is nothing absolutely ‘wrong’ with the situation but Genna needs a lot more information before she makes any decisions.

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

The situation described would make me hasten slowly on seeking a role. An arrangement where a state member committee reports to and has members who may be vetoed by a national salaried executive suggests that the state body is seen as having an operational rather than a governance role.

As part of due diligence I would counsel Genna to identify why the constitutional arrangements have evolved in the way that has been described. It may have been politics in the previous governance bodies that caused this or it may have been a clear agreement that the State Committees are only operational bodies.

If the arrangements have been set up to make the State Committees operational bodies then Genna's ambition to be an NED would only be satisfied by seeking a national role.

Dario Tomat is Managing Director at Whetstone Pty Ltd. He is based in Tasmania, Australia.

International Presenting to boards masterclass - I was recently in Tokyo to facilitate my one day ‘Presenting to Boards’ masterclass for a Japanese corporate client. Boards and executives all around the world suffer the same problems when presenting to boards; cultural differences don’t make it any easier for executives to report effectively to directors – training does help to improve matters. The course went very well and I’m looking forward to returning to Asia to run more of these courses. If you would like to schedule a session for your company please email me: julie@mclellan.com.au

Julie presenting in Tokyo, Japan, April 2014.

Inspirational quote - I subscribe 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. This month my favourite quote was:

“A little knowledge that acts is worth infinitely more than much knowledge that is idle.”
~John Quincy Adams~

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

How to write good board papers - In May, my very good friend Mary Morel is conducting two half-day 'Write to Govern' workshops on how to write board papers.

• Sydney, 14 May
• Melbourne, 22 May

For more information visit the Governance Institute website.

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.

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 June 2014).
Enjoy governing your corporations; we are privileged to do what we do!

Best regards,
Julie