Dear reader,

Welcome to the November 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'.

Consider: If Melanie were your friend, what advice would you offer her?

Melanie is on the board of a long-established and well-respected not-for-profit company. The CEO was appointed several years before Melanie joined.

Melanie has known for some time that the CEO had a daughter who was employed by the company in the accounts department.

Recently she discovered, through a chance encounter at the local library with the company’s administration manager, that the CEO’s son-in-law is also employed there and that her brother is the personnel officer. On asking fellow board members about the CEO’s relationships with staff she discovered that there is also a niece working for the company and another daughter who is CEO of the printing firm which does all the company’s printing and graphic work. No director can remember approving, or even seeing, any contract for the printing or having any discussions about the employment of the CEO’s family members by the organisation.

There are no apparent problems with efficiency, qualifications or remuneration for any of the employees or for the contract with the printing firm.

It does seem to be quite a coincidence that the CEO should have so many family ties with the company and Melanie is not sure what, if anything, the board should do.

How would you advise Melanie to proceed from here?

The risk I see in this scenario is the impact so many family members working closely in one organisation may have on the conversations that take place in the workplace day by day. If staff generally know who all the relatives are, they may not feel inclined to speak as openly about various issues as they otherwise might because they realise what they say may be passed on informally to the CEO. In time, this might mean that important conversations that should be taking place about matters that are important to the organisation's success might not be happening at all, or are happening in a quite limited environment. 

Much as the competence of all of these relatives is important, as is the professionalism with which they were recruited, even if these are all A-OK, I would be concerned at the long-term impact on workplace relationships. If staff do not feel comfortable to raise and discuss the big issues, the slow rot may set in and no one might notice it until big things begin to fail.

Carmel Ross is a management consultant at Carmel Ross Consulting. She is based in Perth, Australia.

Melanie should first check that her information is correct and not hearsay that has been amplified as it is transmitted. She should then consider the location of the company and the size of its host community; there may not be very many families in the area.

If the community is too large to explain why the CEO has this many ties to other staff there may be a culture which supports this. Melanie could start by asking how many employees are related to other employees: Many companies like to recruit friends and family of current staff. They are expected to be keen to do well at work because of possible repercussions in their family lives. If this is a strategic company practice then Melanie can raise the topic with her bard and discuss how they get all the benefits whilst managing the real, perceived or potential conflicts of interest.

If this is not a community or strategy driven occurrence then Melanie needs to tread very carefully. The CEO in a not-for-profit is often powerful compared to relatively recently appointed NEDs. Melanie should quietly seek out the views of her colleagues (especially the chairman) and decide if this is an issue she and they wish to tolerate and, if so, how they regulate it. A policy response is likely to be available but it will need sensitive implementation.

It is not normal for the board to see or approve employment contracts for staff below the CEO and, possibly, a direct report to the CEO. Melanie need not fear that she has been negligent. However, now that she is alert to the facts she does need to be sure that governance safeguards are in place. This protects the CEO and her relatives as well as the company.

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

There is a relatively straight forward conversation to have with the CEO around probity and governance. 

You have left out the significant mordant of the scale of the organisation? [Note from Julie: Guilty as charged - I had to preserve anonymity] How many staff out of how large an organisation are family members? Is it 4 out of 10,000 or 4 out of 5 employees? Are they based in a regional or remote area? 

Postulating the scale of the organisation is 100 plus employees (<=5% family), Three levels of outcome arise from an audit on these points:

1. If the processes and policies of engagement establish a clear and appropriate, correctly documented, approach to the selection and engagement of the family member employees and the appointment of a printing firm then all is well. However a quiet chat on being upfront with the board is in order.

2. Limited documentation due to policy and processes not being well established is a board issue and poorly substantiated selection processes are a management issue. A governance audit should either clear this up without ruffling feathers or move Melanie to response 3.

3. No documentation and questionable process suggest she should be looking for a new CEO and some staff.

Bob Clark is Executive Director of HR Strategy at 7 Point, a strategy and consulting firm. He is based in Canberra, Australia.

Inspirational quote for October - I subscribed to a service that delivers an inspirational quote every day. It stimulated me to think differently than I otherwise might. Now the service is over but I still seek out inspiring words. This month my favourite quote was:

“Anyone can hold the helm when the sea is calm.”

~Publilius Syrus~

For the most part, being a director is a placid occupation. When we do encounter an issue that requires action it is easy to convince ourselves that it is not worth the trouble that could be caused by investigating and governing with integrity. However, that is what directors are elected to do and it is occasionally necessary to create our own storms and practice our helmsman skill lest what we take for calm should turn out to be merely the eye of a storm!

Supporting Diversity - On 18 November I shall be speaking for the affirmative in a debate on ‘Promotion on Merit Gives Everyone a Fair go’. It is in aid of the Diversity Council of Australia. To book, or for more details, go to lnkd.in/bppQVfT
I hope you will come along and support the ideal of a merit based system (that recognises merit in diverse populations).

To book me as a speaker for your conference or board retreat simply reply to this email.

Presenting to Boards - I will start 2015 with a tour of Australia for my 'Presenting to Boards' training program. For details of a course near you please see
https://www.konnectlearning.com.au/system/wp-content/uploads/2014/10/Presenting-to-Boards-Masterclass-0215.pdf

This course is helpful for senior executives and consultants who want to be seen as trusted professionals in the boardroom.

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 December 2014). I look forward to greeting you again then.

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

Best regards,
Julie