Dear reader,

Welcome to the September 2015 edition of The Director’s Dilemma.

This month our protagonist encounters a situation where a diligent CEO has overstepped the mark but only because the board is not fulfilling its duty. I hope you enjoy the dilemma and its suggested responses.

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

Wayne is a new member on the board of a national sporting peak body. He has a background that includes high level competition in the sport and also an awareness of governance from being in business. This is his first NED role.

His induction and recruitment were largely handled by the CEO and his only meeting with the Chairman pre-appointment was perfunctory. It appeared that the chairman assumed Wayne was skilled and interested in the role and that he understood how to behave as a director. The conversation focused mostly on the sport and competitions plus Wayne’s background and acquaintances.

The board meetings are well run and the board is supported by a very professional secretariat; Wayne is concerned, however, that the attention given to financial and compliance reports is scant, the discussions of strategy and positioning the sport for better access to grants and corporate funding are light-weight and the directors really want to associate with the players and talk about teams, selections and results.

Wayne has started to put forward some challenging questions about the long term viability of the sport and the threat of a government move to favour sports with mass participation at a personal level rather than elite achievement at an international amateur level.

Now the CEO has proposed another board recruit and Wayne has realised that board succession planning in this organisation is run by the CEO. He is happy that the CEO is acting in the best interests of the organisation and approves of the individual proposed but is aghast at the poor governance and, even more so, at the board’s apparent unconcern.

Without biting the hand that fed him, how can Wayne establish better governance over the board succession process?

Improving governance of the board succession process is important however it might not be the area where Wayne can make the most positive impact for the organization at this time.

If Wayne has reasonably developed his views on the capabilities the Board requires and the current gaps; has assessed whether the proposed candidate suitably improves the collective capability of the Board;  and is "happy" with the candidate; then it seems Wayne could add more value to the organisation by addressing the inadequate attention given to strategy, financial reports and compliance.

However it may be opportune to prompt the Board to consider improving the process when next appointing a Director - in a helpful, not confrontational manner.  Queries could include:

• What capabilities does the Board need to effectively lead this organization?
• What are our collective strengths and weaknesses compared to the ideal capability profile?
• How are we ensuring that we uncover the best range of candidates for this role?
• Is the candidate the best available candidate to complement our current capability so that we are more capable as a Board?
• Are there remaining areas of weakness in the Board’s capability set that we need to address in other ways?  (Assuming the Board does not regularly review its own performance, it might struggle to identify areas of weakness.  This might provide Wayne an opportunity to recommend the Board spends some time discussing its goals and performance.)
• Are there any things we'd like to improve next time we're recruiting e.g. engaging an external search firm.  Reassuring the CEO of his role in leading the interaction with the search firm on behalf of the Board should help this suggestion be perceived positively.

Jill Connell is Managing Director of Insight Alliance Ltd, a Member of the Committee of Management (NED by another title) at The International Etchells Class Association of Australia and a Former Rear Commodore at the Royal Prince Alfred Yacht Club. She is based in Sydney, Australia.

Wayne now understands how limited due diligence can get a well-meaning NED into a difficult situation. He is lucky; this situation should be salvageable. 

The CEO is obviously starting to target better board members. Wayne can help by stepping into a leadership role at board level.

A candid discussion with the Chairman is a good place to start.  Wayne should prepare by reflecting carefully on the way the board and chairman have responded to his challenging ideas:

• If the respective responses were interest and tolerance - offer to help develop an annual board agenda so that strategy is addressed and other duties such as risk oversight, financial reporting and stakeholder engagement (including the desired interface with the practitioners and competitions). Use this to introduce succession planning, board skills development and other good practices.
• If the responses were denial and dismissal - take a more bureaucratic approach, starting with the relevant national sporting oversight body's recommended practices and highlighting how compliance will become necessary over time. Use this opportunity to take on the burden so the chairman is relieved of it.

Once the chairman is aware that Wayne is going to start making a bigger contribution it is time to have a long talk with the CEO and find out how Wayne can best help. Getting some of the things the CEO wants board input on early in the schedule of activities will be a good start.

Wayne must make sure he does not overtax the board by making small requests at first and building capacity over time. He should also try to make it fun; these are passionate volunteers not paid bureaucrats. Some quick ideas include:

• A Rolodex or LinkedIn party where directors suggest useful contacts who may assist the organisation either as volunteers, directors, sponsors, sources of knowledge or connections to other communities.
• A legacy discussion where directors discuss the impact they would like to have had on the sport before they leave the board.
• A strategy session facilitated by an entertaining professional facilitator.

If Wayne nurtures his relationship with the CEO and Chairman he can play a major role in building a great future for this organisation and the sport.

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

Due to the Chairman's lack of leadership skills and thus strategic directional authority the board have also shown weakness in accepting that the CEO has stepped into the vacuum and assumed responsibility for actions that in reality should be board responsibilities.

Wayne can fix the situation by asking for a "Board Governance review" to be undertaken by an independent professional governance expert. This professional will not only review past and current practise, exposing the board's and individual directors' behavioural weaknesses but also establish best practise governance principles which the board should adopt.

Over the years I've undertaken numerous governance audits in similar circumstances and once the new governance principles are established the board’s behaviour and focus improves 100%. In a few cases the Chairman has resigned as once the facts are exposed they realised they are not "fit for purpose".

Drew Stein is a Professional Chairman and Director, and is General Partner of Endeavour Capital Limited. He is based in Wellington, New Zealand.

Book review - Presenting to Boards. This book is refreshingly practical in its approach. It is an essential handbook and reference tool for anyone presenting to a Board. Julie Garland McLellan has drawn upon vast practical experience of others, in addition to her own experiences and significant corporate governance knowledge. This book is not only a very valuable tool for those presenting to boards, but also for board members as well because it clarifies what a board should expect from those presenting to it. Julie Garland McLellan is to be congratulated for succinctly capturing the true essence of what makes a successful board presentation. Reviewed by John O’Grady

Available at Amazon.com

Best Practice Corporate Governance and Board Performance - In September I shall be presenting a course focused on building resilient governance. This will be a value packed and practical course based on current case studies and providing cutting edge frameworks, tools and templates for immediate impact

Full details are at
https://www.konnectlearning.com.au/course/best-practice-corporate-governance-board-performance-training-course

Early booking is advised as places are filling fast.

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

“Perhaps those who are best suited to power are those who have never sought it. Those who, like you, have leadership thrust upon them, and take up the mantle because they must”

~ Professor Dumbledore (to Harry Potter) ~

This quote was obviously penned by J K Rowling but could equally well apply to all directors who have found themselves in a position where an apparent need called for taking authoritative action, even in the absence of formal authority.

Well - August was a busy month with much reflection on the financial year just past (for all of us in Australia with a June year-end) and great concerns for the future as the world’s stock markets, climate and natural forces all gave directors plenty of food for thought. The outlook for September is similarly busy with plenty of governance education (both in-house and public courses are on the schedule) and some risk/strategy workshop facilitations. I shall also be performing a board review for one of my favourite government sector clients. I hope you are similarly busy and look forward to hearing from you should you have a need for my services.

A note on names - A few readers have asked me where I find the names for the protagonists in each case study. I can only say that I 'steal' them from people I meet or things that I read. Wayne is an old English name that has equivalents in Scandinavian and European languages. It comes from the 'wa'yn wright' (or Wagon builder) and is associated with craftsmanship. I thought it appropriate for this month’s case as 'Wayne' will need the skills of a governance craftsman as well as the tact and forcefulness of a professional operating in a small community driving change and providing the means for progress to happen.

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 September 2015). I look forward to greeting you again then.

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

Best regards,
Julie

 

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.