Dear reader,

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

This month our case study investigates the contentious boundary between private and corporate life when a CEO makes personal choices which conflict with corporate culture. 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'.

Ximena chairs a government utility business that operates large primary industrial processes and is also involved in construction of new assets. Safety is a key issue and the board have zero appetite for any physical harm to staff, contractors or innocent bystanders. As board Chair Ximena also chairs the remuneration committee and has recently incorporated some nominations work into the charter and activities to better support the government with their desire to involve boards in director succession planning.

The HR Director recently asked Ximena for a meeting at which she told Ximena that staff were concerned by the CEO’s activities outside of work. Specifically the CEO is involved in White Collar Boxing and the HR director feels this is not appropriate given the culture of the workplace and the visible support the organisation, and many other government companies, has given to anti-domestic violence campaigns. The HR Director also checked the terms of the company’s key man insurance policy and discovered that this would be voided for injuries or death resulting from action sports activities that include boxing. The HR Director has asked that Ximena talk to the CEO about ceasing his involvement with the sport.

Ximena is concerned but cautious. She knows that the CEO, who was brought in from commercial industry, and the HR Director, a long serving public sector employee, have often differed in their opinions and that, whilst both are professional, there is scant respect and less regard between them. But she has to admit that a boxing CEO might not sit well with the ‘A Fight is Never Right’ campaign the company has just sponsored.

Is this the CEO’s private business or an issue for the company and its board: What should Ximena do?

Broadly, Ximena has four options:

1. To ignore the HR Director’s appeal, by pushing back. However, this may see the issue ‘leaked’ to the public domain, especially given the HRD’s lack of respect towards to the CEO. If this were to occur, the board may be faced with a bigger problem - a damage control action. This option also provides tacit endorsement of the CEO’s actions.

2. A private conversation will enable Ximena to hear the CEO’s perspective, ask questions and make suggestions. The CEO may not see the matter as a problem! Contingent on the quality of the working relationship, the chairman should be able explore options, present the wider perspective and reach an agreement over how best to proceed.

3. To ask the CEO to meet with a board committee does two things. It signals to the CEO that the board is treating the matter seriously, in pursuit of a workable solution. However, it also sets a precedent whereby staff can approach the board directly. Staff need to take their concerns to the CEO first.

4. To launch a full (presumably formal) investigation. This is probably an over-reaction.

The most tenable option is probably the private conversation. While legal private activities are not and should not be the concern of the company, activities that may be considered to be incompatible with the company’s purposes, values or culture, or may call the company’s reputation into question or bring it into disrepute need to be curbed - particularly as the CEO is a highly visible role. Through their actions, they set the cultural tone of the organisation.

Notwithstanding which option is eventually selected, the tension between the CEO and the HRD is a problem that needs to be resolved. The scant respect and regard is a harbinger of low trust, empathy and teamwork; thus rendering the working relationship difficult, at best. Whether the two parties are able to work together productively in the future is probably moot, especially as the HRD went around the CEO to the chairman directly. The HR Director probably needs to consider her tenure with the business.

Peter Crow is a chartered company director, an independent board advisor, researcher and keynote speaker. He is based in Wellington, New Zealand.

Ximena’s big problem is a misfit between the HR Director and the CEO. That could undermine the effectiveness of the CEO and, hence, the success of the company. It is all very well to bring in a ‘skills based’ CEO from industry but such hires should be supported in understanding the special sensitivities of the public sector. The public sector is very different to the commercial sector in myriad ways.

The first action must be a chat with the CEO about the need to build respect and regard with all the senior executive team - even, or especially, the ones whom the CEO would not have chosen. Allowing ill-feeling to build in the hope that staff will leave is not a good option.

The HR Director is right about the exclusion of action sports from the key person insurance but insurance is no way to manage the risk of CEO loss. Money doesn’t replace people. The HR Director is using this to get the chairman’s attention. Now Ximena must act.

First she needs a long calm conversation with the CEO. How does he or she feel they are settling in? What cultural issues have arisen? How does he or she feel they are getting on? Without addressing the sporting furphy Ximena must uncover the fissures within the senior management team and develop a strategy to fix them or restructure the team.

Next Ximena must talk with her board colleagues and with selected members of the executive team. Carefully seeking to understand how they feel 'things' are going: Without at any stage undermining the CEO.

Ximena needs to understand how the CEO is managing the government sector transition. Then she can give well-founded feedback and offer whatever support is required.

She must then talk again with the HR Director and attempt to get her to support the CEO as he or she acclimatises.

Absent a public brawl the CEO’s hobby is the CEO’s private concern. The CEO is statistically more likely to die from a bee sting than a boxing accident and it is not Ximena’s job to cocoon him or her. This was likely an excuse the HR Director could find for getting the real issues out into the open where they could be addressed.

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

What is white collar boxing? Ximena needs to do some research and find out if this is a trendy fitness activity, a competitive sport or a dangerous fight club. Then she needs to know how involved her CEO is. There is a different risk profile to being on the board of the sporting body, a fan of the sport, or a participant in the sport.

Once she knows what the issue is she can deal with it. She should consider how the workforce are likely to view the CEO’s involvement. Does it contradict any of the company values? Will it be viewed positively or negatively by other staff?

She should also consider the policy of the government of the day toward the sport or activity.

Once Ximena has the background information she can talk with the CEO to air any concerns and ensure that safety is a priority. Risks need to be managed. Knowing what the risks are will help to determine the way to manage them.

David McLellan is a professional company director and adviser to tech start-ups. He is based in Sydney, Australia.

Book review - Dilemmas, Dilemmas. A book that is at once highly readable and highly thought-provoking. The purpose of the book is to educate and entertain. It does both, and to a high degree. Reviewed by Stephen Gageler, Solicitor General of Australia. If you wish to purchase multiple copies please email Julie and she will arrange a bulk discount for you. Available at Amazon.com

Inspirational quote for October - This month, as the Australian reporting season is generating peak workload, my favourite quote is:

“With great power comes great responsibility”

~ Spiderman’s Uncle Ben (to Spiderman) ~

I try to never forget that as a director I am responsible. It is an honour to be given the role; one that we earn with our diligence every time we represent the company, attend a meeting, contribute to a decision or read a board paper.

September has flown by. It was a great pleasure to meet some lovely governance professionals from the government sector when I visited Brisbane. It was also a delight to see so many of the Australian Institute of Company Directors graduands at the September graduation ceremony in Sydney. There is nothing as inspirational as looking at the next generation of directors and knowing that they will lead governance practice in totally new directions to the benefit of our society, economy and environment. I also wrote a new LinkedIn post about the high costs of board support when it is not strategically aligned and well managed. You can read it at "Can You Afford Your Board?" Email me if you would like a copy of the statistical research quoted in the article. I hope you are happily busy and look forward to hearing from you should you have a need for my services in board performance review, recruitment or education.

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. Ximena is an old name and has several meanings. One is ‘heard’ and suggests that the woman who bears the name will be wise, hearing counsel from others and being respected when she counsels in return. Another meaning is ‘uncertain’ suggesting that the bearer may do or be many things. Finally the name is linked to a ‘walking goddess’ suggesting wisdom, grace and mobility. The Ximena in our case study will need all these attributes and a few more!

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 November 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.