Dear reader,

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

This month I have a very special offer for readers; during December 2015 if you buy a copy of my latest book ‘Not-for-Profit Board Dilemmas’ and email me proof of purchase I will send you a free copy of my guide to start-up board terminology.

Our case study for December concerns a board in the not-for-profit sector whose administration has become a burden rather than a service. I hope you will enjoy the dilemma and the three suggested responses.

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

Zeva is the Chairman of a not-for-profit company that operates in the highly regulated human services sector. The CEO and her small professional team are dedicated to the cause and lead by example, motivating a small army of volunteers to achieve high standards and a huge service output.

On the whole Zeva values and respects her fellow board members, however there are three directors who are sticklers for process and detailed governance procedures. While acknowledging the importance of good governance, their intense focus on process comes across as being obstructive, pedantic and controlling. As a national NFP, Zeva’s company has limited resources and capacity (and no shareholders as such). Their main priority is strategic success - with governance serving the company, not them being a servant to governance.

The CEO and her team (just 3 of them) are a passionate lot when it comes to the cause and find this focus on governance a tad demoralising at times. Zeva is concerned that the CEO will resign if the administrative burden is not eased. Other organisations in the same sector operate efficiently and well without the cumbersome compliance and reporting regime that her board has accumulated over the years.

How can Zeva proceed to relieve the burden on staff without hurting the feelings of her board members, who are equally committed to the cause?

I really dislike trendy corporate speak but we seem to have a board ready for "disruption".

The 'cumbersome compliance and reporting regime' seems core to sustaining the elements of the board who are inadvertently demoralising the organisation.

The situation, while frustrating a motivated and efficient executive team, may present a great opportunity with several benefits.

A positive way forward:

Instigated by the Zeva, the CEO completes an internal review to implement an innovative cloud ERP and governance system. The review should include understanding what ERP systems are currently being used by other organisations successfully.

Vendors of ERP systems are usually comfortable to undertake comprehensive business process analysis at a subsidised cost and provide a proposal including hardware, software and implementation management. Also of value, ERP systems often include innovative concepts in processes and reporting including real time planning, forecasting and financial dashboards accessible by the board supported by board papers.

These aspects, incorporated in a cost-benefit analysis, are presented to the board highlighting the productivity and net financial gains and the modernisation and sustainability dividend to the organisation.

Finally an internal implementation plan is formulated. All "legacy" compliance and reporting requirements are assessed strictly under the same cost-benefit principals above.

While a major ERP system may be beyond the budget, the business and process analysis can provide an important template for change.

The ultimate "disruption" may lie with certain board members but the benefits should be patently obvious to the board as a whole.

Doug Jardine provides consulting services to business units and boards focussing on getting teams working together constructively. He is based in Sydney, Australia.

Governance should safeguard strategic success, not strangle it.

Zeva is running a national not-for-profit with only three executive staff, she needs a board that lessens her burden and adds strategic value. However, Zeva is right to consider the feelings of her directors; in a volunteer boardroom positive goodwill is a necessity.

First, glance around the boardroom when the three pedants start up; what is the reaction of the other directors? If they appear impatient and keen to get back to the chase then Zeva should build support for moving these three into a positon where they can add value to the compliance regime without sidetracking board and management.

Hopefully Zeva can establish a structure with a committee where these directors can play to their strengths whilst leaving the rest in peace. She should write the terms of reference so the committee does some work that takes the load off management (not a traditional "good governance" scope for a board committee but highly useful in this case).

Second, get the board focused on major strategic initiatives where they can add support (not just receive - and critique - reports on progress). To do this Zeva should check her board meeting agenda against the Tricker model* and make sure the board is engaged on forward-looking issues that require a contribution. She must get the engagement early enough in the agenda that it sets the tone for the rest of the meeting. A consent agenda* might help get to the strategy without getting bogged down in compliance.

Finally, she should consider an external board performance review with a process that will lead the board to consider their role and set some norms for focusing on the right stuff.

A professionally facilitated workshop on strategy or risk might also help.

(*Email me if you want to know how to make a consent agenda or some pointers about the Tricker model.)

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

Unfortunately, you cannot bake a cake without cracking some eggs.  While not Zeva’s preferred option, she may need to "break a few eggs" by speaking very frankly with each of the three "sticklers for process", and by telling them that their zealousness for governance process could seriously damage the morale of the management team and lead to loss of a very good CEO.  Both outcomes would be disastrous for the organisation to which all board members are equally committed.

Zeva would know that not all the things that might go wrong actually do go wrong in practice, and even if they do go wrong, they are not all as damaging as some might expect.  This understanding puts you well on the way to understanding the fundamentals of risk assessment and risk management.   Zeva was appointed because she has leadership skills, and she needs to use them to communicate with her three board members.

I suggest that she meets separately with each director and explains that overemphasis on process is having a serious adverse effect.  She clearly recognises the importance of proper governance but she should emphasise that if processes become too rule bound, the very objectives for which they are all striving will be threatened.

She should propose that, in the spirit of cooperation for the total good of the organisation,  before the board demands any further process changes, an informal risk assessment be done of the reason for the change (unless a legal requirement is conflicted).  The risk should be rated on a simple scale of 1 to 5 for “Likelihood of Occurrence” and on a similar scale for “Consequence”.  Only risks that rank towards an aggregate of 7 or more should warrant consideration of a process change. 

This simple step should weed out "changes for changes sake".  The results will demonstrate to directors, executives and employees that only risks that have both high likelihood and high consequence need be met with a new process.  It also stands as a record of good due diligence for others outside the organisation.

This places a lot of responsibility on the shoulders of Zeva to carry this argument, but after all, that is one of the reasons she is there.  Good communication with both the Board and executives is essential. Hopefully a mature response will be elicited and not too many eggs will be broken. 

Ern Kulmar is a professional director serving on both public listed and private boards as well as advisory boards for emerging companies.  He is based in Sydney, Australia.

Book review - Not for Profit Board Dilemmas; practical case studies for directors in the non profit sector. Not for profit boards are difficult. Yet they are where many directors start their board careers and where other directors spend the entirety of theirs. The case studies in this book cover issues that frequently vex non-profit boards: conflicts of interest, political ambitions, overlapping and poorly understood roles and responsibilities, the need to do more with less, mergers and acquisitions, liquidation, social media disclosures, fundraising and many more. Each case study is based on real life events. Each is followed by a list of key points to consider and each is answered with three potential courses of action suggested by governance practitioners with a wealth of expertise and experience to share. Written in an engaging style, these short stories will entertain and educate, building better boards, stronger businesses and more confident directors. If you wish to purchase multiple copies please email Julie and she will arrange a bulk discount for you. Purchase during the month of December and receive a free copy of Julie’s best practise board templates and administration guide. Available at Amazon.com

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

“All courses of action are risky, so prudence is not in avoiding danger (it's impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer.”

~ Niccolò Machiavelli ~

November was a busy month. I published another popular LinkedIn post: The Creative Director Oxymoron. My latest book finally got published - just in time for Christmas and one of the best presents I can imagine. Please buy a copy. I had the privilege of presenting at the 11th Taiwan Corporate Governance Conference in Taipei, one of the loveliest cities in Asia and one that I look forward to visiting again to run some director education courses in 2016. The AGM season has kept directors busy and I was honoured to be re-elected unanimously to the board of Bounty Mining. I hope you are happily busy and look forward to hearing from you should you have a need for my services in board facilitation, 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. Zeva is an old Hebrew name that means "wolf". Our protagonist will need wolfish cunning to manage the dynamics of her board without upsetting generously intentioned directors.

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 February 2016). I look forward to greeting you again then. In the interim I hope you will enjoy the next two months, be renewed and inspired by the new-year and blessed with happiness and the opportunity to spend the festive season with friends and family. May we all return to 2016 reinvigorated and ready to serve our boards faithfully and well.

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.