Dear reader,

Welcome to the September 2016 edition of The Director’s Dilemma.

Our case study this month looks into the challenges that face executives transitioning to a non-executive role within their company. While it is acceptable for directors to be slightly more 'hands on' in smaller businesses there is still a line that cannot be crossed without undermining the role of management.

I hope you will enjoy this 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'.

Hannah chairs her family business. She has worked in the business for most of her adult life and has always found it to be an engaging pursuit that fulfilled her on every level. She recently stepped down from the MD role to allow her daughter to take the helm whilst she was still around to help with any issues that might arise.

Hannah prepared for the transition. She did a course of director education and understands her duties as a non-executive. She loves her daughter, trusts her judgement as CEO and genuinely wants to see her succeed. Nothing is going wrong but Hannah can't help interfering. She is bored and longs for the days when she could visit customers or sit and strategise with her management team. 

Once a week she has a formal meeting with the CEO in her office. In between times she is in frequent contact. Although by mutual agreement these contacts should be purely social or family oriented Hannah finds herself talking business and is hurt when her daughter suggests they leave it for the weekly meeting or put it onto the board agenda.

Over the past few months Hannah has improved governance, record-keeping, training and succession planning systems but she is running out of projects she can do without undermining her daughter. She also recognises that, as a medium sized unlisted business, the company does not need any more governance structures.

How can Hannah find fulfilment in her new role?

When you've been part of a business for a long time, it's often difficult to let go. Hannah needs to reflect on her own personal goals and not fixate on her daughter and the business she's left behind. She has to look forward.

If things are going well and she's addressed the key governance and operational issues it might be time to change the narrative and consider three things:

1. What does her daughter need most from a non-exec support point of view? A session to set out some new short to medium term objectives together would clarify precisely where Hannah can add most value and avoid both parties becoming increasingly frustrated. It's also vital they re-establish clear lines of demarcation between business and personal lives to maintain a harmonious relationship.

2. Could Hannah seek fulfilment in a non-exec role in another business? Good non-execs are hard to come by and the track record of success she's had in her own business is a highly marketable commodity. She could be mentoring other CEO's in two or three other SME's and gaining a great deal more personal fulfilment at the same time.

3. SME's are often highly people-dependant. Board members and staff could gain a huge amount of value from engagement with Hannah on a one-to-one basis. As part of the 'new engagement rules' Hannah should spend more time with individuals listening to their concerns and challenges to feed into the board room discussions.

Paul Scott is Managing Director of 3wks. He is based in Sydney, Australia.

Well done Hannah! Congratulations are due for recognising the need to learn the new role. Even more congratulations for realising that nothing is as poisonous to good governance as an energetic non-executive with no other professional focus than one company.

The company is going well, the CEO has demonstrated good judgement and the board is now well administered. It is time for Hannah to take a holiday; one that will be long enough to have her out of reach for the entire time between signing off the minutes of a board meeting, missing the next meeting and receiving the papers for the meeting after that. When she has seen that the board is capable of supporting the CEO through an entire board meeting cycle she can truly relax.

While Hannah is organising the holiday she should also plan her next phase of working life. She is too energetic and committed to business for retirement.  There are a range of options including a new full-time role, interim executive placements, consulting, professional speaking, training, and/or non-executive roles. A professional coach could help her clarify her preferences. Hannah should consider the sector she will join as, apart from not competing with her family business, she should look for a fresh start.

Once Hannah has a new work goal she will be able to plan her career development to attain it, whether through formal applications, networking or work experience/internship. She may also decide to learn some new skills to further her attractiveness in her new career.

Having gained a new purpose, and some necessary distance from the company, Hannah will find her chair role more fulfilling and her ability to effectively support and mentor her daughter vastly increased.

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

The governance structure is clearly in distress. For the untrained eye, Hannah might have been improving governance since her shift from CEO to Chair, however the processes, structures and systems do not make up for the company's biggest liability; herself. The obvious rule; A CEO is the CEO until he/she is not the CEO any longer, seems to have vanished in Hannah's mind. Thus, what she and the rest of the Board should do is the following:

Leave the daily management, the reporting, the HR issues, the R&D, the operations etc. to Hannah's daughter. Entirely.

Second, create and stay loyal to a formalized meeting and interaction structure between the two of them. This means; develop a structure within the Board where Hannah (and others) through the use of different committees can focus entirely on their possible value-add to the company instead of getting in the way of the executive management. These committees could include a strategy committee, an M&A-committee, an R&D-committee, etc.

The purpose of these committees would be to provide structured, experienced sparring to the executive management team that would be truly value-adding instead of interfering with the daily business operations. The reason for getting the entire board in the game is obvious; to elevate the focal points and the discussions away from the more social family interactions so that Hannah will not feel 'distracted' and unconsciously bringing up business issues at family gatherings. Due to her seniority and experience, Hannah could possibly have a seat on each of these committees yet should only chair one of them. Otherwise it would seem as if they were just adding yet another layer of management in the company with the now Chair micromanaging the CEO.

Jakob Stengel LL.M. is the Managing Partner and Global Head of Board Practice at InterSearch. He is also founder and chairman of Board Network, The Danish Professional Directors Association. He is based in Copenhagen, Denmark.

Hannah has valuable experience and knowledge with which to guide her daughter in the business. She is a great sounding board and provides the governance oversight that a growing family needs. However, being too involved in the day-to-day operation of the business runs the risk of undermining both her daughter's management of the business and her own independence as a Director and Chair.

Hannah has a great wealth of valuable business and governance experience which could add value to other businesses as well as her own family business. She is on the cusp of being too involved in the day-to-day operation of the business, which threatens her independence as a Director. Being overly involved in the day-to-day operation of the business also runs the risk of damaging personal family relationships.

Her experience in running a successful family business can add a great deal of value to other similar businesses, should she wish to bring this to bear with taking non-executive board positions.

Hannah's best course is to step back from the business on a day-to-day basis and provide her daughter with the guidance and oversight she can bring as an experienced and successful businessperson.
Her experience and knowledge would add value to other businesses in either a board role, or in a consulting capacity.

Ro Iyengar is Transition Program Director at Optus. He is based in Sydney, Australia.

Book Review - The Handbook of Board Governance - A Comprehensive Guide for Public, Private and Not-for-Profit Board Members by Richard Leblanc. The book is not just leading edge theory but contains practical ideas for adopting and adapting the theory for immediate use in the readers' own boardrooms. There is an excellent case study of the Volkswagen disaster which draws out the linkages between culture, structure and ethics. Is it really a 'handbook'? Perhaps not in the 'step-by-step' tradition of the 'how-to' books. Is it useful? Yes; very much so. Well written and packed with value from front cover to back. Read full review ...

Available at Amazon.com

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

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”

~ Stephen Hawking (1942) ~

What's new - In August I had another busy month with plenty of consulting and presenting. I was delighted to travel to Kuala Lumpur to deliver my 'Achieving Board Effectiveness' course as well as to Dubai to deliver 'Supporting the Board'. Equally exciting was delivering the 'Becoming Board Ready' session for alumni of Sydney University Business School; always a fun and exciting event because you are meeting the future business leaders at the point where their horizons and capabilities are expanding dramatically. The class of 2016 did not disappoint and the enthusiasm and creativity with which they undertook the case studies were inspirational.

The Governance Accelerator Program took me into some new and exciting boardrooms filled with directors who are passionate about using their combined skills to improve their organisations. Again the case study based learning seemed to work really well and bring out relevant legal or regulatory issues without lecturing.

Finally I also got to facilitate some board strategy sessions which, as many of you will know, are one of my favourite occupations.

September is looking similarly busy with travel to Townsville, Rockhampton and Hobart. If you need any help with your board give me a call; I am always delighted to help.

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 'borrow' them from people I meet or things that I read. Hannah is an old Hebrew name meaning favour, gift or grace. Hannah in our case study has created the gift of a strong and well-run company for her daughter to manage. She must now develop the good grace to step aside from the day-to-day and tackle her new challenges without undermining her daughter.

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. I could not write this newsletter without your help and without the generous help of all the experts who respond each month to the case studies.

Be a contributor - if you would like to attempt a response to the dilemmas before publication you are most welcome. I received feedback that people were having trouble posting to the LinkedIn group so I will now post the dilemmas on The Director's Dilemma Facebook page. You can visit the page at https://www.facebook.com/DirectorsDilemma.

Your comments and contributions will be most welcome. You can respond to the dilemmas on the page or make your own posts (scroll down on the left hand side for the visitor posts section). If your answer is one of my favourites it may get selected for publication.

Farewell until the next issue (due 1 October 2016). I look forward to greeting you again then. In the interim I hope you will enjoy health, happiness and hard work.

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.