Dear reader,

Welcome to the July 2017 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'.

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Our case study this month considers the difficulties facing a new director appointed to a newly formed government sector board. I hope you can enjoy, sympathise and learn from this dilemma.

Quillan has just been appointed to his first ever board. It was a bit of a surprise because everything happened very quickly. He had put his name onto a database of potential directors for government boards some months earlier. A few weeks ago he received a call to ask if he were still available and, if so, whether he would like to serve on the board of a newly constituted body that has replaced two predecessors and has the task of merging their operations, generating synergies, and operating at least as efficiently as a commercial business in an area of endeavour where market forces have not been able to provide the required services at an accessible cost to users. Quillan was interviewed the day after the inquiry, verbally informed of his success and asked to contact the chair. His official letter of appointment is yet to arrive. It will take some time to be approved by cabinet. In the interim Quillan wants to do as much due diligence as he can. There is no CEO announced (and there would be at least two contenders for the role) and Quillan has been asked to keep his appointment confidential until the official announcement. There are no published accounts and the budget and scope of activities are still unclear. What can Quillan do to help prepare so he ‘hits the ground already running’?

What an opportunity to exercise some detective skills! This is going to be fun. Two principles from basic training will help. One: you’re not a director until you formally consent to be. Two: directors have duties, but to enable them to carry these out they also have rights; most notably a right to all the information they need to do their job. And so to work.

Right at the outset, Quillan, some facts can go on the whiteboard. Efficiency is a motive. There is evidence of market failure. Time to get out of the office. First, interview witnesses. Meet the chair, and lay out your questions plainly. What is the chair’s understanding of the scope, the budget, the priorities of the new board? Have other directors been appointed, and if so who? What, for that matter, was the chair’s own appointment process? If you’ve been invited to join a board then there must be some governance framework settled. Ask to see it. Can the board appoint and dismiss the CEO? Does it have decision-making powers or is it only advisory? What is the enabling legislation and who administers it?

Second, examine the scene. What happened to the two predecessor agencies and their boards? What triggered the restructure? Change of government? Cabinet reshuffle? Media? Whose fingerprints are on the change? With the best rationale in the world, this sort of thing is never entirely apolitical.

Third, what’s in the files? The predecessors’ budget, charter, and public statements (spend time with your favourite search engine) will be at least a guide to the parameters of the new agency. Good luck, Quillan!

Iain Massey is a business growth and board consultant. He is based in Sydney, Western Australia.

There is a lot that Quillan can do using publicly available information. He should check the websites for information on projects that the predecessor bodies may have undertaken and also read about these in the press. This will give him some idea of the scope of activity and the type of project his board may oversee.

He can note any contractors, alliance partners or significant customers and undertake online reading about them. This will give him a good feel for the environment in which the organisation is operating.

Quillan should also read the enabling legislation for his board and any other relevant legislation for the jurisdiction in question. Government sector boards often operate in highly regulated environments with overlapping legislative requirements. Gaining insight into which operations are covered by which Acts and an understanding of any areas where requirements appear to conflict will enable Quillan to add value to the board’s processes from the very first meeting.

The board of a government entity has a very strong relationship with the relevant government Department and the Minister’s office. Quillan should read the latest government policies that will influence the delivery of his board’s strategy. He should also familiarise himself with the relevant Treasury and Finance guidelines and any additional administrative procedures. Quillan should avoid contacting staff either in the department or the predecessor organisations, as his appointment is not yet official and any leak of information before the announcement will be embarrassing for the government. Government boards need to be very careful about confidentiality and protection of information. Quillan can make a list of relevant people, whose identities he will find from his reading, and ask the Chair which ones he may contact once the announcement is issued. Once the organisation has commenced operations there will be additional information and a formal induction process to allow him to meet the staff. For now, gathering useful background information is quite sufficient preparation for his new role.

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

Many experienced Non Executives when offered a board appointment often respond with 'No'. Why? Simply, for many they perceive the risk to be too great. So, what should you do prior to accepting a board appointment to minimise the risks but also to ensure that you can make a strong contribution immediately. I recommend you do a couple of things.

1. Firstly do your due diligence. That means more than just reading the annual reports. It means speaking to the CEO and the other directors. All conversations should revolve around the functioning of the board.
2. Speak with the auditors. Often overlooked but for me this is a critical step to ensure you are not putting yourself into a financially dire situation.

Beyond these conversations I recommend you spend time speaking with stakeholders and really understanding the workings of the business from an insiders and external perspective. There is much you can learn from having conversations from people without a vested interest.

Finally, before stepping into your first board meeting it is essential that you have one on one time with the chair. For me this is the litmus test of whether I would want to be appointed in the first place and to test the 'fit'. Beyond this it is a critical conversation to have to ensure you are clear on how they operate and what is expected of you in this new appointment.

Taking on a board appointment is a risky endeavour but often highly rewarding if you go into into it with your eyes open. Of course Government board appointments pose a separate challenge where the information about the rest of the board is not available and the appointment is confidential until officially announced. Still, the principles I previously noted still apply. You should become as familiar with the board itself as possible. www.ausgovboards.gov.au (for information about Federal boards) is a terrific resource as you can find the names of current board members of similar organisations; you could connect with them. Utilising LinkedIn should shed some light on the makeup of the board or at least who might be an influencer in this space. Again, once you have some names you can begin to reach out to discuss the nuances of the board and thereby equip yourself for the journey ahead.

David Schwarz is Managing Director of Board Direction and a non-executive Director of Ecclesia Housing. He is based in Sydney, Australia.

Book review - Don't by Bob Snelden ISBN 978-0-9944508-0-7 Directors must communicate to survive. Some directors seem to elicit information almost effortlessly and to give clear guidance that executive follow flawlessly. Others are not so 'lucky'. This book will help you to understand how the way in which you phrase your thoughts impacts the powerful mental models that drive response in the listener. It gives suggestions for changes that can make a powerful difference and a process for managing conversations to make them more effective. A book specially targetted at the boardroom and board conversations is being written; this book is so good that I suggest you read it first – don’t wait! Available at Amazon.com in paperback and kindle editions.

What's new - In June there was a controversy about governance at CPA Australia. I was asked to comment by ABC’s The Business Show. You can watch the video here. Re-establishing good governance and rebuilding trust will be a difficult and precarious process. If you would like a confidential director mentor or to discuss your board's needs for training and/or strategy facilitation please contact me at julie@mclellan.com.au. It is always a delight to work with new boards and organisations delivering practical governance education in a way that engages and extends participants' own expertise.It is far better to get governance right rather than react when it has gone off the rails (although I can help with disaster recovery as well as prevention). I was also delighted to join the board of the ACT Suburban Land Authority. Building the future infrastructure for our capital community is a great challenge and I am looking forward to establishing and maintaining governance of this new entity which everyone can be proud of.

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

"The objective of education is to prepare the young to educate themselves throughout their lives."

~ Robert Maynard Hutchins (1899 - 1977) ~

Just as the objective of due diligence before joining a board is to prepare the prospective director to learn throughout his or her tenure on the board. I am looking forward to learning and growing in my newest board role and to helping my clients to learn and grow in their boards.

Let's meet - I love the opportunity to meet readers (and anyone who is interested in governance) so it would be great to see you at one of my upcoming events that are open to the public:

• Adding Value as a Director Masterclass in Melbourne on 24 July. Details from Konnect Learning.
• Adding Value as a Director Masterclass in Sydney on 25 July. Details from Konnect Learning.
• Adding Value as a Director Masterclass in Perth on 28 July. Details from Konnect Learning.
• Better Boards Conference 2017 in Brisbane on 28 to 30 July where I will be helping boards prepare for governing the unpredictable. Details available from Better Boards.
• Adding Value as a Director Masterclass in Brisbane on 31 July. Details from Konnect Learning.
• Taiwan Corporate Governance Association “Corporate Governance Summit XIII: Creating Corporate Value through Enhancing Functions of Board” in Taipei on 25 October followed by a masterclass workshop on 26 October.

If you would like me to speak for or train your board, staff, audience and/or group please contact me julie@mclellan.com.au.

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. Quillan is an old Gaelic name and means ‘cub’, ‘novice’ or ‘newcomer’. Our protagonist Quillan is to be congratulated for taking his appointment seriously and attempting to gain as much knowledge as he can before he officially starts. He should go from cub to valuable member of the pride very quickly!

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 for publication you will be most welcome. Simply reply to this email and let me know.

Farewell until the next issue (due 1 August 2017). 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 and do not constitute legal advice. 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.