Dear reader,

Welcome to the March 2018 edition of The Director’s Dilemma.

Contact me to arrange for a practical board workshop or conference presentation for your organisation.

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

This month our case study investigates the options for a board to respond to shareholders who know that they want something but don't quite know how to get it. I hope you enjoy thinking about the governance and strategic implications of this dilemma:

Xandra chairs the audit committee of a small professional association. She has a strong working relationship with the chair and CEO who are implementing a strategic reform based on 'user pays services' to redress a fall in membership numbers and hence revenue. The strategy bravely introduced a reduced membership fee compensated by charges for advisory services and an increase in the cost of member events and education.

Some members felt that this was unfair as they used more services than others and would now pay a higher total amount each year. They have voiced their concerns through the company's Facebook page and in an 'open' letter addressed to the board. In the letter they have said that they want to put a motion to the next AGM asking for a vote on the new pricing strategy and for the CEO to be dismissed. They copied the letter to a journalist in a national paper. The journalist has not contacted the company for comment or published the letter.

The CEO has checked the bylaws and the open letter does not meet the technical requirements for requisitioning a motion (indeed the authors seem to have confused their right to requisition an EGM with the right of members to speak at the AGM and ask questions of the board and auditor).

As the only person qualified in directorship on the association board, the Chair has asked Xandra "how can we push back against this request?"

Xandra is not sure that it is wise to rebuff a clear request for engagement with the members on an issue that is important for the survival of their association. She agrees that putting a motion to a members' meeting could be dangerous. She also agrees that the matter needs to be handled sensitively and away from emotive online fora where passions are running unexpectedly high

How should she advise her chair?

 

Lis' Answer

The Board has some leverage in this matter - not only could they refuse the request on the basis of technical deficiency, but the proposed motions may be out of order.  Normally the setting of member fees and the hiring and firing of the CEO would be board matters.

However, Xandra has a good gut instinct about the practical dangers of relying on technical flaws to head off member activism.  Simply telling the unhappy members that they've got it wrong and they've missed their chance would not be a permanent solution.  Members still have rights to requisition meetings, so they can try again, and meanwhile the rebuff would be fuel to their PR fire.

Xandra could bring a range of recommendations to the Chair:

  • analyse with the Board whether the requisitioners are a minority or representative of broader member discontent;
  • communicate that the requisition is out of order and offer a private meeting with the Chair and/one or more board members (considering the best personalities for that meeting) to discuss the requisitioners' concerns;
  • as the complaints are public, communicate with the wider membership to remind them of the rationale for the change in fees (hopefully the Board benchmarked against comparable associations in designing the new model); and
  • prepare, prepare and prepare for the AGM! The Chair needs a run sheet with talking points on fees and the association's value proposition, and must be ready to direct the flow of debate.

Lis Boyce is Chair of the AusMedTech NSW Committee and a Pertner at Dibbs Barker. She is based in Sydney, Australia.

Julie’s Answer

Xandra is right to query the wisdom of 'pushing back'. Some of the most highly engaged members of her association are unhappy with the strategy. These are the members the Association most needs.

In the past, revenue from memberships supported the costs of services. As the number of members decreases it is tempting to reduce the services and cut costs. Less service could lead to less members and a 'death spiral'. The members will understand that their association cannot 'fix' a revenue problem by cutting costs indefinitely or indiscriminately. They need face to face communication and to have their views heard, considered, and included in the formulation of a strategic response. Now it is a bit late but now is better than never.

Xandra should recommend that the CEO and/Chair meet these stakeholders, preferably individually, and seek to understand their grievances. Only when they are sure they understand should they propose a solution.

If the request for a motion is denied on technical grounds these members will soon find a way to make their issues known. They will probably also recruit more adherents to their cause and may garner adverse publicity for the association.

Many associations now find that members struggle to justify the value of their fee. Moving to a smaller fee and a larger payment for service is a common, and logical, response.

However, before making the change the Association's management team should have modelled the changed costs for members and especially for those that engage regularly or frequently. Any sudden increase in cost will get scrutinised and the Association must inform its members of the reasons for the change, the implementation plan for the change, and the benefits that they will get from the change.

Engagement is the key to support.

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

Charles’ Answer

Advice that Xandra should give to her chairman:

My dear Chairman,

The request by the members who are not happy about our new strategic 'user pays' principles does not technically comply with our Association's Rules.

However, we are a membership-based organisation, and our right to exist depends upon the satisfaction of our members. But, it does not mean that ALL members need to be happy. In fact, research shows that the tension between competing points of view leads to better results than a compliant membership that agree with everything the leadership says or does!
I suggest that we do not push back against this expressed dissatisfaction by using the technicality of non-compliance with our Rules. I suggest we tackle the problem head-on, and face the risk of a vote of members against our new strategy.

In 2018, I observe that many institutions, associations, governments, and companies, from all around the world, keep getting into trouble by hiding information and questionable behaviours rather than choosing to be open and transparent.

What are the benefits of transparency for us, as a member organisation? I see them as:

  • The members feel they are part of our community, because they are not ignored
  • The members feel respected, because the leaders are willing to listen to their points of view
  • The members' suspicions will not be raised unduly, because they can appreciate that the leadership is not hiding behind technicalities or being unwilling to have their judgments questioned
  • These feelings of appreciation will likely translate into both renewals of membership next year, and new members through referrals by our satisfied members. We need to keep attracting new members, even though it's more difficult than it was.

I consider that if we, as a leadership team, share all the competing factors that led to the new strategy in the members' meeting, acknowledging that it was a difficult but necessary decision, then the dangers of a negative vote will be minor. The benefits, however, of pursuing this course, are likely to be significant.


Charles B Kovess LL.B (Hons), LL.M, MAICD, CSP, is the former national President of the National Speakers Association of Australia, Current president of the Australia-Hungary Chamber of Commerce and Industry, and current Chairman of the Australian Institute of Comedy.

Book review - The Productive Leader by Sally Foley-Lewis

At the heart of this book is a simple model that allows the reader to analyse and then improve the different aspects of productive leadership.

The model is a traditional trefoil encompassing Personal, Professional and People productivity. This is immediately and easily translatable from the book's focus on the productive leader (as an individual) to a focus on the productive board (or any other identifiable group that you may work with or within). The tools for personal, professional and people productivity are clear and useful; albeit not entirely new. However, they are backed by some impressive research (did you know that 78% of people say they would work harder if they were better recognised and appreciated?) and then extended into some ground-breaking new areas.

Sally (I am honoured to count her among my professional friends and recognise that she is one of the most transformational speakers on the professional speaking circuit) has focused not just on the three aspects of productivity but also on the intersections between them. This is highly prospective ground.

For example the intersection between personal and professional productivity relies upon clarity. In the board environment this is all about setting clear matters reserved for the board, goal-setting, prioritising, and the value and methods of work being done to lift productivity. At the intersection between professional and people productivities are boundaries; we all know that good fences make good neighbours but we rarely consider how the establishement of clear accountabilities can provide the basis for personal, and board, productivity. At the intersection between personal and people productivities are relationships; between the individuals on the board, and between the board and other stakeholders, such as management, shareholders, regulators, customers, and host communities. Applying these lenses to the areas where productivity is required to improve allows great insights.

I have been carrying this book around in my briefcase and cabin-luggage for two months. It gives great insights into the interactions that I have with my co-directors and others. It is making a difference (and I am already highly productive). I recommend that you try it also. It may well make a great difference for you too.

Available in soft or paperback format through Amazon.com

What's New - In February

I decided to experiment with video as a communication tool for short messages. I published an article on LinkedIn 'How much Diligence is Due?' and then made a short video 'What you don't know can hurt you' highlighting some of the messages. I am interested to hear which you prefer and why.

If the readers enjoy it, I will attempt more videos in future.

February was a busy month with my own boards taking up much of my time. Preparing for an IPO is never easy! Still, good progress was made and we are all further advanced than we were in January.

It was a great pleasure to help a visiting journalist with setting up and attending a series of interviews about corporate governance and the ASX. So nice to see our exchange generating engagement and interest around the world.

Another highlight was (finally!!) getting a whole new website especially dedicated to the director's Dilemma. You can check it out at www.directorsdilemma.com. I really hope you will like it and find a use for the archive of over ten years' of published dilemmas and responses.

I also enjoyed attending a strategy workshop for my own government sector board and hosting a workshop for a professional association (not the one that Xandra is a director for).

Some sailing on beautiful Sydney Harbour, a 25th wedding anniversary, and a workshop on how to make videos filled in the personal time and made this a satisfying and busy month.

As this newsletter goes out to you, I am in Melbourne at the AICD Governance Summit looking forward to hearing the latest news and ideas from directors and for directors; it would be a delight to say 'hello' if you see me there!

I am always keen to work more and will be delighted to hear from you if you would like to arrange a board strategy workshop or board performance review!

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

 

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. Xandra is a Greek name, the feminine form of Alexander, and means 'defender of mankind'. Our protagonist is a 'defender of the members' interests and that is a great attitude for an association director.

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.

Let's connect - I use LinkedIn to share information about boards and directorship with my friends and acquaintances. If you use LinkedIn and we are not yet connected I will welcome a connection from you. You can find me at linkedin.com/in/juliegarlandmclellan.

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

Where to book Julie as a speaker - You can book me through the following speaking bureaus and agencies:

Farewell until the next issue (due 1 April 2018). 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

 

Photo Credits:
Personal images in this newsletter are provided courtesy of the contributors, course attendees and conference participants.
Stock photos illustrating case study and quote of the month are provided courtesy of Shutterstock.com

Disclaimer:
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.