Dear reader,

Welcome to the November 2020 edition of The Director's Dilemma. Each month this newsletter looks at a real-life scenario that happened to a board, perhaps to a board like yours, and considers a range of responses. The scenarios are de-identified to protect the individuals concerned.

Our dilemma this month looks at how other people can make life difficult for a board that has not been party to any wrongdoing. And at how boards can add value regardless of this.

I have over twenty-two years' experience consulting to, and serving on, boards. It is a pleasure to share some of it with you in this newsletter and I would be even more delighted to share it with you when your board needs a performance review, strategy workshop, or director education session.

To read this email in a web browser, go to www.mclellan.com.au/newsletter.html and click on 'read the latest issue'.  I hope you will enjoy the latest dilemma:

Brinley Chairs a government-owned board that opperates in the community services sector. Some of the company's revenues are from 'payment for service' with the rest being funded by various grants which usually operate for several years and give a reasonable spread of funding sources across government departments and programs.

A few months ago Briney's company was awarded a large grant for a three-year program. Everyone was delighted and the funds were very soon allocated to outsourced service-providers and spent on getting the foundations right for service delivery.

Last week the press has been full of reports that the grant program was manipulated, and funds were allocated to projects in marginal seats. Yesterday the Minister was asked about this in parliament and responded that the funds would be 'clawed back' and reallocated.

Brinley is aghast. His company has committed the funds and already spent much of the money. It will be costly and difficult to rescind contracts already awarded. He is also smarting at the injustice; his board has done nothing wrong and neither have the intended beneficiaries of the program. Yet now they face uncertainty and potential inability to deliver.

The chair of the Audit Committee has called Brinley and asked what the board is going to do.

What can Brinley say?

Brinley needs to keep perspective the next few weeks will be rough, but if he has done nothing wrong, he should come through with his reputation intact. The first thing Brinley needs to do, straight away, is engage a communications consultant with expertise in crisis communications. All media inquiries should be directed to them.

He then needs to engage an experienced, registered government relations consultant. Their role is to interpret and advise Brinley and his Board on the political context of this situation.

Brinley may want to seek independent legal advice for his board. At some stage there will be an inquiry into this event, possibly public and/or judicial. The firm's legal counsel needs to assemble all communications to all parties, including government, related to this program.  No communications should be destroyed.

The company needs to stick to its guns that all recipients of funds were worthy and assemble evidence that confirms this.

It is likely that the Government's own legal counsel will provide advice that, provided the recipients were worthy, there is no justification for breaking a contract. This advice would be the Government's "out". They would go before Parliament and say, "on legal advice we are unable to break contracts, much as we'd like to".

Brinley's company is a government-owned NGO. Brinley needs to know if any of his Directors or staff, who may have political or personal ties with the Government, have suggested individual recipients be favoured. If so, he should make a file note. He should be wary of private conversations with Directors or staff from this point on.

It is important to remember these are allegations, in the media, and may be politically motivated. If due process was followed, then electoral location is irrelevant. An inquiry is likely to find Brinley and his Board vindicated.

This scenario underlines the importance of professional government relations and communications. Often companies do not think they need advice until they are presented with a crisis. Continuous professional advice can help avoid these scenarios.

Matthew Hingerty is Chief of Communications and Government Relations at Star Scientific, and a former CEO and Managing Director of Barton Deakin Government Relations. He is based in Sydney, Australia.

Brinley should tell his Audit and Risk Chair not to panic just yet; the company has – hopefully – done nothing wrong. They should not suffer as a result of alleged political malfeasance.

First Brinley must talk with the CEO and the company's senior public or media relations staff member. It is important top get the message out, quickly and accurately, that the terms of the grant program were met by them. It is equally important not to make matters worse by appearing to complain about the government of the day. Even if they have made the mess that Brinley is now in.

Brinley should ensure that his board are advised of the situation and can discuss and agree the way forward. An emergency phone hook up should suffice.

Brinley's proposed way forward may include:

• A brief press statement that the company applied for, and complied with, the grant program as part of its normal business practice.
• Internal reports on the monies received, spent and committed.
• The CEO and/or CFO talk to their counterparts in Treasury and alert them that the funds are already committed or expended. Treasury will not want to trigger solvency issues by demanding a return of funds. If 'claw back' does become politically expedient, they can help Brinley's board continue to meet their obligations.
• Brinley and his CEO talk immediately with their Minister and – if different – also with the Minister responsible for the grant program. Keeping Ministers well briefed is imperative.
• Ask staff to be patient, remain confident and refer all inquiries for comment to authorised spokespeople. A brief statement similar to the press statement may be given for use if they need to comment.

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

I advise that Brinley follow these steps to address the issue at hand in a consultative manner:

1. Brinley to talk to his board and seek input to a remediation plan.
2. Brinley to talk to beneficiaries and providers about the situation and seek input.
3. With support of a Communications specialist, Brinley to seek a meeting with advisors and Minister to set the current scene and assess risks of 'pulling back' the programme.
4. With joint input structure a media campaign that addresses the rationale of the programme.
5. Beneficiary input will help neutralise the politics of the concerns/objections. This will need to be 'sold' to the Minister.
6. A review of spending allocation, at the same time, might ensure remaining funds are targeted to non-marginal electorates but to equally worthy causes. This message can be integrated into any Communications strategy and take the political heat out of the situation.
7. Brinley needs to maintain focus on communication with all parties through the negotiations.

Ian Taylor is Executive Director at Sheffield Limited. He is based in Auckland, New Zealand.

Book Review – Turning the Flywheel by Jim Collins

This is such a short book and yet..
The power of the thinking packs a punch that should send directors who read it straight to the top of their profession.
I have long argued that there should be clarity, consistency and coherence in every element of a company's strategy. Indeed, if you had me as your strategy facilitator when doing the Company Directors' Course or have had me facilitate a strategy workshop for your board, you will probably remember how much I emphasise these three elements.
Jim Collins does the same, just so much better than I ever could.
This book makes the point that strategy should be simple and clear and every element should build and reinforce every other element. It is a good point. Directors need to know this.
It reinforces that people must be right for the strategy as it is people that will build, refine and ultimately overhaul the strategy.
Is it as good as 'Good to Great', 'Built to Last', and 'How the Mighty Fall' combined? Yes, if you want the essence and some ideas to get you started. No, if you want the detailed context and case studies.
Should you read it? Definitely. Without hesitation. From start to end. And then again.
Then apply the ideas to your own board.

Available on amazon.com

Inspirational quote for November

A note on names - A few readers have asked me where I find the names for the protagonists in each case study; I 'borrow' them from people I meet or things that I read. Brinley is an old English name and means 'burnt meadow'. Just as a burnt field can regrow and regenerate so can Brinley's board and company; but only if Brinley leads them through the current scorching heat of scrutiny to a successful outcome.

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. They are greatly appreciated. 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.

Farewell until the next issue due 1 December 2020. I look forward to greeting you again then. In the interim I hope you will enjoy health, happiness and hard work: Enjoy governing your companies; we are privileged to do what we do and every day is a blessing!

Best regards,

Julie

Photo Credits: Personal images in this newsletter are provided courtesy of the contributors, course attendees and conference participants.

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.

Privacy: I am privileged to have your contact details and keep them as safely as possible. I will alert you if they are ever accessed by any unauthorised person (the technical staff at ayuda help with publishing and issuing the Director's Dilemma and have access so they can send the newsletters to you). I do not sell your details to anyone; they are kept only for the intended purpose - sending you this newsletter and helping to build the judgement of company directors by providing a safe way to consider potential responses to real life events.

Main Photo by Andrea Piacquadio from Pexels
Quote Photo by Pixabay from Pexels