Welcome to the April 2008 edition of "The Director's Dilemma" Newsletter. I hope you find it interesting, informative and inspiring.

Here is this month's "mini case study":

David is worried because the reports always seem to have a positive 'spin', failures to achieve objectives are always due to external factors and the whole reporting process seems to lack spontaneity and engagement. He is finding it hard to contribute because management don't seem to share their problems with the Board; even the audit committee is struggling to penetrate the gloss. It is not that the company is doing badly but just that David feels the Board is not contributing as fully as it could to making the organisation even more successful. Two of the other Board members share his concern but the Chairman is happy with the status quo and tells David that he should be thankful management are running the company well enough without board input and that the board should not be concerned at this natural tendency to view performance in the most positive light.

The sub-prime market crisis is a recent example of an external factor that can fundamentally change market circumstances and impact a range of companies in unexpected ways. Part of the Board's role is to test how well the organisation is for the unexpected, to stress test the business against external shocks. "Market darlings" go to "market dogs" very quickly.

The directors have no defence to say "it all looked OK" or "they wouldn't /didn't tell us". Each director has a responsibility to test what is coming before them and what they become aware of, to check all the elements of the business and examine "what would happen if…?"

David's challenge here is his own fear about standing up to the Chair. I call this The Almond Effect ® - when our own irrational fears (those we often do not even consciously know about let alone are able to articulate) cause us to back off, with potentially worse consequences than if we had faced the discomfort and done it anyway. David has to ask himself what is his priority and responsibility and then develop a strategy to manage his own fears and caution and fulfill his obligations as a director.

This Board is dangerously distant from the corporation it governs. David must take action but be careful not to entrench the "us and them" dynamic that has evolved. Aggressive questioning could get him labelled as an outsider just when he needs to encourage management to let the Board into their confidence.

Management should feel safe sharing information. Board members must not 'shoot executives down in flames' the first time they share something unpleasant. The Board must add value and earn the right to criticise.

• Implement a Board reporting format of: intended strategy, actual performance, a currently unresolved issue. Reject any presentation that does not comply.
• Focus the next performance review on "does this Board add real value to the executives?" Make it a 360 degree review. Commit to implementing the recommendations. Check that implementation makes a difference.
• Hold a Board risk workshop where issues are workshopped not presented. Have no more than 10 minutes of presentation and at least 50 minutes of discussion in each hour.
• Train some executives in governance. They may not know what a Board does or how to engage it.
• Review each Board meeting to assess how much value the Board added and give real-time feedback to executives on the usefulness of their presentations.

In order for David to ensure that future Board reports have minimum "spin", David should suggest to the Board that an agreed reporting framework be developed. This reporting framework would outline the types, templates, purpose, frequency and content (including maximum length) required of any future reports to the Board.

The rationale provided to the Chairman of adopting such a framework would be from the perspective of an effective and efficient use of director's time.

Q Radio - I was interviewed by Peter Switzer for Talking Business program on Qantas in-flight radio. A transcript is available on the Qantas website at https://www.qantas.com.au/info/flying/inTheAir/entertainment/qRadio.