Welcome to the July 2011 edition of The Director's
Dilemma.
This newsletter provides case studies that have
been written to help you to develop your judgement as
a company director. The case studies are based upon
real life; they focus on complex and challenging
boardroom issues which can be resolved in a variety
of ways. There is often no single 'correct' answer;
just an answer that is more likely to work given the
circumstances and personalities of the case.
Although these are real cases the names and some
circumstances have been altered to ensure anonymity.
Each potential solution to the case study has
different pros and cons for the individuals and
companies concerned. Every month this newsletter
presents an issue and several responses.
Consider: Which response would you choose and
why?
Benjamin is a member of a government sector
board. He was appointed, after a fairly rapid
process, by the relevant Minister to a casual
vacancy that arose through a former member retiring
due to a conflict of interest.
He has now attended two meetings and reached a
firm opinion that the Chairman is not up to the
job. The meetings are unfocused, too much time is
spent on unimportant issues and important issues
are postponed to later meetings or delegated to
management because they can't be covered in the
time available at the meeting for which they were
scheduled. It appears that the CEO is running both
the board and the organisation.
The CEO does not appear to respect the
Chairman and even fairly junior staff presenting to
the board display an insolent lack of regard for
the board. Reports are sloppily written and
incoherent, whilst use of different measures makes
comparing reports on a time sequence near
impossible. The three remaining board members
appear disengaged for most of the meeting and only
contribute on areas that they have a specific
knowledge of, especially the financial statements,
which are analysed in detail by the two
accountants.
Benjamin is relatively inexperienced compared
to the other directors but is the only board member
with formal qualifications in governance. He has no
prior relationship with his fellow directors or
with the Chairman and only passing acquaintance
with any of the staff from the relevant
Department.
What should Benjamin do?
Sonia's Answer
This is an interesting case and occurs quite
frequently in Indian governance environments.
The first aspect is that Benjamin is appointed as
an independent director on the board of a government
company. He needs information on how the ministry
works, what are the political connections, and do
other companies under the ministry work in the same
manner. Namely, is this a cultural issue he is
dealing with?
The problem is that Benjamin believes that the
Chairman is not up to the task and the meetings are
ineffective. Benjamin is new and has formed this
opinion on just two meetings. He needs to do some
groundwork and find out whether the company is
meeting its strategic and financial objectives, is
complying with various laws and regulations, managing
risks effectively and issuing proper financial
reports. He needs to delve into the history and
culture of the organization to find out if there is
any instance of fraud and unethical behaviour etc.
which could put the organization at high risk. In my
view if there are any serious issues, then the
approach has to be different and he has to find a
method to inform the Minister and government.
After studying the background, if Benjamin decides
that there is no financial or other wrong doing, then
this could be a management control issue or political
issue. He then needs to understand the dynamics
between senior management and board members. Here,
his role would be building a healthy board and
improving effectiveness of the management team. He
was appointed with his skillset for this specific
purpose.
There is no need to run to the ministry to
complain without attempting to change the behaviour
pattern. He might wish to coach the Chairman, CEO and
other senior managers independently. It may help in
identifying the issues and challenges. Secondly, by
interacting with other board members he might get
insight to the problems and collaborate with them to
bring about a change in the behaviour of the Chairman
and CEO. He can think about developing other board
members, suggesting committees and management
coaching to bring about a cultural change.
Benjamin should ideally give six months to the
project of bringing change within the organization.
If he finds that the Chairman, CEO and Board are not
cooperating and all his effort is in vain, then he
needs to report the problems to the ministry and
determine alternative courses of action.
Sonia Jaspal is a Risk Management and Corporate
Board Consultant based in India.
Julie's
Answer
If it looks bad after two meetings it will only
look worse after more. Benjamin cannot sit back and
wait for something to happen. He needs to make
something happen.
In spite of his colleagues' experience it is
possible that they have little idea of their
responsibility as directors or how to perform their
role. Likewise, the staff may have little
comprehension of board governance and see board
reporting as a chore that adds no value.
On a government board there may not be a 'company
secretary' but someone will be responsible for the
board papers, issuing the agenda, etc. Benjamin needs
to find and influence that person. He should do this
by assisting them to create a record that looks good
and shows a clear link between the agenda, the papers
and the minutes for each meeting. They will quickly
grasp that this is desirable.
He also needs to help his Chairman. He can do
this in the meetings by showing that he notices and
will not accept insolence from staff. Poor quality
and incoherent papers should be given back to the
staff with instructions on how to improve them. If he
displays respect others will follow his lead.
Benjamin should suggest, at the start of each
meeting, that the board look at the agenda, identify
the issues that are most important and address those
first. This will help the Chairman to ensure that
decisions are made and only unimportant issues are
carried over for another meeting. Under no
circumstance should he undermine his Chairman. That
will only make matters worse.
Benjamin can help to raise his co-director's
involvement by asking them for their thoughts on
items on the agenda. Polite phrases such as 'I'd like
to know what my colleagues think of...' will force
them to contribute to the discussion without being
accusatory.
He should have a quiet meeting with the Chairman
and find out how the Chairman feels about this board
and his or her role as Chairman. Most Chairmen are
well aware of when and how they are failing to be
good exemplars. Good Chairmen welcome help in
improving their performance.
A board performance review is an urgent
requirement. He should encourage his colleagues to
schedule this as soon as possible and control the
process. A key output should be training and
development plans addressing all aspects of the
board's performance. Another should be the
development of a proper respect between board and
staff.
Julie Garland
McLellan is a specialist board consultant and
practising non-executive director based in Sydney, Australia.
Jason's
Answer
There are a number of activities that Benjamin can
undertake, many in parallel. In Australia, boards
usually meet 10 - 11 times a year, so there are
opportunities to take actions across a number of
meetings.
Firstly Benjamin should spend time with his fellow
directors out of session to get to know them better,
their skills and approach to the organisation and the
board. He should quietly flesh out his observations
(without necessarily commenting directly too much on
the Chairman), the relationship with the CEO and key
staff. I would try to elicit if there has been
discussion on these issues previously and what
actions, if any, had been taken and the results.
As a new director, Benjamin needs be spending some
time getting to know the business, and if he did not
do so as part of his due diligence, he should have
meetings with the CEO, CFO and other key executives
to understand the business and encourage them to ask
him questions leading to a discussion on his
observations.
Finally, Benjamin should meet with the Chairman
and carefully talk through his observations, and
frame his perceptions on the Chairman in the form of
"how he could better support the Chair" and offer to
ask positive but critical questions on the quality of
the information provided to the board and board
discussions.
Finally, if there is no real improvement, Benjamin
should recommend a formal board performance review,
with feedback to the directors, senior executives
(who should participate) and to the Minister.
Jason Masters is the Independent Chair of the
Audit and Risk Committee at Country Rail
Infrastructure Authority, the Chair of the Audit and
Risk Committee at NSW Ombudsman and an Independent
Member of the Governance Committee at Wyong Shire
Council, as well as a senior governance consultant at
Jason Masters Governance. He is based in Sydney.
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. 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.
What's
New
Book reviews - Finding books that
meet the needs of directors and aspiring directors is
no easy task. Many glossy publications have little
substance. Here is my
review of Baker and Anderson's excellent
Corporate Governance; a synthesis of
theory, research and practice.
Success tips for board
presentations - My new book "Presenting to
Boards; practical skills for corporate presentations"
launched in March. You can get a copy through Amazon.com
or from independent book retailers. Here is a review
by Andrew Donovan.
Quotas for Women on Boards - The
Australian Institute of Management 'Great Debate'
considered (amidst general hilarity) the need for
quotas and decided, overwhelmingly, that regardless
of the required professionalism and high expectations
of directors, a quota was the way to go. I spoke
against quotas and, together with Jean Kittson and
Malcolm Turnbull, was shot down in flames. Read more
at Workplace
Info and AIM.
Where's Julie? - A few readers manage to
catch up with me on my travels and it is such a
pleasure to meet them that I now share my travel
plans each month.
Date | Place | Activity |
6 July |
Melbourne |
Induction session for new board members of a statutory authority |
21 July |
Sydney |
Australian Institute of Company Directors; Company Directors Course |
2 August |
Sydney |
ThoughtLeaders mentoring group (with Matt Church) |
8 August |
Brisbane |
Australian Institute of Company Directors; Company Directors Course |
23 August |
Hobart |
Australian Institute of Company Directors; Company Directors Course |
31 August |
Wyong, NSW |
Facilitation of governance workshop |
Please call or email me if you would like to
schedule a meeting or find out more about attending
one of these events. Up until 20 July I shall be
frantically finishing a second edition of 'All
Above Board' which is almost out of print (I
have the few
remaining copies).
This newsletter - If you have any ideas for
improving the newsletter please email me your
thoughts. 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.
Farewell until the next issue (due 1 August 2011).
Enjoy governing your corporations; we are
privileged to do what we do!
Best regards
Julie
www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711