Dear {First Name},

Welcome to the July 2008 edition of ‘The Director’s Dilemma’ Newsletter. I hope you find it interesting, informative and inspiring.

In the course of my work advising boards and directors, I encounter complex and challenging issues which can be resolved in a variety of different ways. Each has different pros and cons for the individuals and companies concerned. Every month, this newsletter addresses an issue with the assistance of some governance experts that I admire and enjoy working with. Compare the various possible responses to the situation. Which response would you choose?

Here is this month’s ‘mini case study’:

Ron is a director of a medium sized listed company. He believes it is in the long term best interests of the company (and hence its shareholders) to form strong relationships with the community and for staff to develop their leadership skills through involvement in projects that bring them into contact with people from different backgrounds and in different circumstances. He has talked to a few senior executives and they are very keen to get the company involved in some ‘meaningful’ charity work (his CEO is delighted when the board and senior executives have informal interactions between board meetings). They believe the CEO would support such an initiative. The Chairman, however, is known to be very much a proponent of the view that ‘the business of business is business’.

What should Ron do?


Sue-Anne’s Answer

Ron has opened the door for his company to engage with the community in a variety of ways. But unless Ron can get two key people onto his wavelength, his efforts are doomed. And it would be great if he had a broader idea of how business and community partnerships can be developed.

First, take the CEO. How would you feel if a director had been engaging with your staff about their work in a direction that was not (necessarily) going to achieve the company’s KPIs? Ron needs to talk with the CEO – will staff be taking off company time to volunteer with a local charity? Does the local charity need such help? Indeed does the charity have the capacity to accept a number of keen volunteers?

Next, let’s consider the Chairman. This idea apparently runs counter to her preferences. Perhaps she too is mindful of how a medium sized organisation can absorb staff commitment if it involves company time apart from what seems to be a ‘shareholders’ profits are for shareholders’ attitude.

Finally, let’s think of ways in which this could be a win-win. Could Ron do a little more homework perhaps exploring Workplace Giving? This would give the employees a tangible way of providing ‘meaningful’ support – and in pre-tax dollars as well. The Chairman might like this idea. Or, depending on the business of the Company, perhaps cause-related marketing, where sales of company products provide a benefit (usually revenue, increased media exposure, or public relations or all three) to both partners.

Certainly volunteering is important to the charitable sector – staff, resources and training – but it’s not the only way. And with a recalcitrant Chairman, perhaps a more business-oriented approach may produce a better end result for all concerned.  Finally, corporate social responsibility is a board decision – so get the board on board first!

Dr Sue-Anne Wallace is the Chief Executive Officer of Fundraising Institute Australia.

Julie’s answer

Ron needs to be sure he is thinking about company needs, not his own passions. I hope he has been careful in his conversations to date. Ron must not undermine the CEO or board by expressing opinions about what the company should do. It is the CEO’s job to seek out things that will motivate staff.

Assuming the conversations have all been properly general in nature; Ron should talk to the CEO, explain that this topic arose in discussions, and ask if the CEO would like to raise it with the Chairman.

If the CEO wishes to proceed Ron can offer support but if the CEO has other ideas Ron should drop the issue.

If the CEO is keen, Ron may help with guidance on the business case. The investment should be justified. What is the ROI? What does staff turnover currently cost the company? Has morale or engagement been surveyed recently? What was the survey result and what is the desired result for the next survey? How will the proposed venture increase retention, recruitment, morale or motivation? What skills will staff develop and how will these skills benefit the company? How would major investors view the initiative? How would it impact customer or supplier sentiment?

It is tempting to support CSR initiatives because they are ‘good’ but it is wise to test them against business objectives so that the company makes the best strategic choice.

If the CEO puts forward a well thought out business case then the Chairman, regardless of personal preferences, should not stand in the CEO’s way.

Of course, if Ron is the only person on the board with values and beliefs that support CSR he should question why he is on this board. This is not a ‘showdown’ issue that would require immediate resignation (unless Ron handles it badly and it degenerates into a major disagreement) but it is an indicator of cultural fit. Ron should consider his own career preferences and board succession planning so the board is not inconvenienced if he does move on.

Cameron’s Answer

Justifying a social or charitable initiative to the Board should not be much different to making any other business case.  Why?  Because when all is said and done there must be tangible benefits for the business.  Does this mean that business has only adopted the mantra of 'corporate social responsibility' for its own selfish purposes?  Certainly not.   Businesses the world over have come to a realisation that innovative social initiatives based on solid values can produce a classic win-win for the business and the wider community.  That's not greed and it's also not a frivolous use of shareholders' funds.  It's enlightened self-interest.

Based on the success of so many 'corporate citizenship' initiatives in Australia and around the world, the question for the slow movers has become 'where did we miss out'?  The opportunities for business are immense.

Australian banks were determined to rebuild community trust after the branch closures and foreclosures of the early 1990s.  Mining companies were, unsurprisingly, the first industry to realise that environmental management was a key to future success.  And in professional services we're still in the midst of an undeniable war for talent.

One way of addressing these challenges (among a host of other interrelated strategies) has been for companies to revisit their values.  Today, we don't interview prospective staff in the traditional sense - they largely interview us.  Often, the first question is: what are you doing beyond your four walls to make Australia a better place?  In other words, "is it just about the money, or does your organisation have a set of values I can relate to?"  When a business can answer the question credibly by outlining its community investment strategy, we've taken the first step towards one of our critical business drivers: attracting and retaining the best people.  And with the best people, we're far more likely to attract and retain the best clients.  And when our clients ask us (which they do) to outline our community investment strategy (to determine whether there is a cultural fit with their organisation) we know that our work in this area does not need to be justified.  It justifies itself.

Today, we measure our performance in corporate social responsibility alongside our other key performance indicators.  Minter Ellison has attained a Gold ranking in the latest Corporate Responsibility Index.  This is a source of great pride internally and, without doubt, positions us to attract even more of the best and brightest to build their careers with us.  Which business would not want a slice of that pie?

Cameron Oxley is a Partner at Minter Ellison Lawyers.

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 have been changed to ensure anonymity.

What’s new

Volunteers – I have developed a coaching product for people starting or progressing their careers as company directors. The system is based on things that successful directors have, know and do. I am looking for three volunteers to trial the system at half price. Please call me if you are interested and/or forward this newsletter to any friends that may be interested. First in best dressed!   

Source of inspiration – Every three months I meet with a group of company directors and we discuss an issue that is affecting boards at the moment. Chatham house rules, we all participate and get refreshed and invigorated by new ideas. Let me know if you would like to attend.  

Book review – Directors do a lot of reading. I keep a note of my thoughts on each book I read. Here is my review of Chairman of the Board, a Role in the Spotlight.

This newsletter – I will issue The Director’s Dilemma monthly in 2008 then evaluate how it has been received. If you have any ideas for improving the newsletter please let me know. If you would like to forward it to friends, please do. Ask them to subscribe on my website so they get their own copy in future.

Suggestions for dilemmas – Thank you to all the readers who have suggested dilemmas. I will try to get answers for them all eventually. Keep reading and I hope you recognise yourselves after the name changes!

Well, farewell until next month.

Enjoy governing your corporations; we are privileged to do what we do!

Best wishes

Julie | PO Box 97 Killara NSW 2071
email | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711