Welcome to the June 2011 edition of The Director's
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
Anna is a Board member of a sports club. None
of the board members are paid; they incur very few
expenses for reimbursement and must seek prior
authorisation before incurring such expenses. The
club uses land leased from the local council at a
very advantageous rent. It is part of a sporting
precinct with three other clubs each of which has
its own playing area and clubhouse.
One of the neighbouring clubs (football)
approached Anna's club with a proposal to build a
combined clubhouse where each club would have use of
changing rooms, a small gymnasium, a cafeteria and a
members' bar. The board discussed the proposal and
decided that it would be worth investigating. The
other clubs each came independently to the same
conclusion. The existing clubhouses were in need of
A steering committee was formed comprising two
members from the board of each interested club. Anna
was appointed to the steering committee together with
her club's President. The football club's President
chaired the committee and requested that his fellow
board member be tasked with administration, including
sending out agendas and taking the minutes.
Each club put in $5,000 towards the expenses of
developing a shared-use agreement and some draft plans
to submit for council approval. A bank account was
established and funds could be drawn only under the
signature of two committee members.
Three months later Anna's President sought her
opinion on a 'difficult issue'. The committee chairman
had asked him to countersign a cheque for payment of the
administration 'expenses'. The cheque was for a monthly
fee of $2,000 for the first three months of committee
operation. There were no separately identified expenses
The football club board members normally
receive expense reimbursement and are paid fees for
services if these are 'beyond the scope of their
role as directors'. Anna's President is not happy to
pay $2,000 for work that her club's directors would
do free of charge. The football club President
administering a committee is not part of the normal
voluntary duties of a board member and his colleague
deserves to be paid for the work.
How should Anna advise her President to proceed?
I belong to four not-for-profit boards: two
reimburse their trustees for nominal amounts plus
out-of-pocket expenses, and two do not. Both have
deeply-held philosophical reasons for their policies,
and all are happy with their current
This is the crux of Anna's dilemma: it does not
appear that the subject of remuneration /
reimbursement was canvassed at the initial Steering
Committee meeting when the combined group was formed
and chartered. Accordingly, that is the first matter
to be addressed: there needs to be a Board Resolution.
Anna has two choices, and neither of them include
signing the cheque. First choice is to refuse to sign
until a Board Resolution gives her authority to do so.
This can be done at either an Ordinary or
Extraordinary meeting of the board.
The second choice is a variation on that: she can
suggest that the clubs who have remuneration policies
in place remunerate / reimburse their own members pro
tem (which will allow their members to be paid on a
timely basis) and then have the clubs themselves seek
reimbursement for doing so at the next meeting of the
Board -- where the reimbursement / remuneration policy
can be adopted and approved.
I note that only two signatures are required:
presumably Anna does not have authority to say "yes"
or "no" on behalf of the board, so this request is
likely to go elsewhere to two more compliant board
members to sign off on. If so, the President needs to
phone all board members, advise them of the upcoming
Agenda item on remuneration, and request that they do
not sign off until a policy decision has been made.
The President may also wish to follow up this
request in writing, for the avoidance of doubt. In
some boards this would be absolutely essential, and in
others less so. As the signoff amount is 10% of the
combined wealth of the club, and because e-mail is a
cheap and easy way to do this, I would favour
following up in writing.
Cawston is CEO and Chairman, International
Alliance of Guardian Angels NZ Charitable Trust
Don't sign this cheque! The board delegated
authority to pay for drafting a shared use agreement
and developing plans. There is no approval for
payments to administer the committee.
A committee is not a board. It has no statutory
power except that delegated to it. The aim of a
committee is not to seek the optimal outcome for the
committee but to meet the needs of the persons,
organisations and communities represented by the
This is a difficult issue because each club has its
own philosophy about proper treatment of board members
and club funds. Members of a profitable club, run as a
business, may expect expense reimbursement or even a
fee for their governance services. Members of less
affluent clubs may expect to pay their own expenses.
The committee should agree to a 'modus operandi' that
meets the needs of all four clubs and gets the work
done. This should be ratified at club board meetings
It is likely Anna's board will not countenance
payments to committee members. That may be a 'walk
away point' for them. They may request their $5,000 be
returned but are not likely to get it. The money is
now the property of the committee. If the money is
used for the delegated purpose they have few grounds
Good practice around reimbursement of expenses is
to set clear rules for approval before
commitment or expenditure, and provision of detailed
receipts before reimbursement. The lump sum
described is more like a fee for service than an
expense. Fees for non-profit boards are contentious
and unlikely to be agreed by all four clubs. If the
football club is determined to pay this board member
they can do this from their own funds. Alternatively
administration may be provided by a member who does
not require payment.
Four clubs have contributed $5,000 each towards a
specific purpose. Expending 10% of committee funds on
administration each month will leave insufficient
money for that true purpose and expose committee and
board members to allegations of poor governance.
McLellan is a specialist board consultant and
practising non-executive director based in Sydney, Australia.
The case encompasses; expense reimbursement, paying
'directors consulting' fees and joint venture issues,
which have reputational impact.
Only 'receipted, actual and reasonable' expenses
should be reimbursed and it's best to avoid
'consultancy' payments to directors. Both look
If unavoidable, consulting payments to directors
should be at market rates and specific work and fees
approved by the board. Directors should withdraw from
discussions or votes about 'consulting' work they
undertake, including approving and reviewing it. Such
consultancy should not be about board/Director/senior
executive pay, contracts, selection, risk, or audit.
Directors' consultancies, including scope of work
and fees, should be disclosed. It should be explained
why the director is the most appropriate consultant.
The joint venture complicates matters.
Anna's club's board members undertake committee
administration as part of their duties. At the
football club they don't and reimbursement of
'unidentified' expenses appears acceptable there.
The 'difficulty' reflects deep cultural conflict.
Unresolved, it will undermine the project.
'Joint ventures' need
budgets and rules for
cooperation set in advance
to reconcile cultural
The clubs should consider if collaboration will
work. If they proceed, rules and budgets for steering
committee operations should be drawn up and approved
by the clubs' boards.
The expenses submitted should be reimbursed by the
football club. The football club may want to make a
corresponding deduction from its contribution to the
steering committee. Anna's club can reduce its
contribution by the same amount - although this will
leave a $1000 shortfall. The budgeting hasn't been
robust! The expenses could be 'held over' until the
'joint venture' agreement is finalized.
If the clubhouse is built, the conflicts will
undoubtedly continue over its shared use unless these
can be reconciled through protocols.
This looks like a project that's unlikely to
succeed because of unacknowledged and unmanaged
Bennett is a Board Member at Center
for Non-Profit Leadership, a Director
at BPA Australasia
Pty Ltd and an Associate at Uni SIM. He is based
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
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 The
Autobiography of Benjamin Franklin, which is
on Kindle. I found it to have much to say on
ethics, plain speech, clear writing and general good
conduct of self and governing bodies. In July, I shall
review Baker and Anderson's excellent 'Corporate
Governance; a synthesis of theory, research and
practice'. At the time of writing I am only half way
through and it appears too good to rush.
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 Jim Christie from the 'Book It'
section of Directors
and Boards Magazine
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.
|1 June ||Roseberry
||Presentation on board / Management
Relationships for CEO Institute|
|1 June ||Terry Hills
||Kimbriki Eco House Grand Opening|
|15 June ||Sydney ||Australian
Institute of Company Directors; Briefing on 'The
Audit and Risk Committee'|
|22 June ||Internet ||Seminar
for Australian Business Women's Network on
'Would you, Could you, Should you join a
|23 June ||Sydney ||Australian
Institute of Company Directors; Company
|21 July ||Sydney ||Australian
Institute of Company Directors; Company
Please call or email me if you would like to
schedule a meeting or find out more about
attending one of these events.
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
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 July 2011).
Enjoy governing your corporations; we are
privileged to do what we do!
www.mclellan.com.au | PO Box 97 Killara NSW 2071
email email@example.com | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711