Dear {First Name},

Welcome to the June 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 way 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":

Jonathan has just been appointed to the board of a national not-for-profit organisation. He has previously served on the board of a regional organisation working in the same field. On that board, directors were encouraged to meet the staff and spend time with them to understand the operations and challenges of the organisation. He is keen to enjoy the same close relationship with the executives of this organisation but, when he suggested at his first board meeting that he wanted to come in and talk to staff and see what they were facing in their roles within the organisation, the CEO reacted with horror.

Jonathan has now discovered that previous board members had acted inappropriately; giving instructions to staff and undermining the CEO. He has no intention of doing that but is finding it hard to gain any support for the idea of the board gaining a closer appreciation of management than they get through the CEO's reports. He is also feeling quite distant from the organisation and painfully aware that he does not have the familiarity with the operations that he would like to have.

What should Jonathan do?

Ken’s Answer

My first piece of advice to Jonathan would be to understand that a Board and Board Members should have a fairly well defined set of responsibilities. These responsibilities centre around three main points:

  • Appointment of a CEO
  • Working with the CEO to develop a strategy to move towards the organisations Vision, Mission and Values
  • Developing mechanisms to measure the performance of the organisation against the chosen strategy.

Other less specific responsibilities would include:

  • Reading board papers and being generally informed
  • Being a positive advocate for the organisation
  • Being supportive of the CEO and other Board members
  • Complete confidentiality and solidarity
  • and the big one...not trying to run the organisation from the board seat.

Jonathan should ask if there is a board protocols document that sets all of this out for board members.

I would tell Jonathan that asking to speak to staff directly will always cause at least some concern for a CEO (whether or not there had been previous bad examples) because the CEO is the main contact between the Board and management and good outcomes can sometimes be compromised if there is any hint of information passing from management to the board without the CEO's knowledge.

There are however circumstances where one could set up with the CEO specific meetings with specific staff on specific issues (a controlled environment). In fact this can be helpful if for example the board member is on a sub-committee and needs some more detailed information from certain staff.

It could also be helpful to suggest some form of induction process for new board members which would involve some contact with senior managers.

However, it is always important to ensure that the CEO is well informed about the meetings and that they have his or her approval.

There is nothing wrong with becoming more informed about how the organisation works (in fact this is a very good thing) as long as this information does not lead to a board member using this information to try and tell the CEO how things should be done (especially at a board meeting - this was the wrong forum to raise this issue).

Ken Barber is the CEO of Anglican Retirement Villages, an Australian not for profit organisation.

Julie’s Answer

A breakdown in trust between the CEO and board won't be fixed by covert action or open war. Jonathan must 'earn the right'.

How does information come to the board? Receiving and reviewing reports from staff members in board and committee meetings is a legitimate board role. Do directors have sufficient access to staff to form a reasonable view of human resources and succession? If not, Jonathan can ask for more staff presentations to the board. Most CEOs would happily comply.

If the CEO refuses, Jonathan should talk with the Chairman about whether this CEO has something to hide. If resistance is excessive the auditors may be asked to investigate.

When staff present to the board Jonathan should watch the dynamics. Do board members treat staff with respect? Do they ask good questions? Are requests for action directed through the CEO? Can Jonathan improve the board's behaviour? If he can, the CEO will soon view him as a trusted ally and relax the veto on staff contact. A board charter might assist in this process but it is better to develop good interaction than to develop documents defining good interaction.

Jonathan can get familiar with the operations by using normal public communication channels. If he brings this information into the boardroom he must be objective and relate it to appropriate 'board level' strategic issues.

Finally, if mindful of conflicts of interest, Jonathan can also gain access to staff by working as a volunteer. This is a delicate balance but will help Jonathan to get a good 'gut feel' for the organisation.

Robert’s Answer

Jonathan needs to get off on the right foot with the board and the CEO, and already he might be a bit late. Apart from his own due diligence about the organisation, it is reasonable for Jonathan to expect both a Director's role statement and a comprehensive induction which should involve some interaction with the management team. This would have cleared up an issue such as this, and it is not yet too late to ask for this via the Chairman.

Clearly this is a difficult situation for both the Directors and the CEO given the history. Nevertheless Jonathan has a serious issue to overcome given his current feeling of isolation, lack of familiarity and understanding of the organisation. He cannot rely solely on reports from the CEO.

Jonathan should approach the Chairman with his concerns to find a way through the problem, but he really does need to better understand the organisation of which he is a Director. Trust about behaviour of both the Directors and the CEO needs to be built over time. This might involve the Chair and CEO arranging joint Board/management sessions to improve familiarity with the organisation, perhaps structured around a strategic planning session. This would also be useful in establishing behavioural norms and trust for both the Board and Management team.

If that cannot reasonably quickly be achieved then Jonathan will find himself in an untenable situation that he cannot allow to continue. It will only get more difficult and Jonathan will not reasonably be able to perform the appropriate duties of a Director.

Dr Robert Care is a registered director of RedR (Register of Engineers for Disaster Relief).

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

AICD Conference – I'm feeling refreshed and reinvigorated after this stimulating Conference in sunny Queensland. Check out the papers and reports on the internet at Next year the conference is in Tokyo; I hope to see you there.

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 The Way of the Superior Man by David Deida.

This newsletter – I will issue The Director's Dilemma monthly in 2008 then evaluate how it performed. 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 them 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