Directors should question commonly held beliefs

It’s time to rethink the way our Boards of Directors play their role. Instead of the Board taking a somewhat adversarial position designed to interrogate and constantly “check-up” on management, let’s get the two “groups” working better

together. 

In my experience working with Boards, the overwhelming majority of directors are dedicated to promoting the best interests of the organisation that they govern and determined to act with diligence and integrity.

The Australian Institute of Company Directors has stated that:

“Management oversees operations and strategy implementation while the Board plays a supervisory role providing guidance and oversight.”

True, but only as far as it goes... This statement implies firstly potential mistrust by the Board of what management is up to (underscored by the reams of legislation and regulation demanding Board oversight) and secondly that there are certain areas which the Board should keep away from which is simply no longer true nor even realistic.

Let’s tweak the model in a way that recognises the reality that if something goes significantly wrong within an organisation, invariably the question will be asked “what was the Board doing?”.

So, let’s universally acknowledge that there is no area, repeat no area, where a Board’s questioning should be unwelcome. Certainly, the Board does not and never should actually operate the levers on a day-to-day operational basis, but in terms of knowing what is going on and being welcome to probe, question and make suggestions, there should be no question that that is part of the Board’s role.

Rather than broad distrust between Board and management and perhaps inadvertently cultivating a culture whereby management is inadvertently selective in what things they tell the Board or how they tell them, we should be fostering complete openness in the relationship and a thirst from management to utilise all resources at their disposal to arrive at the very best of solutions, including close at hand expertise. To that end, and perhaps the opposite side of the same coin, let’s not frame the Board as omnipotent, all knowing and always right and management as exclusive custodians of the best day to day solutions. Rather let’s view Directors as representative of a great pool of experience and knowledge (an informal cohort of consultants if you will) which management should unashamedly draw on as the organisation tries to come to the optimal solution in any given situation.

All this points to rethink of the role and attributes of the Chair and how we go about selecting them. It is common and accepted wisdom that the most important role of the Board is to appoint the CEO. But is it time to place equal emphasis on the appointment of the Board Chair. After all they are the CEO’s boss and the one, particularly early on in the formation of an initiative who is giving management the green light to proceed

The day of the accidental Chair is gone. We must identify, prepare and train them for the role. Legislation does not yet recognise the unique role of the Chair but that will happen.

Let’s finally recognise that the Board is the ultimate determiner of organisational culture. The law now makes it abundantly clear that that the Board has a legal obligation to take pro-active steps to facilitate and monitor a healthy culture within the organisation. It is incumbent on the Board to call out conduct of management or indeed by other directors which is damaging of the culture. 

The time has come for Boards to routinely and exactingly promulgate a list of Retained Authorities being the matters that must come to the Board . Boards in the past have often been comfortable for it to be a grey area what it gets to see, leaving something of a vacuum where effectively management chooses what does and what doesn’t go to the Board. The Board has a responsibility to make it clear what matters are not to proceed without first being the subject of Board discussion and decision. A Board should never find itself in a position where it is blindsided because an important decision has been made without reference to it.

It has become almost common place to create an Audit and Finance Committee of the Board. Sometimes this is done without carefully weighing up the advantages and disadvantages of so doing. Our view is don’t rush to take this step. One disadvantage is to exacerbate the risk that certain of your directors will defer to such committees as the custodians of all audit, finance and risk matters rather than for those things to be the responsibility of the full Board. Recall the “Centro” case where the Court observed that directors cannot rubber stamp their approval of such important matters based on a reliance on external experts such as auditors or committees. Another potential downside is that this represents another body that requires management time to properly service.

Strategic thinking has traditionally been taken offsite on an “occasional” basis and tends therefore to be somewhat “ad hoc”.

Strategic offsites can be useful but our view is that Boards should more systematically set aside time for discussion of a strategic issue at every second or third board meeting thereby integrating strategic discussion and reflection regularly into board meetings.

Boards must be adamant that no proposal from management is to be approved that does not demonstrate how it advances the strategic purpose of the organisation and is supported by clear reportable milestones and metrics together with an implementation plan. No longer can Boards waive through projects based only on an enthusiastic recommendation from management and perhaps some encouraging - looking financial analysis generated by management. The Board must position itself to monitor and measure the progress of all projects, to insist on regular updates, and to

 facilitate adjustments to the project where needed.

Finally, in camera sessions with Board members only present, and probably held at the end of the meeting, should be a standard agenda item. Traditionally such sessions have been held sporadically and only when there is a specific issue to be discussed. Ten minutes at the end of each meeting should become the norm and provide directors the opportunity to give the Chair feedback on the conduct of the meeting and raise anything, good or bad, they did not wish to raise in the presence of management. This also means that management expects them to be held rather than being fearful of their purpose.