The good and bad of board appointment processes
It’s not often the words Carlton Football Club have been used in a positive sense these past six or so months, just as things seldom get cloudy and a tad inclement for the ‘beautiful one day, perfect the next’ sunshine state of Queensland.
But that has seen a change in recent times, at least in the world of governance and more particularly when it comes to the processes followed when making board appointments.
When female director and Sex Discrimination Commissioner Kate Jenkins resigned from the Carlton board in July citing the increased demands of her commissioner role which made it impossible to do justice to both positions, the Carlton Football Club decided that, as an AFL football club, they needed to retain the board’s gender diversity. Continue reading
Greater female presence on boards is a disease!
Now there’s a headline to get you reading further…
It’s actually true, but in a wholly positive sense.
It is the major finding of significant research into understanding the primary drivers behind women’s participation on boards across Australia’s ASX200 companies.
Conducted against the disappointing backdrop of fewer than hoped for Australian companies reaching the tipping point of 30 per cent female representation – where it stops being tokenism and starts making a real difference in areas like innovation – by the end of FY 2018, the research found that the only significant predictor that boards hit the 30 per cent target is that they have a director who sits on another board that has already achieved the milestone. Continue reading
Blaming poor performance on diversity just doesn’t cut it in 2018!
Board diversity, always a subject of interest and debate, is again hugely topical, with some of what has emerged from the current Royal Commission into our banking and financial institutions.
— Governance Matters (@GovernanceMatt) June 4, 2018
The topicality this time is driven by what I would like to think is pure coincidence but, sadly, I fear has plenty to do with something far more sinister and murky – and it’s that latent misogyny still has a pulse in corporate Australia.
The recent backlash on female board members as evidenced at AMP has seen some return to the hoary old argument that the travails of a few of our financial institutions can be traced back to society’s push for gender equality.
Taking the hit and miss out of board elections
Elections, by their very nature, carry the risk of the wrong people getting up, in companies, as much as politics.
After all, when board member positions need to be filled there is a process to be followed.
— Governance Matters (@GovernanceMatt) May 1, 2018
Under the constitution, the organisation will call for nominations, interested parties will put up their hands, they will embark on a campaign to whip up support from the other members and might go on to win a seat on the board.
It’s very hit and miss, with no guarantee that the person elected adds value by bringing the skills the board so desperately seeks at that particular juncture in the organisation’s life.
In short, such an approach is a long way off best practice.
Now here’s an inconvenient truth: small boards are better
While it’s one of the most vexing and hotly debated topics in governance circles, a growing mountain of research suggests we’re dealing with what Al Gore might well term another “inconvenient truth”.
I’m referring to the size of a board, what effect it has on the performance of the entity and whether there’s such a thing as an optimal number of directors.
— Governance Matters (@GovernanceMatt) February 14, 2018
In recent years, research across the globe has tended to find that small is good. There’s the 2016 study by Pascal Nguyen et al entitled ‘Board size and firm value: evidence from Australia’ that, using a large sample of Australian firms over the period 2001 to 2011, found strong evidence of a negative relationship between board size and firm value.
If gender diversity is broke, fix it!
— Governance Matters (@GovernanceMatt) April 27, 2017
It was Albert Einstein who once famously said that doing the same thing over and over again and expecting a different outcome was tantamount to insanity.
And his sage words should be heeded in the gender diversity debate where, despite years of well-intentioned initiatives to close the gender gap on boards and achieve greater diversity, only marginal improvements have been achieved – especially given the time, effort and money ploughed into these programs.
In fact, in a strictly business context, returns on investment of this nature would soon see companies out of existence.
This is why I found a recent article on companydirectors.com.au so informative.
A new age of enlightenment for boards
— Governance Matters (@GovernanceMatt) March 30, 2017
Getting in the heads of the younger generation, talking in a language they speak and generally honing in on all those hot buttons that get them charged up, passionate, excited and engaged seems to be a perennial moan among people of our generation.
And, doubtless, the generations before, when confronted by we baby-boomers back in our salad days…and before our time too, probably all the way back to when Adam was a boy.
What’s more, it’s a challenge that goes way beyond the confines of the dinner table or social circuit discussions of the more mature generation and is increasingly being played out at board level, both in the corporate and not-for-profit sectors.
Howzat – a representative board that works well
— Governance Matters (@GovernanceMatt) March 17, 2017
We all know that representative boards bring challenges related to partisanship but they pale into insignificance when compared with the troubles that arise when the representatives don’t enjoy equal status at the boardroom table.
Just ask the International Cricket Council (ICC) who, about three years back, allowed something of a coup d’état – orchestrated by the so-called ‘Big Three’ of India, England and Australia – to occur.
They would stand alone, above and more important than the other seven full members, presumably as beacons of benevolence.
Success comes with seeing ourselves as others see us
— Governance Matters (@GovernanceMatt) November 11, 2016
The famous Scottish poet and lyricist Robbie Burns is probably best known for penning the words of “Auld Lang Syne”, cheerfully muttered and spluttered at numerous New Year’s parties around the world.
What, you might well ask, has this to do with governance? Well, the man also known as the Bard of Ayreshire happened to write another poem entitled “To a Louse” which carried the immortal line “O would some power the giftie gie us to see ourselves as others see us.”
And I guess that’s where governance – and we at Governance Matters – comes in, with our Board Skill Set and Diversity Assessment.
Boards are no place for sectarian sentiments
— Governance Matters (@GovernanceMatt) September 16, 2016
You’ll recall our last blog touched on the first of new British PM Theresa May’s two targets for a corporate governance overhaul – that of making shareholder votes on pay binding.
We now shift our focus to the second, and equally, ‘un-Conservative’ thrust that’s generally more aligned with the trade union movement… getting employees on to company boards.
Ms May may have lost the plot on this one, though. That’s my humble opinion.
Taking committees to task
— Governance Matters (@GovernanceMatt) August 18, 2016
As mentioned in Part I of our discussion on types of committees versus task forces, the key differences are longevity and composition.
Governance committees are permanent structures, made up of board members, there to advise the board in an ongoing capacity. The board might also create shorter-term task forces – bodies like a building committee to oversee the construction of a new building. These task forces will typically comprise a mix of board members and external industry experts. They will then disband once the project is over.
There is, however, one exception!
Committees designing horses key to board governance
— Governance Matters (@GovernanceMatt) August 4, 2016
We’re all familiar with the analogy that a camel is a horse designed by a committee.
It’s a rather unflattering comment on the ineffectiveness that can arise when too many people with conflicting opinions need to arrive at a decision that, by definition, will reek of compromise.
Which is why the composition of committees – and, indeed, their close relations, task forces – is so important to a board fulfilling its primary governance function of wise and considered decision-making. The board needs the help, input and assistance from various committees to allow it to do just that.
We nominate for greater independence
There’s an inescapable truth – or what Al Gore might have branded an ‘inconvenient truth’ – that when the best skilled and equipped are in charge, the chances of everything running like a well-oiled machine are greatly enhanced.
— Governance Matters (@GovernanceMatt) July 20, 2016
And we’ll only get these when factors like impartiality and objectivity take centre stage and bias, prejudice and self-interest are pushed to the wings and beyond!
Which brings me to the vital role the nominations’ committee plays in increasing the chances of an organisation – be it a not-for-profit or a commercial entity – purring along smoothly.
The ABCCC of Director Selection – Part 2
Picking up from where we left off last time while discussing the 11 key dimensions of character, as argued by a team of academics at Western University’s Ivey Business School in Canada in their “Leadership on Trial: A Manifesto for Leadership Development” research, coming in at number five is humility.
— Governance Matters (@GovernanceMatt) May 30, 2016
Like humanity before it, humility is paramount as without it, directors are incapable of learning from others. Or, indeed, from their own mistakes.
Then there is temperance, in essence the ability to remain calm while all about you are in a flat panic. Sadly, it is seldom top-of-mind…until some almost overwhelming risk blows up in the organisation’s face and its true value in the very fibre of directors becomes imperative.
The ABCCC of Director Selection
— Governance Matters (@GovernanceMatt) May 13, 2016
I had an interesting piece sent to me just recently, an exercise conducted by a research team from the Ivey Business School at Canada’s Western University that delves into the key criteria boards should consider when assessing and appointing anyone to a leadership position, including a director.
Entitled “Leadership on Trial: A Manifesto for Leadership Development”, the comprehensive paper identifies competencies, commitment and character as the three most important measures. It goes on to argue that of the three Cs, character is both the most important and most difficult to assess.
Competencies, of course, matter. Like commitment to the position and the organisation, they are pretty much givens as they define what a person is capable of.
When ignorance can be anything but bliss
We spoke last time about representative boards and the self-interest that can inflict them but equally disturbing is the role ignorance can play in both the creation and ongoing preservation of these boards.
The ignorance, of course, seldom comes from the individuals who sit on these boards.
Rather, it’s more likely to stem from the architects, those who establish them, often with little regard for how costly and ineffective the structure they are creating might be.
What the ICC is doing is just not cricket!
We’ve spoken about representative boards and the many challenges they face but as these seem to be akin to the gift that keeps giving, it’s timely to take another look.
When we last explored the subject, we concluded that representative boards – those national or international boards made up of representatives from the member states or countries rather than people best qualified for the tasks at hand – invariably carry baggage.
Self-interest and personal agendas immediately spring to mind. It’s very hard to think bigger picture when you’re answerable to your state or country.
When the honeymoon’s over
If there’s a truism in serving on a board, it’s that the smart money is on just about every one of us reaching our sell-by date and if we don’t read the signs, we can expect the dreaded tap on the shoulder.
Hi, my name is Dr Marcia Hewitt and during a recent chat with Governance Matters’ Kate Costello, we got onto the subject of the shelf life of a board member – and more importantly, how one deals with the perfectly natural feelings of disappointment that come with having to leave a board when you don’t want to go.
We threw a few thoughts around, before Kate thought it would be a good idea if I wrote a guest blog on the prickly issue.
So here goes, with thanks to Kate for some wise counsel along the way…
The good, the bad and the ugly of governance
It’s got to the point these days while poring over the raw results of board performance evaluations that we look across at each other and instinctively begin to hum that instantly recognisable theme tune from the movie ‘The Good, the Bad and the Ugly’, because that’s precisely what this potpourri perennially presents.
‘We’ happen to be Mel and Sascha, aka ‘the ladies behind the throne’ at Governance Matters, and our years of backroom experience in examining unsanitised results has given us what we believe is an if not unique then certainly different perspective on board behaviour.
We thought you’d be interested to learn what we’ve found to be the most common shortcomings of boards – and what’s surprising is not so much our list but the fact that these seemingly no-brainers make it onto the inventory in the first place!
We are never too old to learn
We’re coming to the end of our ‘Top 10 Steps to Being an Effective Director’ series of blogs and I sincerely hope it has been a learning journey.
Which, conveniently, allows us to segue to our final topic – and that’s a desire to continue to learn, continue to improve.
Research, empirical and anecdotal, has long highlighted the fact that we’re at our best when constantly engaged in personal and professional development. We’re never too old to learn and those directors who adhere to this truism are invariably at the top of their game.
Continuous improvement for board members comes in two forms – personal evaluation and ongoing education.
No women, no high!
I’m just taking a momentary break in our ten part blog series on what makes a director effective because of recent Australian research…..
I recall a number of years back and when the lonely female on one particular board, the chair was prone to saying things like “…let’s get the violins out…” whenever I raised gender issues or distributed articles on corporate diversity.
Well, I’m sure he was well and truly rosin up the bow when respected new research was published just last month highlighting that those Australian companies with at least 25 per cent female boards perform more than seven per cent better than those with all-male boards.
The research, by the Centre for Gender Economics and Innovation and Infinitas Asset Management, also found that while the level of gender diversity is “frustratingly low”, it is growing, with 63 companies in March 2015 achieving the 25 per cent threshold compared with just 15 in mid-2010.
Detailed inductions pivotal to understanding how the organisation works
Effective board members understand how the organisation they are on the board of works. While there are doubtless many avenues to gaining an understanding of how an organisation works, few can be as imperative as a detailed and thorough induction process.
And yet recent research tells us that a staggering 83 per cent of board members feel less than satisfied with what passed as ‘induction’ when they assumed their board positions.
That’s pretty damn scary – and all I can say is that new board members should DEMAND an effective induction, one that’s more than a series of introductions and a copy of the minutes from the last year’s board meetings but rather, a well-planned process delivered in digestible servings over several months.
Talking Business with Alan Kohler on Qantas Radio
Listen as our Managing Director, Kate Costello talks to Qantas Radio’s Alan Kohler about the importance of evaluating your board, individual directors and Chair.
When vested interests should be of no interest
When board appointments are based on criteria other than skills, you’re just about guaranteeing that one of two things will happen – at best, you’ll deprive the board of a fighting chance to do the very best it can for the organisation in question; at worst, you’ll ensure that it will all end in tatters and tears.
That boards still tend to select directors on other grounds suggests that the notion vexes some.
But it is an inescapable truth…after all, logic tells us that when the best equipped (read skilled) are running the show, the chances of everything running smoothly are greatly enhanced.
Workout: learning the keys to board life
Article published in the Australian Business Review, 8 November, 2014
by Verity Edwards
Self-evaluation in DNA of every good or great board
During my many years in governance, I’ve noted a number of traits that are perennials of every good board – and one that is deeply woven into their very fabric is a willingness to embrace board performance evaluation.
Good boards are good leaders and good leaders lead by example, so they figure that if they’re evaluating the CEO, the CEO is evaluating the managers and so the evaluation waterfall cascades down through the organisation, why should they be exempt?
They understand, too, that by looking at their own performance and being prepared to tell people about it, they’re sending a strong and powerful message: we’re not the repositories of all wisdom; rather we’re fallible human beings.
Path to Board Positions Paved with Honesty, Discipline and Hard Work
News Release for THE AUSTRALIAN
September 16, 2014
Forget the glamour and prestige of a board position.
Yes, it’s a great professional achievement, it opens up enormous opportunity and there are plenty of rewards, but getting onto a board – especially if you’re a novice – and then serving on it and doing it justice takes a lot of honesty, discipline, dedication and downright hard work.
One of the country’s preeminent governance experts, Kate Costello, whose company, Governance Matters, has been at the forefront of improving corporate governance practices and board performance for more than two decades, believes too many people are captivated by the illusion of a board position being all about glamour.
They pursue the post for the wrong reasons, they don’t fully understand the machinations of a board and they invariably become disillusioned when the mythical magic fails to materialise.
Get inductions right and you’ll reap some serious rewards
You’d think board inductions would rank highly when new directors are appointed. After all, the sooner they understand the workings of the organisation, the sooner they’ll be up to speed and making a valuable contribution.
You’d be wrong, though, as there are still too many boards mired in the old-fashioned belief that people appointed to boards are so well-credentialed and experienced that they just slot in. All they need is access to a mountain of historical board papers and minutes before being sent off to peruse the material…and with a supposedly comforting ‘…if you have any questions, don’t be shy to ask.”
If there’s ‘an elephant in the (board)room’, let’s confront it!
There’s an expression that’s become part of the corporate-speak lexicon in recent times and while I’m still now sure how it sits with me, I can say with a great deal of certainty that it pretty much sums up what I’d like to explore today.
The elephant in the room…
Yes, we’ve all heard it and understand it means that large, looming issue that we’re too frightened to address, that we choose rather to tiptoe around in meek fashion. Better still, we pretend it’s not even there.
Real Listening To Hear What Is Being Said
It takes real listening to hear what’s actually being said
A while back I was asked a pretty challenging question: what do you believe are the seven key characteristics of a successful board?
Challenging, I guess, because there are many attributes justifiably vying for a spot in the seven. And while I pondered a good number of these, it didn’t take me long to scribble down ‘listening’ as a major trait prevalent on all winning boards.
That’s probably because it’s such a flaw in life generally and in business particularly. An uncomfortable truth is that our technological society and our reliance on communication tools like iPhones and email means we tend to ‘hear’ rather than ‘listen’.
In fact, really, honestly listening to customers happens so seldom these days that you can actually gain a competitive advantage just by doing it.
Like everything else, though, becoming good at it takes time and effort. We need to learn how to listen and then practice our listening skills, day in and day out.
I’d like to think Governance Matters has been listening.
Think beyond the box and boardroom dynamics could be just a click away
The world’s a rapidly changing place and the boardroom is no exception, which probably explains why the most effective boards are those that think beyond the box and eagerly embrace whatever’s needed to keep them abreast of good governance best practice.
It’s an attitude that takes the more mundane boardroom mechanics to a whole new level of boardroom dynamics and the starting point is to look beyond the narrow confines and comfort of your business environment and discover what other sectors are doing – nationally and internationally. Continue reading