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IN THE END, YOU’ RE PLAYING IN THE TEAM GAME. THE CHAIR HAS TO BE ABLE TO HARNESS ALL THOSE DIFFERENT TENSIONS –INCLUDING THE ALPHA PERSONALITIES. ELIZABETH PR OUST Chair of Nestlé Australia and the Australian Institute of Company Directors
Contrast that with the track record of “board whisperers”: chairs with a reputation for getting dysfunctional boards and CEOs on track. Examples include Origin Energy chair Gordon Cairns, who has rehabilitated the Woolworths board, and Commonwealth Bank chair Catherine Livingstone, who steered Telstra back from the bellicose era under chair Donald McGauchie and CEO Sol Trujillo. So what makes the difffference? Building a good, working board doesn’t require Mensa membership but it is an inexact science: part art, part psychology and lots of discipline.
Jane Bridge, the managing director of consultancy Boardroom Partners, says the high-performing boards she has worked with over 20 years share three characteristics: a diversity of perspectives coupled with a shared commitment to the organisation’s goals; skills and experience relevant to the task at hand, with directors knowing and appreciating what their fellows bring; and a chair who can communicate and delegate and has the respect of the board and the CEO. “Other things help,” she adds, “but I’ve never seen a great board that didn’t display these three.” Bridge says the most effffective boards have no more than 10 members (organisational psychologists generally recommend fifive to nine), who are intellectually curious and dedicate “about three times the time allocated to board meetings”.
According to former banker Harrison Young, a director of the Commonwealth Bank, the task of the board goes beyond hiring and fifiring the CEO to making “applesand-oranges decisions”: diffifficult judgement calls on competing priorities and risks. He likens a great board to getting the right group for a dinner party (but making sure no-one hangs around the table too long or overdoes the pinot noir).
In his experience, directors need to tick multiple boxes on the “skills matrix” because boards always need more skills and experience than there are seats. “You want people who are difffferent, skilled and professional – and it’s almost magical how they interact,” he says. “People bounce things offff one another. And an awful lot depends on a shrewd chair who has an understanding of people dynamics and leadership ability.”
First among equals, the chair is the conductor. “Get the right chair and things get fifixed,” says a former senior director. “Bad chairs equal bad boards.” CORPORATE boards have long been a rite of passage to social status and inflfluence and offffer a lucrative post-retirement career path for a select network of former CEOs, CFOs and advisers who’ve survived the slippery pole of corporate politics, risk and ambition. (Think of three recently retired CEOs – Wesfarmers’ Richard Goyder, AMP’s Craig Dunn and Origin Energy’s Grant King – who’ve all gone that route.)
On average, directors are paid fees ranging from $93,000 to $258,000 a year – and more than $623,000 for chairing a top 50 ASXlisted company – according to remuneration consultants Egan Associates. Fees for chairing a big bank or a BHP approach $1 million. Typically, an ASX-listed company director is a white man from an Anglo-Australian background, aged 60 to 64, or if they’re a chair, 65 to 69. Female ASX company directors tend to be younger, aged 55 to 59.
But pressure is building to bust open these long-impenetrable networks. Elizabeth Proust, chair of Nestlé Australia and the Australian Institute of Company Directors (AICD), says the best boards look beyond their tenure and guard against groupthink. “They’re looking at the disruptions and asking, ‘What do we need around the table and in the executive team?’ [Otherwise] they’re going to be overtaken by faster-moving companies.”
Boards can’t afford to be complacent, she says. “That’s why getting the best chair and directors around the boardroom table – not just in gender and background but how they think – is really important. It used to be, ‘We need an accountant to chair the audit and risk committee, and a lawyer and a former CEO.’ Not enough attention was paid to broader diversity: are they strategic thinkers? Are they independent-minded?”
Proust says that while a third of board roles are filled through search firms, networks are still important. “You have to ensure that your own networks and those of others are as diverse as they can be. The old days of the men’s club as the network are behind us.”
Cai Kjaer, co-founder and CEO of network data analysis fifirm Swoop Analytics, says directors who have diverse networks are vital for future-fifit boards. These natural “connectors” carry influence that goes far beyond their boards and open channels for collaboration and community relationships.
Proust uses the AICD board renewal and its increasingly effffective public advocacy as an example of what it looks like when a board functions well. Its 12-member board meets six times a year, has a 50:50 gender split and keeps a skills matrix of current experience and future requirements. Last year, after a gap in digital skills and ethnic diversity was identifified, IT specialist Kee Wong joined the board. There are annual board performance reviews and limits on tenure (up to six years for a director and nine years for a chair).
Proust says she works to make the board effffective through regular check-ins, one-onone discussions and meeting time devoted to discussing “how we’re going and what we can do better”. Performance reviews are essential.
Diversity of views is fi fine “but in the end, you’re playing in the team game”, says Proust. “The chair has to be able to harness all those difffferent tensions – including the alpha personalities – and make sure everyone gets behind the decision.”
It’s one of those things that’s done quietly. “When you hear about disputes, that’s when you know an organisation is in trouble,” says Proust. “When there are factions and infi f ighting and no consensus about strategy, that leads to a focus on process and compliance rather than the industry. You need a strong chair because sometimes they need to move against a director or two who might be part of the problem.”
Division on a board can be disastrous. In 2015, the Woolworths board was in disagreement over the choice of CEO and entered a period of infi f ighting, while profi fits slid and investor standing bottomed. At the end of that year, Gordon Cairns replaced Ralph Waters as chair then refreshed the board and hired new CEO Brad Banducci.
Ahead of the company’s AGM last year, Cairns found himself being questioned on Twitter by a fund manager, who asked how many directors used social media such as Facebook, Instagram, Snapchat and Twitter, purchased goods through Amazon.com or regularly shopped at the company’s stores.
It’s a sign of changing times. “In years gone by, directors were largely invisible behind the corporate veil,” says Kirstin Ferguson, who is on ASX-listed private and government boards, including the ABC. “That’s disappearing with scrutiny via social media. Governance, risk, strategy, fifinancial oversight – those traditional skills are not going to disappear but the speed we need to work at will change.”
THERE’S now an increasingly impatient and capable group of aspiring directors who are keen to disrupt a boardroom model that, as Cairns puts it, is largely “male, pale and stale”.
Since 2010, the AICD Chair’s Mentoring Program has matched 250 female mentees with seasoned chairs and directors. At last count, more than a quarter of new ASX-listed
IN YEARS GONE BY, DIRECTORS WERE LARGELY INVISIBLE BEHIND THE CORPORATE VEIL. THAT’ S DISAPPEARING WITH SCRUTINY VIA SOCIAL MEDIA. KIRS TIN FERGUSON Non-executive director of the ABC
IT’ S NOT ABOUT‘ OUT WITH THE OLD AND IN WITH THE NEW ’. IT’ S ABOUT ADDING THE NEW. PAU L SMI T H Co-founder of the Future Directors Institute
company directors had come from this pool. Some who’ve gone through the program have quickly found themselves in demand, including former Best & Less CEO Holly Kramer (now on the boards of Woolworths, Australia Post and AMP) and former Random House Australia and New Zealand CEO Margie Seale (who is on four ASX boards: Telstra, Ramsay Health Care, Bank of Queensland and Scentre Group). Another, Ilana Atlas, was mentored by ANZ chair David Gonski and rapidly appointed to three of his boards. Recently, she replaced him as chair of Coca-Cola Amatil.
Under the program, former publisher Marina Go, chair of Wests Tigers NRL club and Offiffice Brands, was mentored last year by EnergyAustralia chair Graham Bradley, former chair of Stockland. Go says Bradley set out to make as many introductions as he could. Within a month, she joined Autosports Group ahead of its ASX fl float in late 2016. Her second large role, on the board of EnergyAustralia, was a year in the making.
The Future Directors Institute aims to equip gen Xers and Yers for the boardroom and help boards fif ill gaps in youth and digital thinking. “It’s not about ‘out with the old and in with the new’,” says co-founder and entrepreneur Paul Smith. “It’s about adding the new.”
With millennials forecast to account for 75 per cent of the workforce by 2025, advocates for more youth and digital smarts on boards say these perspectives are necessary for basic risk mitigation. Holly Ransom, who, at 27, is Port Adelaide Football Club’s youngest-ever director, says boards can gain insights and learn from younger people and vice versa.
Other ways boards are bringing in new blood are shadow boards (where a group of young employees tackles a problem and reports back to the board on how they would solve it) and the board observer program (where a young aspiring director sits in for a year to get a feel for what’s required, while the board gets a more youthful outlook). In the recent AICD research report From
Blind Spots to Sweet Spot, Robert Kay and Chris Goldspink of Incept Labs suggest that the magnitude and speed of disruption across multiple spheres (social, technological, fifinancial, environmental, political) brings the potential for multiple blind spots. Above all, resilience must become a core survival skill squarely in the remit of company governance.
Elizabeth Bryan, chair of Insurance Australia Group, told the Australian Governance Summit in March that boards will have to guide their companies through radical changes in their external environment, organisational structure, management and even the services they provide. Quoting from Joshua Cooper Ramo’s The Seventh Sense: Power, Fortune and Survival in the Age of Networks, she said: “We need to understand that we are not living at a normal moment.” Not a normal moment but a testing new norm. Are we ready?