The Future of Directorship

On the 14th of March 2012 David Gonski made a presentation at the Australian Institute of Company Directors luncheon on the future of directorship.

His speech was thought provoking and whilst I didn’t agree with his position on all of the topics, the consensus on our table was that his views were thoughtfully developed and he was open to counterpoint views.

He contends that the most significant issue facing company directors in Australia at least, is that the general public doesn’t understand what directors do. Due to the complex nature of legal frameworks and competing stakeholder interests, perhaps many directors also aren’t sure what the requirements are to discharge their respective duties.

David Gonski at AICD Perth
David Gonski at AICD Perth

The public, perhaps many in government and some of judiciary think directors can be – and are – on the top of everything going on within the business – and this is simply not possible, particularly in businesses that are complex, and globally distributed.

In the past the paramount onus for directors has been to look after the company and its shareholders. Now that is no longer true, nor sufficient.

There is a responsibility to many different stakeholders, and it becomes a complex issue in determining how to manage them.

  • Shareholders may be very transient, having shares in the company for no more than 20 minutes during a trade – so acting in the shareholders long term interests in this scenario can seem somewhat counterintuitive.
  • Monitoring of the business is constant, and information is transferred to the web almost instantly.
  • Shareholder activists are not necessarily acting in company interest but one of an alternative agenda.

Gonski’s view – even given this complexity –  is that the duty of the director must be about company first and foremost. However in the current day and age, consideration must be given to the community “licence to operate” and market place perception, as well as purely the fiduciary duty to act.

Singapore provides an interesting case study in applying board diversity, says Gonski, and a model to follow. They have taken an view that diversity of age, gender, business discipline and geography is vital to achieve a robust world view, and better decision making, and have structured their boards accordingly.

Minds of directors need to be broadened, and Gonski encourages directors and CEO’s to have interests other than business to be more well rounded.

A few other observations:

Gonski states that the issue of executive remuneration is significant, and the distinction between the haves and have-nots will be better resolved with more communication. In a free market system, the need to get the best person, need to reward appropriately is important. Companies have typically done a poor job of explaining how they have arrived at their conclusions and remuneration reports. A pop star earns vast amounts of money yet a CEO is not considered to be in the same class in terms of talent or deserving of the same sort of rock star money.

My view is that this is one area where no amount of communication is going to allow the general public to feel comfortable with companies on one hand cutting jobs and on the other hand handing out large executive bonuses, irrespective of the level of explanation. There has been too many poor examples of poor company performance and high bonuses in recent times. Income inequality is growing significantly.

On AGM’s
Gonski’s point of view was that the current structure of AGM’s being a means of forcing votes for decisions isn’t ideal. He contends that the AGM could operate as more of a discussion forum rather than decision making, and as a means of building engagement with shareholders.

I believe this to be a really interesting idea, one that will need some work to execute well. If the prize is a much more engaged (and it theory, loyal) shareholder base, it will be a good outcome. Companies of course have to listen to their customers on a daily basis – particularly given the rise of social activism.

On Governance
David Gonski’s view is that the public are not ncessarily convinced directors on top of governance for their businesses. To my mind that highlights the points of the general public not understanding the role of a director, and the sensationalism of waste, excess and job cuts.

A concern expressed from the audience was that sometimes fear and a short term focus can lead decision making away from growth and towards a risk adverse approach. Committees focussing on specific risk areas are a very positive approach and do yield results.

Qualities in good directors

  • Need an open mind
  • Must be hardworking
  • Need to be able to put across their point of view strongly without offending or breaking down the collegiate atmosphere needed in a board setting

On Politics, Business and Academia

David Gonski expressed disappointment in that it is rare for politicians to have experience in business – and also academia. Business people rarely end up in politics, so as a result it is not diverse, and this is different to the USA in this regard.

Gonski’s closing message was the important of respecting people for what they do both in the workplace and personally. He certainly won over the audience with his clear thinking and well expressed point of view – the clear qualities of an excellent chairman.

Importantly he also got people talking about the issues he raised, and we had a lively debate on our table as a result. I hope that this post serves to stimulate more, and if you have the opportunity to hear David speak, take it….

 

AICD Company Directors Course

Perth Old Boys School

Home to Chatham House

Having completed the Australian Company Directors Course, I run the risk of sounding like a paid advertisement… BUT if you have contemplated doing this course, don’t hesitate, just do it. The quality of presenters and the work that has gone into preparing the course material is utterly first rate. I must say I have also learned a great deal from the participants who are all business leaders in a wide range of fields, and it is the interaction with the other participants as well as the lecturer that is the most valuable.  As in any learning, you only get out what you put in. There is a lot of reading material and preparation for every week. The case study material is really strong and gives you a very good grounding for all facets of directorship.

Since completing the course, I have been invited twice to speak to potential participants about the course and what they should expect. I completed the 10 week course, but many people undertake the 5 day intensive, and the residential is considered by AICD to be the best option to take – but it is the most expensive.

Make no mistake there is a lot of reading. You receive two comprehensive manuals. I read the manuals in full twice prior to starting the course, then read each chapter and undertook the prep work before each weekly session, then read it twice at the end to ensure I prepared well for the assignment and exam. As I paid for the course myself, I wanted to make sure I really knew the material. When you are in a boardroom situation, you must come prepared and you should treat this no differently.

I liked the weekly sessions as it enabled some contemplation and digestion time for the content, and I would recommend that approach. That said, many others have said to me that the 5 days is a really good way to complete it as well (particularly if you travel frequently).

There are a couple of issues I found with the course: the online examination created a number of problems for people in our group. As a proponent of internet technologies, I’m sure this will be ironed out, and AICD have enabled the web exams to cater for scenarios where coming to a location to undertake an exam isn’t realistic.

The other issue I had was the complete lack of a mark from the exam and assignment. A very small percentage of the national graduates are awarded a distinction, however there is no feedback at all. I believe AICD will do something about this in the future.

Some of the participants have agreed to continue to meet monthly, so we have created a group we called Chatham House, based on the application Chatham House rule. If you are after the original Chatham House group here which is home of the Royal Institute of International Affairs, is a world-leading institute for the debate and analysis of international issues.

In summary, an outstanding course and I highly recommend it to anyone that is either a director already or contemplating becoming one. Interestingly around one third of the participants in the course decided never to become a director due to the current liabilities that exist in those roles. This is an area that needs significant attention in our legal frameworks.

The West Australian vs WAN

Last week I attended, along with around 1100 other people, a presentation given by Kerry Stokes as part of the Business News Success and Leadership breakfast series.

Kerry and Peter Gammel approached Business News to hold the breakfast with a key aim in mind – to attract solid support from Perth’s business community for his bid to obtain two board seats on the West Australian Newspapers’ board. Judging from the support and response that I heard from the room, I got only the view that his approach had worked.

He made some interesting points, which I quote here from memory:

  • The West Australian Saturday edition is likely to be outsold by The Sunday Times very soon – something I never would have dreamed would ever happen when I was involved in buying significant press for clients in my advertising days pre-2000
  • Distribution to regional centres is solidly falling due to deliveries arriving far too late
  • The supply chain is just not getting a fair share of the revenue slice, with no increase in payment in many years

His personal contributions and business success have been very positive for Western Australia, and innovations, such as giving media training to apprentices working at Westrac so that they could effectively communicate with customers, are simple and clever.

So, what of the strategy – effectively attacking the board for not driving better performance with the underlying message that management isn’t innovative enough, customer focussed enough, nor is the content interesting enough.

Much of the criticism can be laid at the feet of editorial direction, which has taken a real issues driven approach. The Sunday Times has made leaps and bounds in improving its product (which frankly used to be terrible) and deserves the success of improved readership.

However, some of the issue is the changing demographics of the readership audience. The West used to be compulsory reading for me daily – but my readership habits have changed.

I now getting my morning fix of news from:

As you can see it is the business stuff that I prefer to read and need to be across. I lost my faith in The West when I heard a journalist ask the CEO of Coca-cola Amatil if they were looking at the then Peters and Brownes milk assets. The CEO responded, “we are not particularly looking at them, but if something were presented to us, and we felt it was a fit we would consider it”. Guess the headline, “Coca Cola Amatil eyes Peters and Brownes milk assets”…

Having had my shot there (bearing in mind that in dealing with the advertising folk at The West, I found them very helpful, very customer focussed and keen to ensure results – I didn’t have a negative experience with anyone there at all), perhaps it is worth looking at the other side of the argument.

Copied directly from the West Australian site:

  • There is a significant risk that Mr Stokes and Seven Network may gain effective control of WAN without paying a control premium
  • Seven Network is a direct competitor of WAN, creating potential for recurring and systemic conflicts of interest
  • The criticism of the board and the company by Seven Network and Mr Stokes ignores WAN’s strong underlying performance and profitability
  • The focus by Seven Network and Mr Stokes on recent results ignores the fact that WAN’s recent dividend payment was affected by abnormal events and that the final dividend for the 07/08 year is expected to be significantly higher than the interim dividend
  • The company has a clear strategy in place to generate significant value for all WAN shareholders

The above points are explained in more detail here and worth a read, particularly given the similar approach taken by Kerry Stokes to secure his place into Seven would appear almost identical, and that there is absolutely no question that Seven and WA News compete for media dollars and increasingly will be competing more and more online.

Whatever the outcome, there will be plenty of pressure on the board and management to improve results.

The author does not have shares in either The West or WAN, nor Business News.

The Fish Rots From the Head

This week I had the great pleasure of meeting Professor Bob Garratt, author of the above book amongst others. He was in Perth to present on “Directors and their homework: developing strategic thought”.

The presentation was interesting and through provoking and particularly highlighted the ever growing demands on directors, as the scope of what is considered to be doing an appropriately thorough job continues to grow and the essence of what constitutes good governance becomes clearer.

One of the many things covered that I found refreshing was his bias to jargon free simple statements of strategic direction and intent, and using tools such as PPESTT analysis as a board developmental tool.

PPESTT is:

  • Political environment
  • Physical environment
  • Economic Environment
  • Social environment
  • Technological environment
  • Trade environment

His suggestion was to work in buddy pairs with a director and senior executive and address one of each of the above in real detail with quarterly feedback sessions to the board to constitute no more than 4 sides of A4 paper, thereby covering all of the above over 18 months.

The real purpose in doing so is to get quite a different macro view of the world and really lift up to another helicopter level. Further it will make board members consider the daily news intake in a different light in relation to the critical job of setting and guiding strategy.

A good idea – and also a book worth reading.

I asked him at the close of his presentation about how the nature of board relationships had changed since he published “The Fish Rots From the Head”. Interestingly there are now organisations that are monitoring board interrelationships, which is important in assessing independence. He went on to say that whilst there was a big improvement in this area, nurturing new talent is an important and ongoing job. In addition, the evolution of corporate governance is far from complete with financial market players, their machinations and their impact on share price being a key issue needing addressing by market regulators.

I’d go one further and ask how the role of independent audit by the top tier firms still leaves only the directors exposed in a meltdown, even if the auditors should have uncovered the issues.

Are Directors distracted by compliance?

I recently attended a workshop held by the Australian Institute of Company Directors that was discussing the challenges of compliance, particularly related to the continuous disclosure legal requirements of Australian companies. The intent of the requirement is to ensure continuous disclosure to ensure an equally and adequately informed stock market.

A case study was presented of various situations in which a company might have disclosure issues and when to disclose. For example, a heads of agreement is at a draft stage – but commercially sensitive. Any information made public about the deal may actually kill the deal – but legally the company is required to release a disclosure statement to the share market. How do you do that appropriately?

In speaking to various directors after the event, I posed the question that the very high bar set in meeting compliance requirements might be distracting directors from the core job of creating value for shareholders and continuing to innovate. One of Perth’s leading directors agreed, and also expressed concern that high caliber people will be less likely to pursue directorships. Another indicated that it was his view that most boards worked out how to deal with compliance quickly, and were then able to get on with the job.

Unfortunately the minority of companies that perform poorly and unethically tend to create problems for everyone else. I sense that compliance is imposing too much – however, perhaps it is a necessary evil to protect the interests of shareholders and business partners.

Strategy – bringing online and offline together

Richard Koch and Peter Nieruwenhuizen have written an enjoyable and practical read on strategy as it applies to business. It asks 10 key questions that are the useful questions that need to be answered when taking over or trying to get the better out of a business.

The questions are:

  1. What business are you in?
  2. Where do you make the money?
  3. How good are your competitive positions?
  4. What skills and capabilities underpin your success?
  5. Is this a good business to be in?
  6. What do the customers think?
  7. What about the competitors?
  8. Should you do something else?
  9. Who are we? What will we do?
  10. How to raise profits quickly?

Each of the chapters looks at a question, and then details how to answer it, with two case study examples.

One of the neat ideas that they have applied to this is that they have developed their own software – which is a neat way of extending the capability of the book, and to get people to visit the www.simplystrategy.com site. In my view I confess I didn’t find the look of the software compelling, and the site left me a bit flat – but the book is an excellent read and I heartily recommend it. The way to use the software is described throughout the book, however it is not pushed on the reader. It is clear that the authors have used the tool as a part of the strategic engagements they have led.

As an alternative, you might like to take a look at www.planhq.com

Obviously derived from BaseCampHQ heritage, it provides an approach to developing a traditional business plan. Like so many Web 2.0 sites, free trial for a month is available.

Happy strategizing!

The Superhuman Boss – unrealistic expectations and how to manage them

Unlimited capacity – wouldn’t it be great to be able to deal with immense volume without experiencing stress or conflict?

Much of the challenge exists from pressure below and above – pressure below comes from a multiple of staff that need to direct information to or access information from their boss. From above, the challenge is “I deal with twice the volume you deal with, so cope”. It presents an unhealthy scenario for all parties, and increasingly I believe provides risk to organisations in terms of the negative health effects of these kinds of jobs.

However, how can you progress if you can’t deal with stress? Can you be Superhuman – it seems that the leader must be someone with greater appetite to work hard, and must be really smart in solving problems.

How do you fix it and focus? Concentrate on a bunch of things you will not do any more – cut, cut, cut and focus on those things that deliver the results that you are measured on. Share the challenge on priorities with your boss and make sure your relationship with your boss stays strong. Take some time out to breathe. Push back on requests for your time – if they don’t add to the goals you have been set, then avoid doing them.

This is partly a time management question, and partly a question of negotiation.

If you have had a scenario where you felt you had to be the superhuman boss, please share your experience – or if you feel your boss seems to be superhuman and your admire them for it – or are worried about them – then share that too. I look forward to your feedback….

Talk to me in numbers – applying metrics to business success

If you have ever found peformance issues and the reasons being given seemingly incredibly complicated, then perhaps distilling the essence back to the number only may be the answer you are looking for.

For example, let’s say sales performance is down. A person can provide any number of reasons, incredibly well argued, as to why their sales performance is off. Or why they missed their last deal. And if they are any sort of sales person, they should be able to be pretty persuasive in their argument as they probably have been constructing in their minds for some time!

So how do you reshape the nexus of this? Well, get back to the numbers and the causal factors of success.

Step 1: Fishbone the profit and loss statement to look at where the revenue comes from

Step 2: Drill into the customers spend to determine which customers, what product lines, and which sales when.

Step 3: Determine the causal steps ie activity, necessary to get the success you need. For example, to sell $10 million of a service, you may need to have generated a sales pipeline of $30 million if you close 1 in 3.

Step 4: Determine the metrics that make sense around the steps to get to the target. For example, to get to $30million pipeline, you may need to have qualified $60 million of opportunities. If each deal is $10 million, it is 6 deals. You then track activity to create deals – number of presentations, meetings, sales calls, product demonstrations, roadshows and events.

Step 5: Turn the above into simple numbers next to boxes and track that against performance. This will in turn drive activity that leads to success and also may provide some focus to improve success rates on each successive step.

Used correctly, the above approach can move to an empirical analysis of activity that reinforces the right behaviours, and also how you can help along the way, and quickly ends long and unfruitful discussions.

If you have had a good experience – or a not so good experience – in applying metrics to your business, please leave a comment, I’d appreciate your feedback.

You can’t get stuck in a rut – dumb business thinking to avoid Part 1

©Mark Eveleigh / www.thewideangle.com

Business and leading people can both be hard and easy.

Getting stuck in a mental rut is also easy, and no wonder as making a similar decision based on past experience makes a lot of sense. It saves time, allows you to move onto the next task. But it also can increasingly become dangerous without some benchmark or checking from time to time.

The Harvard Business School published a book on Decision Making, 5 Steps to Better Results.

After your first step (buy the book) the 5 steps are:
1. Establish a context for success which is about setting the stage for making a good decision and involving the right people in the process
2. Framing the Issue Properly to make sure you are tackling the right question with the right constraints on an outcome
3. Generate alternatives through brainstorming and other techniques
4. Evaluate alternatives
5. Choose the best alternative

The book also covers a range of other issues that are really useful in considering ways to get to a smarter more considered organisation and team.

When I was a child, my father would take us to school. Sometimes he would go a completely different way to normal and make us late. When asked why he was taking the longcut, he would reply, “you can’t get stuck in a rut”.

My children also complain when I take a longcut. When I tell them “you can’t get stuck in a rut” their response is, “yeah, but carts are from the olden days when Grandad was a boy, there are no such thing as ruts now”. I do remind them that my Dad also got to enjoy sealed roads in cars….

Thanks to Mark Eveleigh for permission to use the above pic – ©Mark Eveleigh. Visit his site at for a range of great pics…