Treading the Boards: Governing Arts Organisations

Arts boards exist across the spectrum of artistic endeavours, overseeing organisations which represent dance, digital, new media and film, indigenous arts, interdisciplinary arts, literature, music, performing arts, theatre and visual arts.

Traditionally, boards of directors are formed to represent the interests of the shareholders. Arts companies, being generally not-for-profit organisations, have a multiplicity of stakeholders - owners (such as gallery owners), government, the artists whom they employ, their audience and the public at large – to which the board is responsible.

The role is similar to the stewardship of a for-profit organisation in that an arts board is responsible for governance, strategy and financial management. The key difference is that arts organisations cannot raise capital by selling or issuing shares and therefore rely on government funding to ensure their sustainability.

The priority of the board of an arts organisation, then, is to balance financial risk with artistic programming; artistic vision with box office reality.

The composition of an arts board increasingly reflects both the business and artistic imprimatur of the organisation. It is common for an arts board to be chaired by a prominent business person, and to be populated with other well-known people from business and professional services circles. Depending on the organisation, these boards often also comprise members with a background in the arts; others look more like the board of a listed company.

One characteristic which is common to all these boards is that the directors have the ability to “open doors”. While the organisation is no doubt served admirably by a skilled and experienced philanthropic management team, an introduction from a well-known member of the Board will make all the difference to the success of a proposal for corporate funding or philanthropic engagement.

The Holy Trinity: Chairman, Chief Executive and Artistic Director 

                                        
One role in which arts organisations are similar to public and private companies is that the boards are primarily responsible for the recruitment – and perhaps also the dismissal – of the chief executive officer. And while the artistic director doesn’t always report to the board, he or she is at least equally integral to the organisation’s purpose, mission and often, its success. It is little wonder that artistic directors, rather than general managers, feel the greater weight of their boards.

One of the key differences between a corporate board and the board of an arts organisation is the need to manage the inevitable tension between artistic vision and financial sustainability. This frisson is never better illustrated than in the nexus of power that lies at the top of an arts organisation between the chairman, the chief executive or general manager and the artistic director.

Arts companies each manage this triumvirate differently. In most cases the artistic director reports to the chief executive who in turn reports to the Board; the chief executive may also be a director of the board. In other cases the general manager is also the artistic director. Asked whether the chairman of an arts company might occasionally feel like a “third wheel” in the triad of power between the chairman, general manager and artistic director, one chairman replied candidly: “I’m pretty clear about where I sit in the firmament. The artistic director is responsible for programming and the board and general manager work out how to fund it. As chairman, I get involved in the financial security of the company and high level strategy. I have a say in the areas where I think I should have a say, and everywhere else I try and facilitate the best result.”

The artistic director (or equivalent) can be especially powerful due to their reputation for visionary excellence and the respect they build through their audiences and the public at large. 

Managing the artistic director’s programming ambitions is a matter of balancing the purpose of the organisation, (do the performances, exhibitions or repertoire challenge audiences?), the mix of “crowd pleasers” combined with new work, and the ability to fund the program and perhaps even to make a profit.

If the artistic director has a falling out with the board it is usually over the same issue: their artistic vision is too expensive to produce.

Media coverage is rarely congenial to the arts board that executes the dismissal of a popular artistic director, and public condemnation swiftly follows. Such a reaction is never desired by an arts organisation; it is seen as poor governance to have let it come to that. Somehow the board lost touch with the dramas of personal ambition that can play out within arts organisations like a Wagnerian opera and the chairman is often blamed for the very public assault on the board’s reputation.

This article is reflects preliminary findings from an ongoing research project by this author into the governance of arts organisations in Australia. It is in part based on a continuing series of interviews with chairmen, board members, chief executives, artistic directors, artists, arts administrators and bureaucrats, corporate sponsors and private donors who participated in off-the-record interviews between March and August this year.

It is an extract of a article that was first published in the September issue of Keeping Good Companies, the journal of Chartered Secretaries Australia.

Another extract, discussing how arts organisations define and mange risk, will be published shortly.

 

iPads in the Boardroom (2)

Delivering board papers via an iPad or other tablet device is a growing trend among companies seeking cost-effectiveness and convenience. But electronic delivery of board packs is fraught with legal, risk and security challenges.

Until recently, most companies printed and bound board papers and couriered the pack to the directors prior to the next board meeting. The board packs were cumbersome, heavy and there was always the risk of the papers being lost in transit or unable to be delivered because no-one was home to receive them. There were also security issues if the packs were left the front door unattended.

Over the past 12 months, a number of companies have launched products which deliver board papers securely via an app, and company secretaries are presenting shiny new iPads to their directors. Other directors who are already veterans of using tablets to read and annotate their board papers choose to use their private iPads for all the boards on which they serve.

Where once the board table was strewn with folders, papers, stick-it notes and pens, now the mantra is BYOD:  Bring Your Own Device.

Board members believe that receiving their board papers via a tablet device is inevitable. But in the rush to embrace new technologies in the boardroom, directors must be cognisant of the potential legal ramifications of digital delivery.

In this article I illustrate this by discussing hyperlinks, annotations and passwords.

Hyperlinks

Ironically, one of the common complaints directors make about reading board papers on their tablet device is the size of the board pack. When the board pack was prepared in hard copy its thickness was obvious. The size of digitally-delivered board pack is much harder to determine and directors only learn what’s ahead for their weekend reading by the length of time it takes for the pack to download.

The download time can be related to the speed of the internet connection.  But the more common reason is the size of the pack and whether the papers feature complicated graphics. One way to overcome the download time is to use hyperlinks.

For an IT expert, a hyperlink the obvious solution to complaints about the size of the board pack and the length of time it takes to download.  The problem with hyperlinks from a legal perspective is that a hyperlink is easy to miss when a director is reading and annotating the papers.

Legally, if a hyperlink is part of the board pack the directors have an obligation to read its contents just as if it were a board paper. It’s a flimsy strategy in the event of a court case that a director will use the defence: "but it was in a hyperlink and I didn’t click on it".

Annotations

Another tricky legal area for director is annotations. There are a number of apps which allow directors to annotate their board papers easily and conveniently. The issue is less about how to make annotations than it is what to do with the mark-ups after the board meeting.

If the papers were to become material to a court case in years to come, would a director remember why he circled a word on page 43, wrote an exclamation mark on page 126 or doodled a smiley face at the bottom left-hard corner of page 152?

The ANZ Bank last year announced that under legal advice it had deferred introducing iPads to the boardroom, citing concerns about data security. “Under Australian law the annotation is a problem,” ANZ Bank’s chief information officer Anne Weatherston told The Australian Financial Review at the time. “While we can secure the board paper, any annotations you make sit outside of the network and we cannot capture them or store them as a corporate-owned document.”

The Board of the ANZ Bank now uses iPads with the papers contained in a secure app. “However there are legal risks regarding annotations,” Ms Weatherston told Boards and Governance. “As such we do not allow board paper annotations on the iPad.” 

Boards are addressing the issue in different ways. In some cases, the board papers and the annotations are deleted manually from the iPads either by the directors or the company secretary at the end of each board meeting. In other companies, this is done remotely.

Some directors who are especially concerned about electronic annotations use a small notebook in which to write their annotations the old-fashioned way, and shred the notebook after the board meeting.

Passwords

Remembering passwords is the bane of life in the digital age. From internet banking and bill paying to the websites of professional  associations, regular online shopping websites and social networking sites, remembering each and every password is very difficult and tiresome.

Board papers delivered on iPads or other tablet devices are protected to a larger or lesser degree by the level of security provided by the company and/or the app the company secretary uses. However, if the director allows the four-digit password on the iPad to be easily visible when it’s entered, the device can be easily stolen and the information extracted. Public places including airport lounges and the business class cabin of an aircraft where directors often fly are common areas of potential risk.

Two factor passwords are one way to address easily deciphered security codes. One factor is something known to the user and is a password. The other factor could be a token, a fingerprint or facial recognition.

Complicated passwords that contain a mix of numerals and letters in upper and lower case are another option to increase security - but they are much more difficult to remember.

Conclusion

When board papers were delivered in hard copy there were just as many legal, risk and security issues facing the company and its board.

The packs could be stolen, photocopied, emailed to competitors, left behind in airport lounges and taxis. The digital age has not eliminated these risks but in some ways it has made security more difficult to ensure.

As directors become more familiar with using iPads or tablets as just another business tool, downloading board papers, reading and annotating them and keeping them secure will become a matter of course.

In the meantime, creating a board protocol or policy on how papers can be kept secure is a worthwhile board agenda item for discussion.

Should company directors tweet?

He’s 63, well-educated, a former accountant-turned-bureaucrat, who has a portfolio of company, government and not-for-profit boards. We’re not meeting in a public place because the topics we’re discussing are sensitive. As a chairman, he’s seeking independent counsel; it’s understood the conversation is confidential.

As we conclude our business, we joke about what would happen if we tweeted about the meeting. It’s immediately apparent that there is nothing that we could say even if we were remotely serious.

“I’ve always thought of Twitter as a waste of time,” he says. “Now I realise that even if I simply tweeted, ‘having a coffee with Ann-Maree Moodie’, there would be a number of people who may surmise the reason for the meeting. So even for company directors just tweeting that you’re meeting with someone could be market-sensitive or could become material. It’s a game-changer.”

In the conservative world of company boardrooms, the notion of directors signing up to Twitter and having followers is incongruous. But as I’ve argued in a previous post, (“Should Company Directors be on Facebook?”), I believe it is important for board members to be active in social media in order to understand firsthand how it works.

Businesses are changing rapidly to take advantage of this new consumer-led transactional world and company directors need to have the right language in order to participate in discussions and decision-making at the board table. And they need the experience to back up what they say.

But do they need to tweet about it?                            

Twitter was created by Jack Dorsey as a free micro-blogging website. It was launched in August 2006 and became incorporated in May 2007. Since then the number of people who have signed to the site has grown exponentially.

The statistics about social media usage vary. The Pew Research Center in the United States, which is monitoring Internet usage by Americans, believes Twitter is used by 15% of adults who are already online, with eight per cent of these people using the site on a “typical” day. This figure compares with 13% of “online adults” using Twitter in May 2011 indicating that Twitter usage is steady. The small spike is attributed to the increase use of smart phones.

The word “twitter” was chosen as the name of the site quite deliberately – but it’s a word that has also given rise to the most common criticism levelled at it. The first name in contention was “twitch” because it is similar to sound a mobile phone makes when it vibrates. But it wasn’t quite the right choice. In the dictionary the word “twitch” lies not too far away from the word “twitter” which is defined as “short bursts of inconsequential information”. “And that’s exactly what the product was,” Dorsey, now the company’s executive chairman, wrote in a diary he kept during the website’s creation.[i]

For many critics, “inconsequential information” such as tweeting that you’ve just had a shower, called your girlfriend, or heated tomato soup in the microwave are all very good reasons not to sign up, to follow or to tweet.

Yet a small percentage of company directors and CEOs are signing on to Twitter, building a following and following others. Why?

Celebrities are the most successful members of Twitter – Lady Gaga, Justin Bieber, Britney Spears and Ashton Kutcher. But Twitter isn’t just for popular and successful musicians, singers and actors. Political leaders such as US President Barack Obama and recently deposed French President Nicholas Sarkozy are on Twitter; religious leaders who tweet include the Dalai Lama. Some of the world’s biggest brands – Chanel, Rio Tinto, the NFL, the Ford Motor Company - use Twitter as a way to contact their customers directly.

Yet in the US, only 19 of the CEOs of the Fortune 500 companies are on Twitter and only four per cent are believed to have a Facebook page or a Linked In profile. A staggering 64% are not involved in social media at all.[ii] Among the few internationally-known CEOs who tweet are Bill Gates, Donald Trump, Rupert Murdoch, Richard Branson and Meg Whitman. The statistics are extraordinary when compared with the number of people who use Facebook – 800 million active users.

I spoke with the few chairmen and company directors I know who use social media. The majority of these do very little: they have a Linked In account which they check irregularly. At the other extreme are the company directors who use Facebook and Linked In several times a week if not daily and have also signed to Twitter.

Said one chairman: “I only use Facebook for family and close friends in order to share photos and send personal messages. I use Linked In to develop a range of business and professional contacts and align with groups of common interest. I use Twitter to follow regular messages from people, companies or the organisations that I follow. Only about 30% of my colleagues use Twitter or social media generally.”

I mention my conversation with the chairman who couldn’t see any benefit from using Twitter. She replies:“Twitter is a way to get a flow of information on areas of interest. It can be used in a one off way to refer the user to more detailed information or it can be used for a free flowing conversation. As a company director you might be referred to something you might not otherwise know about or you can observe how conversations twist and turn and get a feel for how that could impact on your companies.”

Is it negligent of company directors not to tweet, then?

In the world of Twitter there are those who tweet and those who follow. By far the majority of people are followers, using the service to “listen in” to “conversations”. But for those who tweet, or who wonder what they might tweet, examples abound.

Rupert Murdoch tweets on topics ranging from local and international politics to business. “Bigger problem than Afghanistan is Pakistan - broken state with lots of nuclear bombs. No- one knows future,” Murdoch tweeted on July 11. The same week Bill Gates was collecting book recommendations. Australian Prime Minister Julia Gillard regularly tweets when she’s on the road although every word is countered by her array of “fake Julias”.

What to tweet and when to tweet it is a matter of common sense for a company director. There is a happy compromise to be achieved by participating in Twitter in order to learn and to experience how so much of the world chooses to communicate today while still maintaining an appropriate level of decorum, discretion, grace and confidentiality.

Tweeting from a board meeting is an obvious example of what a company director shouldn’t and wouldn’t do. In short, any piece of information that should remain confidential shouldn’t be tweeted.

But Twitter could be used to comment on a company’s new product, the appointment of a new CEO or to cheer on a cause that the company supports.

A board charter could be written outlining what directors and the company believe are appropriate ways that directors may choose to participate on Twitter. This document should make clear the purpose of directors using social media, outline the risks associated with such activity and the ways in which these risks can be corralled.

Said a chairman I interviewed: “All companies I am involved with have a risk strategy and a wide range of risks are discussed. But it is evolving just like the media itself. The biggest issue is keeping watch on what is being said and reacting quickly.”

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[i] Bloggerati, Twitterati: How Blogs and Twitter are Transforming Popular Culture by Mary Cross, (Praeger: 2011).

[ii] http://www.ceo.com/social-ceo-report/

The Risk of Ivory Tower Thinking in GFC 2.0

When the barista announced my order was ready, I noticed that my takeaway flat white had come with a bonus – a bite-sized biscuit placed on the lid. The price of the coffee hadn’t changed but my view of the café had. A simple little treat had made me feel that my custom was appreciated.

The role of the board and the role of management are different but complementary. It is not the role of a board member to delve deeply into the daily detail of management. And it is certainly the not done thing to bring minutiae to the board table. A much-cited example of such behaviour is the director of a supermarket chain who complains in a board meeting that the oranges were poorly displayed at his local.

But it is the role of the director to understand how changes to the economy are impacting on daily life, consumer buying decisions, and what competitors are doing. It is the role of the director to understand how the company he or she represents interacts with its customers. And it is the role of the director to take a “deep dive” - to use the jargon - into the everyday life of the stakeholders of the company.

As the world faces more economic downturns, there is no better way to see the impact at a grassroots level than by taking a walk around your local shopping strip. I took such a tour on the weekend and learned – at least anecdotally – that retailers are much better prepared now than in 2008/2009 as we face the real possibility of a second GFC.

The popular hairdresser had placed a sandwich board on the street with the words – “Appointments available today”. Whether it was a slow day, whether certain days are slower than others, or whether it is just a way of driving people physically into the shop it didn’t matter. The sign showed a degree of inventiveness to gain custom.

In the café , I overheard a discussion about the shop next door which had closed. “She just wasn’t prepared to sign another three-year lease,” said the café’s proprietor. Replied her waitress: “Why would she when everyone sells on eBay these days?”.

Right in front of me was a lesson for commercial property owners and agents – is it better to offer shorter leases in the current climate than risk no income from an empty shop? And for retailers, is a bricks-and-mortar presence the right way to run a fashion boutique anymore?

After decades of new management practices urging boards, CEOs and business owners to shave costs by reducing service; to sell services that were once part of the price - the tide has turned. Boards and the executive teams they work with would do well to think about the simpler points-of-difference to ensure the success of their companies in these difficult times.

Take the “bikkie” or “cookie” test – what is your company doing to make your customers smile? As a company director why not be a customer – walk into your store, visit your company’s sites, pick up the phone and wait in a “queue” listening to bad music to have your question dealt with by a “customer service representative” from your company’s call centre.

The cost of making small changes to show appreciation to your customers is worthwhile expenditure even when times are tough. And the ROI is probably greater than you’d realise because showing genuine appreciation is sadly rare in today’s market.

A new café opened recently in a major shopping centre near my office. It features a simple sign – “Please be seated for table service”. It made me wonder, when had we blithely accepted that it was normal to “pay and order at the counter” when we visit a café? Yet the pleasure I felt was strangely palpable when I realised that I could sit down, relax, and have time to converse with the friendly and helpful waiter who served me.

Is this a sign that companies – no matter how small – are returning to old-fashioned service in order to combat the forces of global economic downturns, e-commerce and information-overload?

I won’t mention any of these examples at my next board meeting but I will be asking if the CEO could prepare a briefing about staff morale, productivity and turnover, whether customer complaints are decreasing and why sales are up – because I have a gut feel about changes to buying patterns and it’s my job as a director to ensure our organisation is prepared.

What happens to the director who "rocks the boat" in the boardroom?

Boards rarely take a vote, preferring to arrive at a decision by consensus.  The most commonly cited reason for this is the perception that a board that votes must be dysfunctional or adversarial.

But what happens when a director is the sole dissenting voice in the boardroom?

There are several ways directors try not to rock the boat. It can be a policy of the board, for example, that directors give the chairman a “heads up” about issues of individual concern before the meeting.

Other chairmen encourage the chief executive to “take the temperature” of directors before the board meeting to ensure a proposal is well explained.

A director who is still dissatisfied, but is disinclined to “hold up the meeting” by digging in on an issue, may speak with the chairman or the chief executive privately afterwards.

If a board discussion has reached a stalemate, a chairman may force the issue and offer a director who has argued against a motion to have his or her name – and the nature of their opposition – formerly recorded in the minutes of the meeting.

This can be a tricky course of action though. As one director once told me : “If you are in the minority and six months later you’re proved to be right, it’s cold comfort to say ‘I told you so’ because at the end of the day, you were simply not compelling enough in your arguments to sway the board at the time.”

There is a subset category in the academic research on group dynamics that is concerned with “group think”. This is a term used to describe a mode of thinking that group members engage in when they become intent on maintaining the status quo.

When this happens, the members of the group lose the ability to think critically. If a board has succumbed to group think, it is more likely to be falsely confident in its collective abilities and knowledge and therefore become more reckless when making decisions.

Tolerance to risk is higher in groups than it is with individuals, because responsibility is diffused in group. If no one person is responsible for the decision, then all will share the consequences of the outcome. The majority model, which is used by many boards, is also a factor in the group being more likely to take the less conservative path.

If the board operates by consensus, the group decision equals or approaches majority opinion; if consensus can’t be reached, majority rule applies.

When faced with a decision that is perceived to be highly risky, board members tend to choose one of three courses of action - they seek the counsel of any board member who is deemed to be the "subject matter expert"; they call for independent advice, or; they defer the decision for as long as required in order to ensure that all the information is available.

When all other factors are stripped away, the role of the board is about one thing: making the right decision for the organisation. If we accept this premise then it follows that how a board makes decisions is a key issue of leadership for the chairman, and a key issue of process for the board.

A board can check itself against this simple but important purpose by evaluating its tolerence for dissent, articulating how it deals with a director who "digs in" on a issue, and determining whether it has a culture of too easily conforming to the majority view.

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Interview with David Gonski (2): The Curse of "Unconscious Bias"

The term “unconscious bias” has a rich academic pedigree steeped in psychological thinking. In layman’s terms, it describes the practice of judging others by stereotype: we hire people we like; people with whom we feel an affiliation. The lack of diversity on Australian boards and in senior executive ranks is often blamed on unconscious bias. In the second part of my interview with David Gonski, AC we talk about why familiarity is considered important in choosing our colleagues and how unconscious bias can stymie good decision-making.

 “We tend to choose from the circles we know and trust,” says Gonski, who is the chairman of Investec, Coca Cola Amatil and the Future Fund. “It’s regarded as less risky to take people who are already in those positions or to take people who’ve had to break in to those roles.

“But the circles you draw from won’t include diversity unless you consciously decide to make them diverse. And my theory is that it is worthwhile doing that. In fact, the actual exercise of exercising your mind to think outside of your circle is a good thing. You can create the benefits of diversity by breaking out and not just having people who are similar to yourself.”

Gonski cites the example of a board colleague with whom he rarely agreed. The director had completed his term on the board and Gonski spoke at his farewell party. “This person was from a very different world with very different thinking,” he says.

“At his farewell I stated publicly that he had created better decisions. He had done this because of his ‘needling’ and his constant questioning; I knew he would give us a hard time on any issue. But as a result, the decisions were more carefully framed and much more talked through. So he actually did a great service for the organisation. He made people think harder – and he made me think harder. I carefully checked everything he said.”

My research on “leading for diversity” at the board table concluded that chairmen who are experienced in leading boards of directors who are representative of their own type will need a set of additional skills to help them lead a diversely-composed board. The skills I identified include patience, understanding, the capacity to accept other viewpoints, the ability to listen and a tolerance for dissent - in addition to the traditional skills that a good chairman will bring to board leadership.

Gonski has the experience of serving on boards composed of men who are similar to him, as well as boards composed of a much broader range of people. He believes his style of chairmanship is congenial to homogeneously-composed boards as much as those boards which are heterogeneous.

“I would hope that my leadership style has not changed as a result of (having more diversity of views around the board tables I sit at),” he says. “I hope that I have always been inclusive and I hope that I have always led, whatever I’ve led, with a concept of diversity in it.

“However, within diversely-composed boards I think some of the decisions that have been made, the rigour with which they’ve been made and the vantage points from which they have been made may have changed. But my actual leadership style? No, I don’t think so.”

Diversity means much more than gender. Other dimensions of diversity include age, ethnicity and geographic location. There are already boards of listed companies in Australia which are diversely composed in the true sense of the term.

In my “leading for diversity in the boardroom” research I highlight the boards of Orica and BHP Billiton, for example. (See my article, International Governance: leading a truly diversely-composed board published in the peer-reviewed journal of Chartered Secretaries Australia, Keeping Good Companies, in February 2012).

The average age of company directors in Australia is already decreasing as many of the newly-appointed female directors are younger than their male counterparts. Gonski believes Australian listed entities are on the cusp of accepting “diversity” as meaning much more than gender.

“As the gender issue is addressed and moves forward, as the concept of diversity is understood more fully, and as the benefits of having both genders is recognised, it’s natural that we will want to see what benefits could be made in having diversity in other ways,” says Gonski.

The next step will be geographic diversity. “We already have some recognition of diversity of technical background,” says Gonski. “When I joined boards, most of the people on boards were lawyers. Now we’re seeing in the larger companies examples of geographic diversification – for instance, having someone who understands Asia is on the board. Someone who has lived there in an Asian country, who has worked there and who has done business there.”

But Gonski warns that exploring other dimensions of diversity may threaten the progress that’s being made on appointing women, especially at a time when 60 of the boards on the ASX 200 don’t have any female directors.

“I would hope that there’s a total positive to all of the aspects of diversity and it doesn’t have the effect of lessening focus on the gender issue in favour of the others,” says Gonski. “It shouldn’t happen, but we need to be aware of it.”

To ensure against a return to closed thinking about board composition, Gonski advocates a careful approach to using personal networks to gain a board seat.

“A personal network can be the very antithesis of breaking down the barriers to diversity,” he says. “You’re going right back to the old days when there was a club, and those in the club got the directorships and those outside the club, didn’t.  You need open windows and open doors to create good decision-making on boards.”

Interview with David Gonski (1): Diversifying Australian Boardrooms

David Gonski, AC is one of Australia’s most prominent chairmen. He has served on, and led, boards across sectors, most notably in listed companies and in the arts and higher education. As a proponent of good corporate governance, Gonski has championed diversity on Australian corporate boards, and he has actively backed appointments of female directors. In a two-part interview, he spoke to Boards and Governance about why it took a voluntary governance guideline to increase female representation in the boardroom.

“You never know with issues such as these as to whether they are a reflection of what’s going on or whether they instigate change,” says Gonski, referring to the revision of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations to promote more women in Australian boardrooms and in senior executive ranks.

“But there is no doubt that the coming of a new guideline promotes the issue as a board agenda item, it gets people talking and to start to think through whether they’re doing the right thing.”

The Corporate Governance Principles and Recommendations are voluntary guidelines for listed companies to report against annually under a concept of “if not, why not?”.  The Principles were introduced in 2003 and revised in 2007.

The changes to “Principle 3 Promote Ethical and Responsible Decision-Making” mean that companies must now establish a diversity policy. Boards must disclose in the annual report the measurable objectives for achieving gender diversity for the board as well as the progress that has been made towards achieving such set diversity targets.

The creation of a new guideline in October 2010 came at a time when the dearth of female directors on Australian listed company boards was becoming an issue of good governance. For the previous decade, the number of women on the ASX 200 had remained static – only about eight per cent of board seats were held by female directors.

Since the introduction of the new guideline, and aided by high profile mentoring programs such as that organisated by the Business Council of Australia, that figure has risen to 14.2%. (Nevertheless, 60 boards in the ASX200 do not have any female directors).

“The diversity guidelines have certainly had an effect,” says Gonski, who is the chairman of investment bank, Investec, Coca Cola Amatil and the Future Fund. “But even before they were put into effect, there was an enormous injection of discussion and consideration. And this is evident in the number of women on Australian boards now.”

A few months prior to the introduction of the new guideline, organisations such as Women on Boards (WOB) were agitating for the introduction of legislation to enforce gender balance on boards. 

WOB, which provides a registry of women who are "board-ready", had that year invited Arni Hole, the director-general of Norway’s Ministry of Children, Equity and Social Inclusion to speak to its biannual conference. Norway is well-known for introducing legislation to increase the number of women on listed company boards. Under the threat of delisting, the number of female directors rose from six per cent in 2002 to 41 per cent in 2009.

Gonski had also spoken at the same conference, telling the audience: “I would fight very strongly not to have quotas….people are foolish if they don’t have gender diversity but the way to do it isn’t through legislation.” 

Was the threat of black letter law the impetus for change in Australia? David Gonski disagrees.

“I think the new guideline was independent of any such threat (to regulate for gender diversity on listed company boards),” he told me. “I also think it was more of a possibility than a threat. Some people involved with government said that if things didn’t fix themselves it would have to be looked at; but nobody said at the time that it would be enacted. However, the concept of using legislation isn’t something that I favour.”

Gonski is well-known for mentoring women who want to pursue a board position. Boards on which he serves as either a chairman or a non-executive director have appointed women, and he has promoted women on to boards through his own network. But he concedes that the changes should have come earlier.                                                                                                                   

“The coming of more women in boards has been a fantastic development,” he says. “I’m not aware of any negativity and it has been, in my opinion, responsible for a number of positives.

“Firstly, boards are now able to draw from 100% of the population rather than 48%. Secondly, the diversity of views is a positive and the decision-making is greatly enhanced by having people who come from different walks of life and indeed different vantage points.

“There have been many occasions where having women on boards has not only taught people like me around the board table to think about things in a different way but also to solve them in a different way. But I think we left the issue probably too long. And it was wrong that it was left that long.”

In the second part of this interview to be published shortly, I talk to David Gonski about leadership in the boardroom and what’s next in the evolution of the diversification of board composition. We also discuss the concept of “unconscious bias” a term with an academic pedigree and which has become associated with boardroom diversity in Australia.

How to Win a Board Seat

Every year, approximately one-third of the 1,750 seats available on ASX200 company boards are made vacant. Most vacancies occur because the directors have completed their terms; three terms of three years is the usual benchmark.

Other vacancies arise when board members retire because they've accepted a new board appointment which is in conflict with some of the boards in their current portfolio. For example, a director would not be able to maintain a seat at a regional bank board if they then accept a directorship at a bigger bank.

Or the vacancy may occur because a director simply has too many boards to manage efficiently and properly.

Past practice has meant that the candidates who fill these vacancies will be similar to their predecessors - male, Anglo-Celtic origin, and similar professional, educational and personal backgrounds. However, more of these seats are going to women as a result of new best practice guidelines which encourage listed boards to reflect a better gender balance in their composition.

That said, there are still only about 550 positions on ASX 200 boards that are made available every year. And each one is hotly contested.

Winning a seat on an ASX200 company board reminds me of the school leaver or newly-minted university graduate who misses out on a job because they don't have any work experience. How can they get work experience when no-one will give them a job, they lament.

It's the same in board circles. The way to get a seat on a listed company board is to have a listed company board in your portfolio already.

In my previous post, "Waiting for the Phone to Ring....", I advise senior executives making the transition from a full-time career to building a new role as a professional company director to be patient, tenacious and diligent.

The traditional routes are to register with organisations that advertise board vacancies. One example is Women on Boards, a not-for-profit organisation which campaigns for gender diversity on boards across all sectors.

It's also useful to meet the key consultants in the board search industry. Most large consulting firms provide such a service; there are also a range of boutique agencies which specialise in board placement. But be careful to choose consultants who are truly experienced in board search to ensure your résumé is handled professionally.

The best way, however, is to use your personal network. If it's appropriate, let it be known that you will be pursuing a board career once you leave your current executive role. Your first board is the most critical when you're starting out as a company director because it signals to the market what type of director you will be and the type of industry you're interested in - financial services, health, mining?

The people in your personal network who will provide the best advice are non-executive directors, CEOs, chairmen, company secretaries and board search consultants. Telling your network that you're available for a board seat once you leave your current job is critical to finding your first board role. These are the people who already familiar with your experience and capabilities and are more likely to champion your next career move.

It's tempting to defer searching for board roles until after you leave your current executive role because your job is too demanding and leaves you too little time to network. But many executives in transition forget the caché that their job title and company often carries - and how quickly this is forgotten once they've left.

It's often more palatable for a chairman to appoint a new director who is the CEO or CFO of a major organisation rather than to hire someone who's been "retired" for six or 12 months as they "build their board portfolio". 

Making yourself out to be a good catch is part of the game in board circles, just as it is with applying for any new role.

The next steps to consider are:

1. writing a director's résumé;
2. preparing for an interview, and;
3. conducting due diligence on your prospective board's company.

I will cover these in subsequent posts.

An Interview with Professor Mervyn King

I first met international expert on corporate governance and sustainability, Professor Mervyn King, two years ago in Johannesburg when I was presenting at a conference. He was kind enough to meet me for a drink at my hotel in Sandton where we discussed a broad range of topics about corporate governance.

Our meeting coincided with the release of “King IIII”, the third iteration of the King Code of Corporate Governance in South Africa. Mervyn King was the chairman of the group which wrote the code.

Corporate law tells us that the board is accountable to the company but the international governance debate has moved to taking account of strategic stakeholders’ needs, interests and expectations in boardroom decision-making. So one of the key issues we discussed that evening was how to create a sustainable business, and how boards needed to be informed about stakeholder management.

Mervyn King was recently in Australia to present to the 2012 Global Reporting Initiative conference in Melbourne. He spoke to Boards and Governance about the board’s role in sustaining value creation.

“Good governance is about quality and not quantity,” says King, who has campaigned for decades to highlight the broader responsibilities and accountabilities of boards in an increasingly complex globalised economy. “It is not a quantitative, mindless, compliance exercise.”

In his books, and in particular in Transient Caretakers, King argues that corporate boards have long grown beyond their original purpose to take account of solely the interests of shareholders.

“Companies have never operated in a vacuum,” he says. “They operate in the milieu in which they are placed by their directors – and today, that milieu is a changed one.”

The stakeholder is increasingly important in boardroom decision-making, argues King. The growing acceptance of the triple context in which a company operates - financially, socially and environmentally - brings the role of the stakeholder into greater prominence.

“The primacy of the shareholder to the exclusion of other stakeholders and a single bottom line  was based on  false assumptions,” King told me. “These false assumptions of limitless resources and the earth having an infinite capacity to absorb waste were the premises on which yesterday’s companies were directed and managed.

“Today, stakeholders expect a company not to have profited at the expense of the environment, human rights, a lack of integrity or society. They expect the company to have adequate controls in place to monitor and manage material risks and opportunities. 

“Today they want remuneration to be linked to overall performance, which includes social, environmental and financial aspects. They want to be able to make an informed assessment from the company’s announcements and reports that its business will sustain value creation in our changed world.”

This theme also runs through South Africa’s Corporations Act, 2008 which requires listed and private company boards to establish “social and ethics” sub-committees.

The social and ethics committee must comprise no less than three directors of the company and it should be supported by a “social and ethics advisory panel” also appointed by the board. This composition of the panel must be broad and include representatives of the company’s employees and stakeholders as well as members of professions related to social and ethical matters. It names professions such as anthropology, psychology, education, environmental assessment, health, sociology, social services, law and theology.

The function of the social and ethics sub-committee includes monitoring the company as a good corporate citizen: is it promoting equity, preventing unfair dismissal, reducing corruption? It is also responsible for monitoring areas such as the environment, health, public safety and consumer relationships.

“The company, to be accountable and transparent, needs to communicate in clear and understandable language the “state of play” in a company,” King told me. “How else could the trustees of your pension fund discharge their duty of care to you to make an informed assessment about the sustained value creation of the business of a company before investing your money in its equity?”

One of the areas in which King III differs from Australia’s principles of best practice corporate governance is that it applies to all entities regardless of the manner and form of incorporation or establishment.

While the ASX Corporate Governance Council’s Principles are mandatory for listed entities to respond to under an “if not, why not?” regime, unlisted entities are not required to use them. However King III has been drafted so that any organisation, whether in the public, private or not-for-profit sectors, can apply its principles or explain why not.

“The exclusive approach to governance, namely the primacy of the shareholder and the single bottom line, is yesterday’s thinking,” King told me. “Today’s thinking is the inclusive approach to governance, taking account of the needs, interests and expectations of stakeholders in the decision making process but always aiming to make a business judgment call in the best interests of the company in order to maximise the total economic value of the company not its book value.

“In learning about the needs, interests and expectations of the stakeholders and by identifying the sustainable issues material to the business, management can manage and develop strategy on a more informed basis. The collective mind of the board can embed the sustainability issues into the long term strategy to give the company a competitive advantage in the changed world in which we live.

“We can no longer use the tools of decision making, such as the primacy of the shareholder and the single bottom line. We have to look at decision making in the triple context of finance, society and the environment taking into account the critical interdependent aspects of finance, human, natural, societal, manufactured and intellectual capital.”

Waiting for the phone to ring........

CEOs and other c-suite executives who announce their departure from their companies “to pursue a board portfolio” often believe that they will be overwhelmed with invitations to join boards. For most, it comes as quite a shock that offers aren’t made with the volume and speed that they expected or from the type organisations they believe to be an appropriate match to their skills and experience.

A senior company executive’s life is busy and demanding. In order for the executive to be efficient and productive, an executive assistant (EA) manages the diary, books flights, makes restaurant reservations and ensures a car and driver is ready. The phone never stops ringing; people are always waiting to be seen.

The EA is a lifeline, a diary at the end of the phone. I've seen CEOs and other well known executives walking down Collins Street in Melbourne or George Street in Sydney on the phone to their EA asking: "Where do I have to be next?"

Outside this environment, the former CEOs often find they are fending for themselves. Some lease an office and employ a part-time assistant; others share office space and secretarial support with like-minded people. “Of course, I look after myself these days,” is the clarion call of a former executive in transition to life as a company director.

For the most part, the executive must adjust to a new life of being self-sufficient: booking their own flights, catching taxis, typing their own emails, making follow up calls. Some former executives even confide to me that they’re worried they’ll have to return their membership card to the Qantas Chairman’s Lounge.

As Helen Coonan, a former senator and now non-executive director of casino operator Crown Limited, told The Weekend Australian newspaper: "Things like (having to drive) yourself everywhere. It's a big shock."

But the least understood challenge for most former executives - or former politicians - who are “building a board portfolio” is the wait: the wait for the invitations; the wait for calls to be returned; the wait between appointments. “You have to be patient and resilient because it never happens as quickly as you expected or wanted,” one ASX 200 director told me.

The yardstick is a minimum of two years – of networking and endless coffee meetings in hotel cafes, of waiting for invitations, of being interviewed by board nominations committees, of learning to cope with not being chosen and of dealing with the disappointment and frustration that can follow.

No longer the centre of attention the former executive can find himself outside of the sphere of influence, increasingly isolated and seemingly marginalised.

Making the transition from an executive career to a company director is a tough adjustment to make. My next post on this topic will offer suggestions and ideas for how a serving CEO can start planning for post-executive board career, and how those “directors-in-waiting” can make the transition easier.