Welcome to Directors Australia’s blog
Disclaimer: This blog site has been prepared by Directors Australia for the purposes of providing general information only. Nothing on this blog site should be used or relied on for legal or other advice by any party. Each party's individual circumstances may change the effect and relevance of any matters discussed.
By Kerryn Newton
Over the last decade there has been ever increasing expectations of boards and directors in terms of governance. ‘Best practice’ governance standards are set out in various standards such as the ASX’s Corporate Governance Principles and Recommendations, and APRA Prudential Guidelines.
The ASX, among other things, is looking for best practice in managing risk, clarity in respective roles and responsibilities of board and management, and a diversity of backgrounds and skills within boards. It has outlined its guidelines around eight key principles and has taken a “if not, why not” approach to their adoption.
Many such standards recommend that boards conduct regular evaluations of their performance and that of their directors. For example, recommendation 2.5 of the ASX’s Corporate Governance Principles and Recommendations expects that companies will disclose the process for evaluating the performance of the board, its committees and directors.
In our experience, organisations across all sectors - including the not for profit sector - look to such standards as an appropriate governance benchmark.
For some organisations, a board performance evaluation might seem a confronting task. Others see the requirement as a ‘box ticking’ exercise to satisfy the relevant governance requirement. However, in my experience a board evaluation can be an invaluable tool for improving and enhancing board performance.
The evaluation process enables a board to stop and reflect on its performance – which is otherwise difficult to do in a busy board calendar. Having an objective and expert facilitator enables a board to deal with issues in a frank way and draw on the facilitator’s insight from working with a multitude of other boards.
A board that is evaluating its own performance also sends a clear message within the organisation and to external stakeholders about the board’s accountability for its performance.
At Directors Australia we conduct confidential and objective evaluations and work with boards to implement simple but effective practices to improve performance. The consultants who conduct our board evaluations are directors themselves and bring first-hand board experience in addition to their board consulting experience to the evaluation process.
Examples of outcomes that we have seen from board evaluations include:
- enhanced systems for risk reporting to a board
- better defined management reporting expectations that, in turn, formed the basis of improved relationships between directors and the organisation’s executive management team
- enhanced boardroom dynamics by identifying an issue of contention between directors and facilitating a discussion to resolve that issue
- a re-structured board committee system to better align with the company’s strategic direction
- a redesigned financial report to a board focussed around key metrics agreed to by the board
- an identified need for board renewal and development of mechanisms to achieve that renewal.
Read more: the ASX Corporate Governance Council Principles and Recommendations
By Tim Murray
Managing Director of Culture Strategy Partners
Who is responsible for ensuring the organisation has a culture that supports its strategic objectives and allows it to achieve its vision?
While the leadership team is responsibility for developing, activating and managing the organisation’s culture, the board has a crucial governance role to play in a successful cultural outcome.
Performance and Sustainability
Boards exist to exercise independent oversight over companies and their management, and safeguard the interests of shareholders.
Performance and sustainability is arguably then the board’s ultimate responsibility.
In today’s increasingly competitive, complex and rapidly changing business world, there is a widening performance gap between those with strong cultures and those that are frustrating and depressing places to work. Those businesses with strong cultures will logically win the battle to attract and retain the best people – so the strong will get stronger, and the weak will get weaker.
Corporate scandals and failures
There are reasons other than just performance that boards need to focus on culture. The presence of just one of the four cultural traits below would likely have prevented the vast majority of corporate scandals and failures reported in the media in recent years. These traits give boards confidence that the organisation is wired for good risk management, and focussed on driving performance and sustainability.
- A Culture of Transparency: Transparency as a cultural trait gives the board the confidence that they are getting the complete picture from management – often referred to as a “no surprises” culture.
- A Culture of Accessibility: Closely aligned with transparency, a culture of accessibility, often called an “open door culture”, is about being organisationally open and accessible, from front line workers right through to the board. This builds mutual trust and understanding, and creates an environment in which people feel free to express their ideas, opinions, problems and concerns.
- A Culture of ‘Collective Identity’: As humans, our personal identities are shaped by the relationships in our lives. The overarching objective of your culture program is to foster the right relationships - through shared goals, shared knowledge and mutual respect – that will shape the right “collective identity” for you organisation. This leads to individuals identifying strongly with the organisation, and a collective, coordinated motivation towards what’s best for the organisation as a whole.
- A Culture of Accountability: An accountable culture is crucial to sustainable performance. Senior management have to be good at holding employees to account, and the board has to be good at holding senior management to account.
By Gerry Lambert
Directors have a number of key financial responsibilities under the Corporations Act 2001, not the least of which is to declare that their company’s annual financial statements comply with accounting standards and represent a true and fair view of the affairs of the company. Directors also have duties of care and diligence, and to prevent insolvent trading.
Recent case such as Centro have highlighted that all directors must have a certain degree of financial literacy.
Below is a non-exhaustive checklist of questions which directors might ask themselves regarding financial governance in their company.
- Do I understand the company’s financial statements and the relationship between each of them?
- Do I independently read and critically assess financial documents and statements presented to the board by management and third party advisors?
- Am I across the key financial metrics relevant to the company?
- Am I satisfied that the regular financial report to the board effectively reports on those key financial metrics?
- Does the financial report provide me with enough information, including trend and benchmark information, to form a view on the company’s financial position?
- Do I have a high level of trust in the Chief Financial Officer (CFO)?
- Does the CFO/executive management team provide appropriate assurances regarding financial matters to the board?
- Are there appropriate internal control systems in the company?
- Are the internal and external audit functions performed appropriately and identified issues properly considered and addressed?
- Am I satisfied that the board’s Audit Committee is effective (in terms of its charter, skills, performance, processes etc)?
By Donn Berghofer
Corporate Social Responsibility or CSR makes business sense.
By leveraging the unique resources and capabilities of a firm, CSR offers business an immense source of commercial opportunity and innovation.
It enables firms to make a significant and lasting social impact and to deliver a strong business result while simultaneously building long term competitive advantage.
The position, argued by Professor Milton Friedman in the 1970s, that the sole purpose of a company was to earn profits for shareholders is no longer current.
In the 21st century, the winning companies will be those who prove with their actions that they can be both profitable and increase social value..
by Carolyn Penklis
Contemporary governance practice – which is reflected in the ASX Corporate Governance Principles and Recommendations - encourages boards to use open and objective processes in filling board vacancies.
However, such processes by themselves are no guarantee of finding the right director for your board.
Effective boards are comprised of directors with the right mix of professional skills and industry experience as well as the ability to work cohesively.
Given the collective nature of boards, a number of particular considerations need to be given for successful director recruitment.
Using specialist advisors who have a personal understanding of boards and directorship will give your company a distinct advantage.
The nature, stage and strategic direction of your company will have a significant impact on the person required for your board.
For example, a director required for a start up will be different to one required for a mature company seeking to enter new markets.
The requirement will be different again for a SME company seeking its first non-executive director as part of a transition to a 『governing’ board structure..