High Performance Boards

  • Date:01 Sep 2007
  • Type:CompanyDirectorMagazine
Six years ago, Pasminco crashed and burned. Domini Stuart details how building a strong board helped Zinifex rise from its ashes.

Rising from the ashes

On 20 September, 2001, Pasminco was dismissed on ABC radio as the latest in a string of once-distinguished Australian companies either to have collapsed that year or been placed into administration.

The company had, indeed, been put into voluntary administration with debts of more than $2.6 billion. And, in the wake of Ansett’s demise, unions feared that its workers could lose an estimated $150 million in entitlements.

“Ansett is such a lovely comparison,” says Margo Cairnes, chairman and founder of Zaffyre International. “One company doesn’t exist while the other is hugely successful. One company sacked all of its staff members, the other is desperately looking for new staff because its growing so much.”

Remarkably, Zinifex rose from the ashes of Pasminco to become distinguished once again. Its market capitalisation is now $10 billion and in August 2006, the company announced a $1.1 billion profit. Last December, Zinifex and Umicore declared their intention to merge their smelting assets to form the largest zinc smelting and refining company in the world.

A lot to ask

But even as the ABC was reporting its downfall, Zinifex’s turnaround was underway. Cairnes had already been working with newly-appointed managing director Greig Gailey for a month. Her brief was to help him transform the company.

“Gailey was never interested in just taking Pasminco out of administration,” says Cairnes. “He was always set on creating a world-class company. The question was how do you create a board capable of leading a world class company given that the starting point was a corporate train wreck?”

Administrators Ferrier Hodgson chose the new advisory board. But Gailey made it clear from the start that he wanted people who were prepared to lead and to go through a process of transformation that might, at times, be uncomfortable.

“We knew we needed directors who were prepared to oversee deep transformation as opposed to incremental change,” says Cairnes. “We were very blessed in the directors who came on board, most of whom joined us because they like to be challenged. But it was still a big call. Uncertainty was everywhere; there were 36 different lenders all making decisions.”

Cairnes had just finished writing the book Boardrooms that work for the AICD and was thus very familiar with the existing research into what makes a company succeed or fail.

“I knew that the common dynamic was the social fabric of the board – the relationships within the board, the willingness to expose and deal with difficult information. How would directors deal with conflict? How would they deal with uncertainty? With Zinifex, our challenge was to give the board enough experience of transformation for them to be able to lead the company through transformation.”

Preparing for change

Cairnes began by encouraging the directors to find out more about themselves. This included gathering feedback from people they trusted and admired, and some of it was tough; even the one-on-one preliminaries were confronting.

When the board came together for the first time it was for a dinner far removed from the average social event. The directors found the floor strewn with photographs and they were asked to select any two. They then talked about them – why they chose them and what they said about their lives and their experiences.

“It was spectacular to be part of this,” says Cairnes. “What you saw was the character and grit of each one of those directors. And, what it did was build respect – not for the role but for the person in the role. Everyone quickly realised that they were on this journey with some very impressive people. It’s like being on a football team – when you’re going through the rough stuff you like to know that the people going through it with you are fit.”

“It was certainly very different from anything we were all used to,” says Zinifex chairman Peter Mansell. “We did find it quite confronting at first, baring our souls. But when we started meeting as a board, I think we could all see that the legwork had been hugely valuable in getting us off to a flying start. I think our board would say it was an invaluable exercise and made for very good board relationships.”

More soul-baring followed when the board went away for two days with senior management to discuss how they would work together.

“We came up with what I suppose you would call a list of rules – how we would operate a meeting, how we would communicate,” says Mansell. “But, more importantly, we spent two days as strangers talking to each other and getting to know each other.”

Both board and management were encouraged to talk in terms of their feelings.

“Normally, we feel something, we think something, but what comes out of our mouth is logical and intellectual – all about how we’re thinking,” says chief operating officer Paul Fowler. “But very often what we think or what we say is being controlled by what we feel. In my mind, the big breakthrough was getting people to talk about how they feel which, very often, is what’s controlling how they act.”

“If someone who has been a managing director for the last 20 years and a board director for the last five years is feeling uncomfortable about a decision, chances are there’s a good reason for that,” says Cairnes. “So let’s have a look at what that is, not wait until bad things starts to happen.”

Not high-performance

Mansell disagrees with the trend of describing any board as ‘high performing’ or ‘high performance’.

“I think this terminology creates the wrong impression – I’d say you have high performing companies led by strong boards,” he says. “It also confuses the relationship between management and the board, exaggerating the board’s role as it undermines the role of management.”

He sees a strong board as one which fulfils its governance and compliance requirements without spending too much time on them – and understands that they mean two different things.

“Too many people think that governance and compliance are the same,” he says. “I think governance includes creating an environment where the board is very open to what might be rather than thinking along traditional lines. Having strong management is also a critical part of the board’s governance function. We make sure we have strong management in place, that they feel empowered and that board members and management both have a clear understanding of where the line is drawn between their respective roles.

“Differences of opinion are fine – between board members, and between the board and management. We have reasonably robust discussions and we challenge each other. We are always courteous, but ours is an environment where people feel comfortable about saying that they don’t agree, that they have another view.”

One way that Mansell actively seeks out dissenting views is by watching body language, especially at the point when a matter appears to be concluded. “I look out for directors who say the word ‘yes’, but whose body language is saying they’re not totally committed,” he says. “That’s when I’ll ask what they’re thinking. Often they’re just looking for that bit of encouragement to talk about what they’re feeling, or what’s on their minds.

“At the end of it, we close out, going out with a unanimous view. Everyone then knows the decision will be supported at every level.”

Mansell doesn’t see this as a one-size-fits-all formula for success. “I think we’re grappling for a lot of precise answers in a world that isn’t precise. I don’t think what works on one board will necessarily work elsewhere. Chairmen have very different styles. There’d be a lot of chairmen who would look at my style and say ‘not for me’, and vice versa.”

But he does believe that the process that galvanised the Zinifex board could be useful even where one new director is being introduced.

“I generally operate on small boards where adding just one new person changes the dynamic,” he says. “This may well be an opportunity for a chairman to arrange for the board to spend a bit of out-of-session time together, getting know each other. A new board member will, one hopes, introduce new thinking and new ideas. This should inspire the others to take another look at their methodologies, comment on them and try to improve them.

“I wouldn’t have said this five years ago – I’m a bit of a convert – but I also think it’s not a bad thing periodically to revisit the relationships between board members and between board and management just to see whether there’s any room for improvement.”

The courage to challenge

Cairnes has no doubt that the board plays a significant role in shaping a company’s fortune.

“They have a responsibility to hire and fire management, and a capacity to ask questions,” she says. “Even if management is hiding information, as they do in some companies – even if they’re massaging information – if a board is asking good questions, they will be forced to think. Challenging management is a hugely important role for boards. Yes, they have all kinds of other functions, but the added value comes from getting people to think and establishing the culture.”

Cairnes believes directors need to be courageous. “What made the board of Zinifex special was its courage and its willingness to take risks,” she says. “They weren’t just taking on a challenging company, they were taking on the risk of exposing themselves. They were prepared to say how they felt and why they were doing what they were doing. In my experience with other directors, that’s a big ask.”

In terms of the process, Zinifex did little that isn’t included in Cairnes’ book Boardrooms that work.

“Knowing that there is a risk of failure and keeping quiet is far worse than the risk of sharing. Getting it wrong can be a disaster. So what’s so bad about saying how you feel if it’s going to stop you from getting it wrong? There’s enough research to indicate that that is the case.

“Success is all about forming human-to-human relationships. I don’t mean old boy to old boy relationships, I mean creating an environment where you’re able to express the emotion, where you would feel able to say ‘this scares me, I don’t feel comfortable with this, I don’t agree with you’. A lot of directors don’t want to do that. They don’t want to rock the boat. They don’t want to be seen as difficult. They don‘t want to jeopardise their chance of being invited on to another board. But, hey, it’s better to do that than to be on a board that goes belly up or does something illegal. That ruins your reputation for life.”

Interested in learning some new approaches to improving performance?

Register now for AICD’s advanced director program, Mastering the Boardroom, 7-10 October. See www.companydirectors.com.au for more information or call Liz Jeffrey, national manager delivery, on 02 8248 6620.