The benefits of youth

Domini Stuart finds out how four of Australia’s younger directors got their start in the boardroom and the lessons they’ve learnt since then.

In the old days, Australian boards could be described as "pale, male and stale", consisting almost entirely of men over 60 with sufficient grey hair to demonstrate enough wisdom learnt from years of experience.

Today, while many of our most highly skilled and effective directors still fall into this demographic, we are also seeing a move towards greater diversity in terms of age as well as gender and background.

"Every director needs certain skills, an understanding of good governance and an awareness of his or her responsibilities but, within that framework, I think younger directors can bring real benefits to an organisation," says David Flanagan MAICD.

"One advantage is not knowing what’s impossible. When we were starting and growing Atlas, if we’d known just how hard some aspects of that would be, we may well not have tried them. But in hindsight, they were the right decisions. I also believe unfettered enthusiasm needs to be balanced with the wisdom and experience of older directors."

Flanagan became a director at the age of 32 when he founded Atlas Iron, an independent Australian iron ore business, which has since grown into a billion-dollar ASX 100 company employing more than 600 people. Now aged 40 and its non-executive chairman, he also sits on a number of not-for-profit (NFP) boards.

"I don’t think I’ve been treated any differently because I’m relatively young," he says.

"Every now and then I’ve met someone who thinks he knows it all but that’s been more about personality than age. I’ve always been lucky to sit on boards with a very wide range of people – men and women from all kinds of backgrounds and aged from their late 60s to 22."

The effect of technology

The shift towards including younger people on boards has been fuelled in part by what futurist Jim Carroll describes as a "tsunami of technology-driven change".

"There’s a need to keep pace with extremely dramatic, fast rates of change … which are often driven by a younger demographic," he says.

A typical example would be Uber Global. Founded by Michael McGoogan when he was just 16, it is now Australia’s fastest-growing web services firm and the third-largest in its space.

"We’re at the forefront of cloud services, which means the business is quite literally changing on a month-by-month basis," says chairman Mark McConnell FAICD.

"This could be very confronting for someone who expects to be setting three- and five-year strategic plans."

McConnell, 40, has been a director since he was 27, when he began working with an IT company on the condition he had a seat on the board.

He says: "Now I’m on a number of technology boards with people in their 20s and 30s and they’re definitely closer to the grass roots. And, they can generally communicate better with the 21- and 22-year-olds in the business who sometimes seem to be speaking a different language.

"There used to be a natural correlation between age and wage but over the past 20 or so years, we’ve seen young technology entrepreneurs driving a genuine meritocracy. Nowadays, if you’re good enough, you can be a CEO and extremely wealthy in your 20s, which could be disturbing for someone who views a directorship as an honorary position."

Nevertheless, McConnell also sees the value in a mix of youth and experience.

"You need a steady hand at the wheel," he says.

"Someone who has been a CEO, director or chairman for many years will have navigated a range of tricky situations and that experience can be critical, particularly when times are tough."

The effect of governance and compliance

One of the biggest challenges confronting today’s directors, and possibly young entrepreneurs who have grown their businesses in fast-changing environments, is the expanding burden of compliance.

"It’s certainly very time consuming, especially in the reporting season and particularly as most directors also sit on one or more committees," says McConnell.

"But I don’t think it’s a handcuff; governance done well actually liberates the business and can open doors. Partners, joint-venture groups and potential investors all take heart from the fact that you’ve got a good governance regime, and I think it adds to your valuation."

Daniel Mangelsdorf FAICD sits on the board of publicly listed GrainCorp and smaller private and NFP organisations. He has been a director since 2005 when, at the age of 32, he was elected to the board of the Grain Growers Association and subsequently appointed its chairman. In 2008, he resigned to concentrate on his role at GrainCorp.

He is concerned that the growing emphasis on compliance may have some unintended influence on the shape of boards in the future.

"I think the really good boards, particularly those of public companies, include directors with different backgrounds and experiences – the kinds of people who are difficult to put between bookends," he says.

"I don’t believe boards with a homogenous skill set are necessarily the best at creating and protecting value.

"Recent legal judgments such as Centro have reinforced the fact that all directors need to have a very intimate understanding of everything going on within the company, particularly in terms of the financial detail and compliance.

"That’s a big workload but while it’s a very important aspect of a board’s work, it is only one aspect of what should be a broad perspective. It shouldn’t override the benefits of having a diverse group of people around the table."

David Southam MAICD was the CFO of Gindalbie Metals when, in 2007, the company entered a joint venture with AnSteel, one of China’s biggest steel makers and iron ore miners.

At the age of 37, he was invited on to the board of the new company, Karara Mining. Now 40, he is a director of publicly listed nickel exploration and mining company Western Areas and the NFP Starlight Children’s Foundation (WA).

He shares the concern that the pendulum has swung a little too far towards compliance, particularly in terms of remuneration, to the detriment of the boardroom agenda.

"Remuneration reports take up more time and more pages than they should and still leave a lot of investors and retail shareholders confused, especially when it comes to equity-linked instruments and how you measure them," he says.

"In my view, this is a reaction to some very large payouts to a minority of people that has now worked its way into legislation.

"Boards have a crucial role to play in terms of governance, but they are also there to set strategic direction, to think outside the square for ways to grow the company and, ultimately, to improve shareholder returns.

"Thinking strategically and boldly involves the kind of right-brain thinking that can appeal to many younger directors and where they may be able to add particular value. As more time is now devoted to compliance matters, boards need to arrange longer or even separate meetings so that there’s enough time for strategic thinking and to provide their executives with the mandate to execute those strategies."

While recent high-profile cases may have inspired a little more caution, increased compliance issues are not likely to stop enthusiastic, ambitious young executives from joining their first board.

However, Flanagan is concerned that it may discourage them from joining more boards or even drive them to resign from the boardroom altogether.

"I find it particularly disheartening that some guidelines and laws appear to start with the premise that directors are only there to look after their own interests," he says.

"Directors who really are motivated to do the wrong thing will do it anyway; people who are going to break the law will break the law. In my experience, the vast majority of directors are good people who want to do the right thing for the business and the community at large. We should be encouraging and supporting them by providing them with the right protections."

Plans for the future

McConnell is now a professional director.

"I love being a director and I’m also enjoying the unique challenges that come with being a chairman, but like any job, the boardroom is not for everyone," he says.

"The litmus test for me is whether I believe I can add value to the company or, in a community or NFP setting, whether I genuinely think I can make a difference."

Southam and Mangelsdorf plan to sit on more boards and while Flanagan’s priority is contributing to the success of Atlas Iron, he also expects to join at least one more commercial board. All four are already directors of at least one NFP organisation and intend to continue working in this sector.

"I get a lot of satisfaction from working in an area I feel passionate about. I think this kind of environment helps to make you a more rounded person," says Southam.

"I’d recommend it to anyone, perhaps even as a first board role. But it’s important to bear in mind that every directorship comes with serious duties and responsibilities and that every organisation has its issues. You need to be sure of what those issues are and exactly what your role will entail, which means taking the time to do thorough due diligence before taking on any role.

"But we need new directors and we need the diversity of thinking that comes with a mix of men and women of all backgrounds and ages, so I’d also say ‘be brave’."

Lessons learnt in the boardroom

David Flanagan: I’ve come to believe it’s absolutely essential in all but the rarest of circumstances for the board to reach a consensus. If you have someone on a board who disagrees, you need to keep on talking until you tease out all the reasons why he or she has a different view. I’ve also learnt that having the right chemistry on the board is critical. You can learn a lot by taking the time to talk to potential directors and the people who know them but, in the end, I also think you get an intuitive sense of how well someone will work with the rest of the board.

Daniel Mangelsdorf: I’ve learnt the values of greatest importance to a good board are quite simple – competence, respect, honesty and integrity. When you get a group of people together who share those values, you can achieve some really terrific outcomes. It’s important to do thorough due diligence before joining any board and you must be sure of not just the organisation but also the calibre of the people you’ll be working with.

Mark McConnell: When I was younger I was inclined to take more risks. Now that I’m a bit older and have been burned a few times, I’ve become a bit more tempered in my approach. I’ve also come to see the truth in the old cliché that you have two ears, one mouth and should use them in that proportion. I’ve certainly tried to be a more active listener in recent years. I’ve also moved on from the idea that it’s "my way or the highway" – I soon learnt it takes more than one person to build a good company.

David Southam: I’m significantly more patient now. When you’re sitting on a board you may not always get the decision you want straight away. I’ve learnt that if you’ve got a compelling case, you’ll get there eventually, but you have to be prepared to work through the issues and provide more evidence without ever losing respect for other people’s views. I’ve learnt to be a better listener and also to speak out whenever I think I can genuinely add value.