All articles in Volume 13 Issue 5

Staying engaged

18 Mar image

Directors facing increasing pressures of regulation, activist shareholders and business complexity are committing more time to their roles but face some resistance to what executives may see as “micro-management”.

However, “more time” does not necessarily mean “more effective” warned the Harvard Business Review at a chief executive officer (CEO) forum in New York City.

The constructive lessons for directors included:

  • Being engaged with the business between board meetings – even on an informal basis.
  • Being involved in the formation of strategy, not simply its approval – directors’ experience can add to strategy development and increase board buy-in.
  • Looking further than the CEO for talent both within the business and outside – actively reviewing the business’ top executives.
  • Acting as a conduit or mentor in different operational areas of the business – while being careful not to interfere in operational matters.
  • Asking the difficult questions on industry specifics in cases where they hold industry knowledge – challenging the CEO.
  • Anticipating the thinking of an activist shareholder. At least one director should be thinking in this way to reduce the chance of being caught unawares.

Surprisingly, the article also suggests that directors should all understand how the business or its divisions make money, demonstrating that a good board will never make assumptions.

The full article can be read here.


Finance for charities

The Institute of Community Directors Australia has released a new guide for board members titled Damn good advice for board members: Twenty-five questions a not-for-profit board member needs to ask about the finances.

The guide is designed to assist directors in keeping their charity’s finances in order and states while overseeing the finances of a company may not be the most important task of a board member, that doesn’t mean it can be overlooked.

The guide stresses every board member has undivided responsibility for what happens. It adds that while board members are entitled to take the treasurer’s word for things rather than going through all the paperwork, there is a point at which this stops, stressing that ignorance of the accounts is not an excuse.

“You’re obliged to know enough about finance to know what the financial statements are telling you, and to see where there are inconsistencies, errors or warning signs,” the guide states.

“You’re obliged to ask questions if there are gaps. You’re obliged to handle the organisation’s money with as much care and attention as if it were your own, and everybody else will expect you to handle the money with as much dedication to duty as if it were theirs.”

The guide outlines 25 key considerations for not-for-profit board members including legal information, understanding financials such as profit margins and fundraising and the sort of questions board members and directors should be asking.

The guide can be found here.


ATO assists women

The Australian Taxation Office (ATO) is encouraging women to play a more pivotal role in the small business sector, which employs almost 70 per cent of the workforce and contributes $133 billion in taxes each year.

To mark International Women’s Day in mid-March, ATO assistant commissioner for small business, Judy O’Connell, highlighted a number of initiatives to help women overcome barriers to business success. They include:

  • Small business assist, an online interactive question and answer tool.
  • An app which provides instant smartphone or tablet access to Small business assist, tools and calculators, YouTube videos, answers to frequently asked questions, news and updates anytime, anywhere.
  • Assistance visits, where the ATO visits premises and provides hands-on advice on record-keeping, registering for an ABN (Australian business number) and GST, how to complete and lodge your BAS (business activity statement) on time and understand pay-as-you-go withholding, fringe benefits and capital gains taxes.
  • An after-hours call-back service you can book on 13 28 66 for a time that suits you.
  • The superannuation clearing house and super stream, so it’s easier to fulfil your employee super obligations.
  • The small business newsroom that provides tax and superannuation news and alerts.

Currently, women in Australia earn around 17.5 per cent less than men over their working life, so the first disadvantage they face is lower levels of financial stability and, as a consequence, less access to “seed” capital to get a business underway.

On top of this, there is balancing child-birth, child-rearing and family responsibilities with the dynamics of running a business. However, O’Connell said that women have very good time management skills, which are actually a huge advantage when it comes to running a business with limited resources.

“The number of women starting and/or running small businesses is increasing, due in part to greater levels of independence than a generation ago,” she said.


Five steps to diversity

Over the past five years, sitting and former chief executive officers (CEOs) and chief financial officers (CFOs) together claimed almost two-thirds of new appointments to Fortune 500 boards.

However, according to a blog entry by Bonnie W. Gwin, vice chairman at executive search firm Heidrick & Struggles, while these executives clearly add a lot to the boardroom, this trend also means that diversity is limited – and not just ethnic and gender diversity but diversity of experiences as well.

Given that it is those different perspectives that often lead to new ideas, fresh perspectives and business value for a company, Gwin proposes five steps companies can take to ensure diversity of experiences and perspectives in boardrooms:

1. Rethink your default setting. CEOs certainly bring a lot of skills to the table, but many outstanding general managers and divisional heads possess the same skills that make CEOs such attractive candidates. It might also be worth considering presidents of universities or retired public servants who can bring qualities of executive leadership.

2. Consider top functional leaders. Many boards have been reluctant to bring on executives with strictly functional depth, other than CFOs. But a director whose functional experience is relevant to a key area of your company’s strategy can add great value. 3.

3. Catch a rising star. By searching diligently, your board can also find younger executives on the fast track to the top. As a group, they’re generally more diverse than in the past and they will furnish many of tomorrow’s CEOs.

4. Don’t rule out well-run private companies. Traditionally, many boards have been unwilling to look to private companies for board candidates. However, the surge in private equity investment has been accompanied by the recruitment of strong public company trained leaders to the private company sector.

5. Insist on a diverse slate of candidates. Often, non-traditional candidates are seen as risky. But there is enormous risk in not diversifying your board. With a disciplined search process, you can create a more diverse board without courting risk.

Click here for the full article.


Navigating tensions

Governance issues need to be more visible in social enterprise debates in Australia, according to a study by Swinburne University of Technology and the University of York.

The study, A fair trade-off? Paradoxes in the governance of fair-trade social enterprises, was co-authored by Dr Chris Mason of the Centre for Social Impact at Swinburne in Melbourne, and Bob Doherty of the York Management School, University of York in the UK.

It suggests corporate governance theories are inadequate to address the different missions and expectations of social enterprise. This is because social enterprise board members are exposed to institutional pressures to achieve financial sustainability, generate social value and build and maintain close relationships with a range of stakeholder groups.

The study tracked three fair-trade social enterprises, each operating and selling fair-trade products in international markets, over a period of six years, in order to understand how management teams in social enterprises handled tensions.

Four core tensions arising in social enterprise governance narratives were identified: social/commercial benefits, conflicts of interest, producer participation and resource pressures.

It was found that social enterprises are unlikely to resolve tensions by a reliance on new legal forms alone, and instead require explicit organisational processes and mechanisms that ensure overall direction, control and accountability for the dual mission.

The study recommends that social enterprise boards manage tensions with the following strategies:

  • Clearly articulated short-term and long-term objectives.
  • Open discussion regarding tensions and trade-offs.
  • Flexible budgeting approaches.
  • The training of beneficiaries who have direct representation on the board.
  • Careful selection of board members to balance the boards with hybrid, social and commercial skills.
  • Socialisation of board members.
  • Avoidance of unanimous voting procedures.
  • Performance measurement that includes both financial and social performance measures (i.e. key performance indicators).
  • New investment from social investors.

The study can be found here.


Innovating service

Remember benchmarking? It was the breakthrough management theory of the 80s – in which businesses strived to reach a desired level of best practice in comparison with similar organisations.

At the time a few dissenting commentators stated that it led to mediocrity and simply the “ticking of boxes”. It may well be that this view was correct with the digital revolution continuing to threaten the business models of established companies including services which currently represent 65 per cent of global GDP.

According to the McKinsey Quarterly, these service businesses need to innovate their offerings to survive and “smash” those benchmarks.

Large established firms are failing to innovate, with only a few fighting back. McKinsey claims there are three necessary elements to rebooting service offerings:

1. Focus on service innovation – akin to research and development on product development. Aim to spread the innovation throughout the business.

2. Personalise the customer experience as much as possible – perhaps even more (throw out the benchmark).

3. Simplify (and automate if possible) service delivery – complexity is expensive and large bureaucratic businesses are usually complex.

Similarly, companies need to focus on customers and look at the innovations in many industries (e.g. Amazon in retail, Uber in transportation and Airbnb in hospitality). It identified four evolving trends:

1. Higher customer expectations – they want quicker and better service, and are happy to help themselves if it improves their experience.

2. Mobile internet – which means more apps and more services (including self-service) via smartphones so the customer is never out of touch.

3. Big data – which means more analytics which should equate to better service as businesses better understand their customers and provide true personalisation.

4. The “internet of things” – with ever more devices being interconnected the opportunities are enormous – as are the threats.

McKinsey states companies that excel on the three necessary elements stated earlier, while maintaining the focus on customers will be ideally positioned.

The full article can be read here.


Stops joins CBA

Commonwealth Bank of Australia has appointed former Accenture executive and IT specialist, Wendy Stops, to its board in a move that illustrates the importance of IT experience to boards.

Melbourne-based Stops will replace Carolyn Kay FAICD, who will retire at the end of the month after 12 years as a director at CBA. Stops worked at Accenture for 32 years, most recently as senior managing director for technology in the Asia Pacific. She has worked at various stages of her career in Malaysia, Singapore and the US, and retired from Accenture in 2014.

Chairman of the CBA board David Turner FAICD said in a statement that Stops' "skills and experience will support the group's aspirations and strategic initiatives and, in particular, will provide the board with additional skills and insights in the key area of technology".

Stops holds a bachelor of applied science (information technology) and is a member of Chief Executive Women and Women on Boards.

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The Accounting Professional and Ethical Standards Board (APESB) has appointed Craig Farrow FAICD as a director.

Farrow is the chairman and partner of South Australian chartered accounting firm Brentnalls SA and is a past president of the Institute of Chartered Accountants in Australia (ICAA).

He played a pivotal role as executive chair of the merger project with the New Zealand Institute of Chartered Accountants that formed the Chartered Accountants Australia and New Zealand.

Farrow has a number of non-executive directorships in both ASX-listed and unlisted companies and not-for-profit organisations and is currently chairman of telecommunications company M2 Group, Australian Independent Rural Retailers, Tonkin Consulting Engineers and Scientists, AMPS Agribusiness, Doctor’s Health SA and General Practice SA.

He is also a director at software services provider Petrosys and Centre State Exports Group.


Boardroom Report disclaimer: The opinions in Boardroom Report do not necessarily represent the views of the publisher nor the publication. Every effort has been made to ensure accuracy, but no responsibility is accepted for errors. All rights reserved.