Welcome to the April 2013 edition of The Director’s Dilemma.

This month our real life case study focuses on the, often frustrating, role of boards in government sector organisations and how to respond when the priorities of government don't provide quite the level of support and responsiveness that directors might wish for.

Consider: Which response would you choose and why?

Tom has accepted the role of Chairman for a controversial government authority. The authority has a sensitive project to plan and implement and needs to act fast. However, when Tom accepted the role he discussed his board with the Minister and was assured that he could have input into the selection process and, somehow, that hasn't happened. A committee was put in charge of the selection process, developed a shortlist and forwarded recommendations to the Minister before Tom found out that it had happened.

Now the Minister is under pressure to accept the recommendations and appoint the board members. Tom doesn’t know any of them personally and suspects that two of them are from opposing sides of the political spectrum (to put it politely). They all look, on paper, to have interesting backgrounds likely to give useful insights to the new organisation.

There has been some delay in the process, the appointments require Cabinet approval which hasn’t been forthcoming as Cabinet has had other priorities, and a press article has appeared suggesting that the Minister opposes the appointments.

Tom accepts that the Minister will support the nominations in due course. He also knows that he needs to build a cohesive team to govern the organisation over the next few years. He has the contact details of the directors and the Minister is happy for him to start some team building before the board is formally in place. Tom has clear authority but the other directors currently have none and Tom is reluctant to expose them to any risks but keen to get started.

How should Tom proceed?

Melanie’s Answer

Tom will need to be an authoritative and active Chair to survive. Government appointments always include a political element and any Chair of a government entity, to be successful, will need a nose for politics. These appointments are also notorious for delay. Having chaired statutory entities in controversial areas, I was able to build consensus early on, drawing on the authority of the role but with a high level of emotional intelligence to read the group dynamics. I hope Tom has strong interpersonal skills.

While often constituted as individuals appointed for their expertise, these Boards nevertheless can sometimes operate in practice as representational Boards with special interests being pushed. Tom needs to push back. It is not uncommon for differing political views to be among the appointments but given the people put forward seem qualified on paper, he should go in with an open mind.

I would keep the terms of reference and a role statement as a standard part of the Board pack. He should also keep in contact with the Minister's office - they can neglect these bodies offering little dialogue after the initial start-up phase but then re-appear when least expected.

Despite not having built his own team, (not uncommon with government appointments) he can build consensus, must show respect for the people who are appointed, listen and draw together the views expressed and clear next steps at each meeting.

Having chaired government entities comprised of bitterly opposing views, you need to ensure the work of the Board is being delivered in a transparent fashion, that members views are heard, not be seen to show bias or have "secrets", establish ground rules with the bureaucrats supporting the work, ensure confidentiality of Board discussions and intervene early where any party is being divisive.

Tom will need to be thoroughly committed to the project. Though cautious, he needs to embark on a positive attitude and ditch his early frustrations with the process. If he is unable to do this, and is not up for the challenge, he needs to walk away now.

Melanie Raymond is Chair of Opportunities for Carlton Infrastructure Renewal and of Chair Youth Projects Ltd. She is based in Melbourne, Australia.

Julie’s Answer

Tom has been placed in a position of leadership and he must now lead. His Minister may not have experienced a situation where composition of the shortlist was completed before Ministerial involvement although this is becoming more common. Tom must realise that delays in getting Cabinet approval may continue (the longest I have seen was a two year delay before a board was formally constituted).

First Tom needs to find out if there is budget for director fees in the plans and projections. Then he needs to find a way to get his board to start functioning in some capacity; a board elect, a panel of consultants, or a steering group are possible mechanisms under this circumstance. Tom should ascertain the possibility of insurance and establish working arrangements that protect his board. In many instances the board is advisory until it is formally constituted as authority has not been delegated and insurance cannot be obtained. However; this course allows the directors to do the task they signed up for – make the company a success and add value to the community.

On a personal level Tom should meet one on one with each incoming director and get to know them. There is no need for any formal arrangements before two adults can have coffee together!

Coming out of the informal introductory sessions Tom will have an idea of the needs of the group regarding induction, familiarisation and possible protocols for managing differing political views and associations.  He can certainly start on those processes without cabinet approval. Induction prior to joining can be done under confidentiality agreements to allow the board to meet each other and to form some common board culture and operating agreements.

Tom should get out of the starting blocks and start running his board.

Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

Mark’s Answer

It is important for the Chair to bring the proposed board members together as soon as he can, the longer there is a delay, the potential for more uncertainty and conflict will grow.

One of the options in these circumstances, available in the UK, is to form a Shadow Board with no legal status or responsibility. This would enable the board members to get together and team build, identify potential areas of conflict, begin to understand the business model and formulate their strategic position. If the delay continues they could still begin to look at developing the vision, business plans, policies, staffing structures, financial regulations etc., when the board is a legal entity it can ratify/agree all the work it has done in shadow mode.

Shadow mode also allows for any major clashes of personality to be identified, mediation to take place and for a solution to be found (without any legal or political fallout).

It would be useful if this process is facilitated by an experienced team building / governance / organisational development /mediator individual or team of experts.

Mark Soundie is  a Director of Governance Matters UK and an Independent Community, Housing and Tenant Advisor. He is based in Merseyside, in England.

Disclaimer

The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

What's new

The perfect corporate board

Book Review - The Perfect Corporate Board by Adam J. Epstein. Most books on small cap company governance focus on adapting the rules to suit limited resources and small teams without breeching anything important. This book focuses on the different skills that are needed on a small cap board. It is particularly useful for any company raising capital (or hoping to raise capital) and for directors who are wondering why things that worked elsewhere are not as valued in this environment. I wish I had read it years ago. Adam only wrote it last year. That’s my only excuse – if you are on a small cap board and don’t read this then you will have no excuse! Available at Amazon.

The Ex-Director as CEO - A lot has been written about ex CEOs becoming directors but what happens when the traffic flows in the opposite direction and an ex-NED becomes CEO? Here is a thoughtful, and brief, consideration of some key points to watch out for.

Inspirational quote - I have subscribed to a service that delivers an inspirational quote every day. It is a good way to get into a positive frame of mind for the work day ahead. I thought I would share my favourite quote each month. This month my favourite quote was:

"Business opportunities are like buses, there’s always another one coming."

~Richard Branson

Many boards continue to pursue a business opportunity long after it has escaped. We could all learn to take Seth Godin's advice - fail fast and often. It would allow us to move on to pursuit of the opportunities we can capture. If you would like to subscribe the service is run by Darren La Croix at: http://365inspirationalquotes.com/.

Managing Conflicts of Interest - Conflicts of interest abound and, when poorly handled, can disrupt proper board functioning. Extreme examples occur in the business press on a daily basis and can lead to reputation damage for both the company and its directors. I have just developed a 90 minute workshop that addresses the issues in a non-threatening and practical manner. Feedback from the pilot sessions has been sensational. I will be delighted to talk to you if you are interested in organising either a public or private workshop.

This newsletter - If you have any ideas for improving the newsletter please let me know. If you are reading a forwarded copy please visit my website and sign up for your own subscription.

Suggestions for dilemmas - Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Farewell until the next issue (due 1 May 2013).

Enjoy governing your corporations; we are privileged to do what we do!

Best regards

Julie