Welcome to the November 2009 edition of The Director's Dilemma newsletter. I hope you find it interesting, informative and inspiring.

I advise Boards and Directors on complex and challenging issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter considers three responses to a real issue. Which response would you choose?

Richard’s Answer

From a strategic point of view, I believe the starting point is positive and strong: the two Boards have agreed to the new structure with nine members and the nominations committee consists of the most senior executive and non-executive members.

The way I see it, there are two general approaches to change:

1. "Evolution" would support a phased in approach with full consultation among the two Boards with the expectation that the final result will be accepted by all concerned. However, those involved are passionate and the expectation is that 'intense interest', 'competition' and 'angst' will be apparent. The potential downsides could therefore be catastrophic for the new organisation with leadership focus and energies being diverted from the organisation's real objectives for a reasonable time.
2. "Revolution" would see the changes implemented quickly. There would be more initial upheaval, but the new structure would then be operational and be dealing with the issues of getting the best results for both fund raising and research. Don't forget, the Boards have already agreed to the new numbers and to dilute the outcome over time just delays the inevitable.

My approach is to propose "revolution" which would include the nominations committee taking the following steps:

1. Agreement on the objectives of the newly merged organisation.
2. Decisions on what talent is required on the Board to support those objectives
3. Understand who among the existing 23 board members has those talents. As a byproduct of this process, existing political and personal issues and any 'deadwood' may be addressed under the consideration of talent and its application. If it is politically expedient to do so, members may be asked to make formal applications to the steering committee. This would enable each board member to impartially provide their professional credentials to the nominations committee
4. Board members omitted as a result of the selection process could be invited to join Board sub-committees. This would preserve organisational knowledge and a pool of 'proven' people for future Board vacancies. Sub committees can be formed to utilise those skill sets considered worthy of retention. This could dampen the depth of expected angst and ill-feelings from the process.
5. The balance of old Board members not retained should be acknowledged with special awards for their contribution to date.
6. Get on with the job.

Richard Wineberg is Chief Catalyst at Smart Leadership. He is a former executive of The Australian Wheat Board (NSW) and St John's Ambulance.

Julie’s Answer

Lachlan needs to consider three dimensions - legal, strategic and social.

In the legal dimension he must be clear about the rules of the new body. Will one organisation absorb the other, or will both cease and cede their assets to a new organisation? The newly merged entity will need new bylaws and a constitution, supplemented by board and committee charters, director codes of conduct, etc. Lachlan must therefore ensure his proposal is compatible with the new rules.

Also, Lachlan has a conflict of interest as he wishes to remain on Board. He should discuss this with both Boards. The process to manage this conflict must be agreed by all members.

Strategically, the merged organisation must capitalise on the strengths and synergies of its two predecessors. A new strategic plan will plot how the organisation will achieve its revised mission. Based on that plan, with input from the steering committee, Lachlan can determine the skills, experiences, networks and abilities the new Board will require to govern effectively given the challenges ahead. Whilst CEO input will be invaluable in establishing the skills required, Lachlan must ensure that the new CEO does not select the new Board.

At a social and philosophical level each of the predecessor Boards had a governance framework that suited the Boards' ideas of how best to govern. Without making either of the former frameworks intrinsically wrong, Lachlan must establish a shared desire for a new framework. The legal and strategic work will underpin this new framework but it must be supported socially and emotionally.

Lachlan should involve the board members in designing the framework and establishing the charter for the new Board before deciding which members will stay. All members should be encouraged to suggest ways to commemorate the service of those who will not remain (before they know if they will remain or not).

The process should allow any member who wishes to resign to do so. Opportunities to contribute for those that aren't reappointed must be created; these must be meaningful.

Asking for ideas for how to retain talent, such as a council of Patrons, life membership, a fundraising committee, etc. will help Lachlan to understand what motivates the directors and how to retain their skills for future service. Treating the departing directors with respect and acknowledging their past contribution will help to gain acceptance of the decision.

Genuine gratitude for former service, a process based on the strategic needs of the business going forward and meaningful opportunities to contribute in other ways will give this Board a good chance to succeed.

Julie Garland McLellan is a specialist board consultant and practising non executive director.

Steven’s Answer

Lachlan should immediately convene a Strategic Governance Workshop with all existing Board members and CEOs. There will be no buy-in otherwise.

This Workshop's sole aim is to agree on key criteria, that include:

• Defining the role of the new Board (strategy, risk management, stakeholder management, legal, accountability of Board and Senior executives, etc)
• Identifying the desired balance of board member talent that represents a relevant mix of skills and stakeholder representation. For example, in trading off governance & decision making skills versus fundraising & media profile, Lachlan might propose a 7:2 mix with the proviso that the two high profile fundraisers also have the capacity to think strategically
• Reinforcing the agreed size of Governing Board (nine people)
• Establishing a transparent set of criteria for appointment to the new Board
• Establishing term limits
• Agreeing to the necessity of clear accountability measures based on the new strategic plan, and results of an annual Board evaluation made publicly available to key stakeholders
• Establish a 'High Expectations' statement (so that all stakeholders understand the high standards being placed on the new Board members)

This workshop and resultant agreed criteria will also manage the expectations and perceptions of those who believe that they should be on the Board, but can understand the rationale as to why they may not be the best fit.

From that workshop, the following outcomes can be achieved:

• Agreement on a transitional Governance Board of nine with a one-year term
• Development of the strategic plan and identifying the roles required within the new Board in order to successfully create the future that the strategy describes
• The creation of a Fundraising Advisory Body (don't call it a Board or Council or anything that might confuse people about decision making rights) that consists of key stakeholders (including the fundraising ex-Board members) with a clear mandate to raise funds
• A meaningful acknowledgement and celebration of the contribution of past Board members

Good luck Lachlan, it is all about managing people's perceptions!

Steven Bowman is Managing Director of Conscious Governance, a leading international adviser in corporate and nonprofit governance, strategy, leadership and risk.

Terri’s Answer

Let me first state that 'the devil is in the details'. Getting two groups to agree on the concept is the easy part. From there, working out the details and trying not to ruffle feathers is much more difficult. As noted at the end: "it was apparent that there will be intense interest, competition and angst."

Might I suggest a two-phase approach:

1. Develop a phased-in plan of Board reduction. If necessary, start with the 23 members for a year or two with a planned reduction to a mid-point, such as 15 members. Then in another year or two, further reductions to reach the optimal nine members. During this time, both groups will have equal representation and input into necessary development of the new organisation's by-laws, policies, and strategic planning process.


2. The second, concurrent phase would be to begin working on the details that will cause angst as the process moves forward. Determine what the best parts and 'successes' of each group are and implement those into the 'new' organization. Determine ways to use those passionate types who will not be on the Board through some infrastructure changes...if not holding a Board position, how can their skills be best used in another capacity? Chairing a major committee or fund raising event, for instance. This could be a way to reduce the current board members by 'repositioning' talented people to something that might well put their skills and traits to better use than sitting in on Board meetings. Put them where they can do best with what they bring to the table.

In my experience, there is nothing particularly easy about merging two groups, especially those with passionate members with strong beliefs about their own groups.

Terri L Maurer is the owner of Maurer Consulting Group and a former National President of the American Society of Interior Designers (ASID).

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 have been changed to ensure anonymity.

What’s New

Book review – Directors do a lot of reading. I keep a note of my thoughts on each book I read. Here is my review of Boards that Deliver by Ram Charan.

The Truth About Getting Onto Boards – I had so much good feedback from my presentation at the Australian Institute of Company Directors that I decided to re-record it and share with you. It is available on my website (you will need to use your computer's speakers or headphones to receive the audio).

Where’s Julie? – A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now divulge my non-confidential travel plans each month. Where events are open to the public I list the organiser and title. Where events are private I can only meet before or after the function and cannot divulge details.

Please call or email me if you would like to schedule a meeting or find out more about attending one of the conferences or course listed.

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. It is (still) free. As an existing subscriber you will continue to receive a free subscription when a charge is introduced next year.

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

Be an expert – I will post the next dilemma on LinkedIn. If you would like to feature next month just log on to my Q&A and type in your advice. I will pick the best answers to be published in the next newsletter.

Farewell until next issue (due 1 December, 2009). Enjoy governing your corporations; we are privileged to do what we do!

Best wishes
Julie

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711