All Above Board: Great Governance for the Government Sector
by Julie Garland McLellan
ISBN: 978-0-98719-014-7, Publisher: Australian Institute of Company Directors, Australia, October 2011
Reviewed by: Julie Garland McLellan*
Many directors of government-owned enterprises take up the role because they want to have an effect on the organisation and, through the organisation, on the society they live in and will bequeath to their children. Indeed, they are frequently appointed because the shareholder sees their passion for effecting change in that way and feels that it would add value to the board.
Even directors who do not profess a burning sense of mission will admit to a deep sense of responsibility for organisational and societal outcomes.
Regardless of what the passion is, whether it is conservation of the environment, empowerment of employees, preservation of heritage, education of youth or care for the needy, it must be controlled and focused by the boardroom processes to achieve its true expression in organisational results and societal or environmental impact.
Unfortunately for many directors, this is where the rubber hits the road and it all comes to a screeching halt.
So many things conspire to turn the desired traction into frustrating friction. In addition, although there is education (see AICD courses) available for new directors on legal, financial and procedural matters there is very little guidance on how to constructively live their passion and positively effect change through the organisation.
In addition to uncertainty about how to bring their passion to bear on the processes and outcomes, there are many other things that act as distractions: finances to analyse, planning and budgeting cycles, technology rollouts, training programs, recruitment or retrenchment activity, regular reports to the shareholder, requests from the shareholder for information or policy advice, and pressure to stick to the current agenda and processes that, ostensibly, satisfy the other board members.
Many directors are overwhelmed by this activity and, when it is exacerbated by the self-protection of the status quo, they simply give up, or wait for an opportune moment to unleash their passion. It is a moment which never seems to arrive. They are frequently good directors, diligent and dedicated, but they somehow feel that they are not really achieving all that they could or should.
Other directors strive to have the effect they want but find all their efforts are ineffective and, worse, some are counterproductive and cost them the relationships that they need as political capital to pursue their aims. They become branded as troublesome, impractical, or even unethical. They are seldom reappointed and, again, valuable opportunities to incorporate their thoughts into the board's machinations are lost.
It is important to remember that boards are teams. Board members need to strive together for team outcomes. Even if a board member has been selected because of their special knowledge of an issue and their passion for addressing this issue in a particular way, such as through community involvement or in an environmentally sensitive manner, the overall objective is great corporate performance.
Being a good team player does not mean that the new director must conform to the current team norms or be just like the other team members. That would fail to achieve the objectives of the shareholder that appointed the director.
It is important to remember that the board is not expected to perform as a committee. Committees are groups of representatives brought together to resolve an issue in a manner that is acceptable to the groups represented on the committee. This is quite different to a board, which must develop the most advantageous solution for the organisation.
The public sector uses a lot of committees, often under other names, to broker compromises to otherwise intractable conundrums. This is a highly important function and one that the sector does well. However, this is not the function of a board and new board members with extensive committee experience can have trouble adapting to their new role. This is especially so when the issue is not explicitly addressed or considered. Many people who are excellent committee members wonder why the behaviours that made them successful in a committee environment fail in the boardroom.
To get an issue addressed it is important for a board member to always place the issue in the context of either reducing the risks that the organisation faces or creating an opportunity that the organisation can exploit. Then the board can legitimately devote time and effort to the issue.
Directors wishing to learn more about how to frame issues as opportunities would benefit from reading John Elkington's book The Chrysalis Economy or David Grayson's Corporate Social Opportunity.
The position of nominee or representative directors is especially fraught. They have a clear legal duty to act only in the interests of the organisation on whose board they serve.
However, the nominee has been placed on this board to represent the views of a particular constituency or stakeholder group. This is a difficult balancing act.
If a board decision is not acceptable to the group that the individual director represents that group may reject him or her as their representative. But directors must, legally, make and support the decision that is in the best interests of the organisation and the shareholder.
The first step to resolving this dilemma is to clearly identify the issues and the relevant parties' positions. What exactly is the conflict and how far apart are the proposed solutions? Is it possible to incorporate the external stakeholders' views into the decision making process and will that incorporation influence the outcome?
If the issue can only be resolved at some cost to the organisation then the chairman may wish to refer the matter to the full board for discussion, to request that management consider and report on the proposal, or to raise the issue with the shareholder. If the full board believes there is merit in incurring the cost then the shareholder will frequently agree and, if the cost is significant or ongoing, a formal directive requesting the board to implement the proposal may be issued.
The ability to raise issues with the shareholder and to have a full and frank discussion of alternatives and costs a luxury enjoyed by boards in the public sector that private sector boards, especially those that are listed and has diverse shareholders, envy.
It is important to note that not every, or even most, issues will be resolved to the satisfaction of the nominee director. When push comes to shove the director owes a duty to the board and to the organisation that outweighs all other duties.
This should not fill prospective directors with despair. Sometimes it is an important contribution just to have an issue considered and, sometimes, it takes time and repeated consideration before a board, and hence an organisation, will feel capable of incorporating the issues into the ongoing business activities in a meaningful way.
As Chief Rabbi Jonathan Sacks expressed it, "To think and act morally, to do what is right because it is right, influences others; it begins to create a climate of opinion; good, like evil, is infectious." Eventually the board will feel the change in the climate of opinion and will adapt their practices so as to prosper in the new climate.
To bring about change directors should be comfortable with their role as leaders. They should also be comfortable with the traits that they must display in order to build credibility with their followers, both within the boardroom and beyond.
In the definition of Jim Kouzes and Barry Posner, credibility is all about the way in which leaders earn the trust of their followers and about what followers demand as a necessary prerequisite to willingly following.
Followers choose leaders who are honest, forward looking, competent and inspiring (in that order of preference). It is also important to remember that leadership is personal. As Kouzes and Posner put it "If people don't believe in the messenger, they won't believe the message". All board members should strive to demonstrate their personal and ongoing commitment to the organisation and its aims and to demonstrate their own honesty, forethought, and competence.
As the board begins to incorporate new considerations into their decision-making this will start to subtly change the strategy of the organisation. Initially the manner of implementation is affected and, eventually, the ideas infiltrate the foundations upon which strategy is based.
For a new director the first strategic planning session on the board is a superb opportunity to put some of the above ideas into practice.
Strategy begins in the hearts and minds of the team and then is expressed in words. This is the time to speak out and to affect the plan, even if the outcome is only one new KPI that indicates progress towards your passion. What gets measured gets done and, what an organisation does repeatedly it will learn to excel at and to love doing.
* Julie Garland McLellan is a professional non-executive director, board and governance consultant and mentor. She is the author of "Dilemmas, Dilemmas: Practical Case Studies for Company Directors", Dilemmas, Dilemmas II: More Practical Case Studies for Company Directors (Volume 2), "The Director's Dilemma", "Presenting to Boards", "All Above Board: Great Governance for the Government Sector" and numerous articles on corporate strategy and governance.