Dear reader,

Welcome to the July 2015 edition of The Director’s Dilemma.

To read this email in your browser, go to www.mclellan.com.au/newsletter.html and click on ‘read the latest issue’. 

This month our case study investigates issues associated with a government company awarding employment to employees that do not meet the advertised criteria or seeking a waiver of the salary guidelines for the position.

Undurra chairs the remuneration committee of a government sector board. The Committee workload is usually light; the key task is an annual review of the CEO’s KPIs for the coming year and performance for the prior year. The CEO recommends KPIs and targets for his direct reports and the government has salary scales which effectively bracket the pay available at each level of the organisation.

The CFO was a chartered professional accountant and the board were confident and happy with his performance. He has recently resigned as he felt the money was not enough recompense for his skills. The CEO undertook a search process advertising the salary scale allowed by the Public Sector Awards Board guidelines. Only two people responding to that campaign passed muster: One is a qualified accountant and is asking to be paid more than the top of the salary bracket, the other has been doing a similar role for many years in a comparable NFP organisation and has great references but is not formally qualified.

Now the CEO is in a quandary because if he can increase the ‘salary cap’ he feels he could get the former CFO back but if he can’t get a special dispensation to pay more he may have to take an unqualified applicant. Undurra has canvassed the issue with her committee and they are divided on what strategy to follow. Half argue that qualifications don’t matter as much as ability but the other half argue that they can’t accept an applicant who doesn’t meet the advertised criteria. The CEO is fearful of doing the wrong thing, and the accounts department is already struggling following the loss of the CFO. To make matters worse the junior accountants already in the department have somehow got news of the problem and are claiming that they won’t work for a boss who is less qualified than they are.

What can Undurra do?

Undurra and the remuneration committee have several viable options:

1. Establish a selection committee comprised of Undurra, CEO and a Staff representative to:

• Investigate and explore the real world and demonstrated experience of the former CFO from the current applicants
• Challenge the qualification criteria and assumption that a CFO needs an accounting qualification
• Discern and weigh the benefits of the applicants' experience
• Evaluate applicants' understanding of the culture and realities of working in the sector
• Frame a discussion that working towards a qualification may be a future requirement for the position
• Outline real constraints with Salary Cap for organisation and sector
• Explore KPIs and possible bonus arrangements

2. Encourage the executive team to work on culture and its link to the employee value proposition. Outline the constraints, dilemmas and opportunities involved in working for the organisation.

3. Factor in a job life cycle approach, understanding that you are unlikely to get the city's top CFO applying for the job or to keep an incumbent beyond a certain time period. (Unless of course they are doing it for the better good of the state, country etc.). Given the response (2 candidates) the selection criterion needs to factor skills and experience vs. potential for development and growth.

4. Ask for a review of the Accounts department and mandate that the CFO's role accommodate more of a strategic and business partnering role.
  
5. Encourage the CEO to seek a mentor to assist in decision-making, strategy, executive team development and organisational dynamics.

6. Offering the job to the previous CFO is the least preferred option (they understood the constraints and decided to leave for their own reasons). It sets a negative precedent for other staff.

Dr Eugene Fernandez Metanoa is Managing Director of Metanoa Integrators. He is based in Sydney, Australia.

This is a government owned company. Probity is important. The company cannot award the job to a candidate who does not meet the specific criteria advertised. It would be unfair at best and could leave the company defenceless against allegations of corruption or favouritism.

Compliance with myriad additional rules that do not affect private sector organisations is also important. The company cannot set its own salary scales, although this is something that commercial enterprises would do without hesitation. 

The CEO must decide if he wants to recruit the more expensive candidate and seek to reclassify the role to access a higher salary band or if he wants to readvertise with reduced requirements around the formal qualifications (and possibly compensating increased requirements for length and quality of experience). Even if the current successful but unqualified applicant is the eventual choice arising from that process it will be a transparent and competitive selection rather than one that breaches its own criteria.

Undurra must be sensitive to the frustration and also to the issues that delay is causing within the business. An interim CFO appointment, as a short contract arrangement, may assist in meeting the current needs without breaching the salary range rules. Undurra should investigate that possibility (the rules are different in different government jurisdictions). These short term arrangements are often not subject to the same restrictions as permanent roles.

Once the CEO has made a decision that strategy should be implemented as quickly as possible. Given that a direct advert has not produced a satisfactory result the board should also consider encouraging the CEO to use a professional executive recruitment firm as that may produce more candidates - hopefully meeting the criteria - within a shorter time frame. The recruiter may also be able to suggest arrangements such as job-sharing, part-time roles or special leave arrangements that may allow the company to employ a high quality applicant on a less costly package.

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

Undurra must consider a few things before she makes her final recommendation including:

1. Firstly she must be mindful of the cultural/motivational fit into a good team of anyone new.

2. Obtaining special dispensation to the Public Sector Awards Board Guidelines would enable the offer of a higher salary package. If so, this would solve the problem as:

• Undurra could then try to entice back the old CFO, if he hadn’t already secured another role. This creates its own issues though as the team are aware of the reason the CFO left in the first place. This could unsettle the team as they may feel aggrieved and follow similar behaviour patterns in order to secure better remuneration.
• Undurra can then proceed to the other qualified candidate. This is the more appropriate solution as this person would not be aware of the guidelines and the team members would be none the wiser as to the salary package of the new CFO.

If no special dispensation is obtained, the cultural/motivational fit becomes more of an issue, with junior team members not wanting to work with a less qualified leader. Undurra must review the Guidelines with reference to the qualifications required for the CFO role. If the less qualified candidate is selected and junior team members leave, this creates an even larger disruption to the team and deliverables.

Another more time consuming option, since the departure of the CFO, would be to re-advertise the role.

George Paradisis is a financial leader, client services and governance professional. He is based in Sydney, Australia.

Book review - Eyes Wide Open by Robyn Weatherley. This book straddles the boundary between advising directors on how to evaluate a potential board seat and how to perform once they have accepted an offer. I had the great pleasure of briefly meeting the author during her involvement with the AICD NAB Board Ready Program. In this book she synthesises much information from that elite program and extends it with the benefit of her own experience inside real world boardrooms. The best aspect of this book is the refreshingly simple conversational prose. It really does feel like a fireside chat. A valuable and purposeful chat but a comfortable and enjoyable one also. Read more ...

Evaluating Governance Effectiveness - In July, August and September we will take the course to Sydney, Melbourne and Brisbane before returning to Canberra in November. I do hope that some of you will join me. The June course in Canberra was a fantastic master class with an impressive group of senior governance practitioners who really relished the opportunity to apply their own experiences and current governance theory to the issues facing their boards.

Full details are at
https://www.liquidlearning.com.au/llg08/July/evaluating-governance-effectiveness-masterclass-2015-july.html

Early booking is advised as places are filling fast.

Inspirational quote for July - This month my favourite quote is:

“The lucky few who can be involved in creative work of any sort will be the true elite of mankind, for they alone will do more than serve a machine”

~ Isaac Asimov ~

This prescient statement was made in 1964. As directors we are fortunate to have roles that are challenging and creative. We also have a duty to ensure that our organisations are designed to provide challenging and healthy workplaces for an increasingly frustrated workforce that needs inspiration as much as control.

O’Leary & Partners - This newsletter is now edited by the newest Partner in this boutique advisory firm - me! The recent ASX changes recommending skills matrix reporting for board and senior executive teams prompted the bringing together of my specialist practical board advisory skills with O’Leary’s rigorous competency and skill assessments. Together we can offer an insightful, practical and disclosable review as well as assist in recruiting to fill any identified skills gaps. If you would like to discuss how we can help your board to complete a robust performance review or board selection please call me.

Looking good on radio - The interest in the governance of FIFA was a hot topic around the world and I was happy to provide some insights to Linda Mottram of ABC 702 during her insightful inquiry into what the board should or could have done to avert the crisis and, more excitingly, what governance changes might be advisable in the future to help rebuild trust in the organisation behind the great game of football.

A note on names - A few readers have asked me where I find the names for the protagonists in each case study. I can only say that I 'steal' them from people I meet or things that I read. Undurra is an Australian name of Aboriginal origin. I believe it is the name of a particular variety of silver wattle tree. Whatever it means I thought it was beautiful.

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 August 2015). I look forward to greeting you again then.

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

Best regards,
Julie

 

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.