Dear reader,

Welcome to the April 2017 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'.

Our case study this month considers the complex relationships between a government observer and the board.

Nancy chairs a government sector board that has a Minister's Observer. The Observer is diligent and enthusiastic. He has been known to comment on director skills and performance to the appointing Minister and senior Department officers.

Nancy's board intends to hold a working session, where complex emerging issues will be explained for the first time. A private and informal setting is intended to make it 'safe' for directors to ask 'silly questions' to upgrade their understanding of the issues without fear of being embarrassed. The session is for education, and no specific decisions will be advanced in any material way although Nancy hopes that improved understanding of the context and trends will lead to faster and better decisions when specific proposals come to the board in the following months.

Nancy has made it very clear that the session is strictly for education purposes, and that no debate of specific decision-making options would be permitted. As such she feels it preferable that the Observer not attend so that directors can be confident that their questions will not adversely impact their reputations. However the Observer has asked why the working session would not be considered a board meeting, since all directors will be present, thereby enabling the very interested and curious Observer to sit in the back of the room and listen.

How should she handle the situation?

Every board chair has experienced a meeting at which vital decisions are made by directors, some of whom are quite unprepared as to the subject matter for debate.

It is not surprising that this happens. In the government sector directors are appointed with a wide diversity of skills. For example, those without skill or experience in finance, but vast skills in other critical areas, are frequently called upon to cast a vote as to frightfully important financial matters.

The most incompetent board member is not one who asks questions about matters which, for their colleagues, are straightforward or clear. Rather, it is the director who chooses not to form his or her own judgment, but, instead, elects to vote with the majority. This happens too often.

It is in this context that Nancy has decided upon an "information only" session so that directors may inform themselves as to the critical matters about to affect her organisation. Not surprisingly, she wants board members to ask any questions necessary in order that members may get on top of issues. They must not fear making fools of themselves by the questions they ask.

If the Observer were to attend this session its purpose would be defeated. Directors owe their board positions to the Minister who may well be affected by the Observer's views as to their competence. Nancy is to be commended for her view that the Observer should not attend, and the Observer should respect that view.

Although a different topic, equally important is a "Board in Confidence" session. Each board meeting should provide time for directors to discuss matters in the absence of CEO and staff. And in my view, an observer should not attend such a session unless specifically invited.

Ian Dunn was CEO of the Law Institute (Vic), inaugural Chair of Victorian Commission for Gambling Regulation and an Ombudsman (General Insurance). He is based in Melbourne, Australia.

Like company directors, Minister's Observers are rarely trained for their difficult job. Good observers can bring a valuable perspective to board discussions and improve decision-making; but they must maintain confidentiality and collegiality in their relations with the board. Bad observers stultify or distort board decision-making.

Nancy's observer is human and has feelings that can be hurt as well as a fear of doing a poor job. Diligence and enthusiasm are worth preserving. Nancy should have coffee with the Observer and find out his/her views, wants and needs. She should make it clear that she supports the Observer in doing a great job.

Nancy's board have a right to information and to gather that information by asking diligent, open-ended questions. Many excellent directors phrase their questions tactfully, as if from ignorance, to put staff at ease and elicit more fulsome responses. All directors should feel free to ask about any important matter without fear that their query will be reported outside the boardroom as indication of poor performance or ignorance.

As Chair, Nancy has a duty to optimise her board's performance. If she feels the Observer will report exploratory questions as a sign of ignorance then she must exclude the Observer from the session. Ministers and Department staff will seek the Observer's opinions when recruiting for a board; they view the role as 'their person on the ground'. A good observer will refer that question to the Chair. Nancy must help her observer learn about boards and become a great observer.

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

Publicly appointed or elected Boards often face an interesting technical question: What constitutes a Board meeting and what doesn't?  Legislations and Bylaws usually recognize two types of duly constituted Board meetings:  Public meetings, which are open for outsiders to observe, and closed meetings, during which sensitive and confidential issues are discussed, and from which outsiders are excluded (except where the Board, by a vote, agrees to include specific outsiders in a closed meeting). 

Assuming that this Board's working session does not deal with sensitive and confidential matters, there are two questions for Nancy to address: First, can the working session be treated as something other than a duly constituted Board meeting?  And, second, should the Observer be permitted to attend it?

The answer to the first question would require some technical research in Nancy's jurisdiction.  If there is an authority for holding working sessions and not treating them as duly constituted Board meetings, Nancy would be on solid footing when asserting her point with the Observer.  To her credit, Nancy took significant good faith measures to ensure that the session is only for education purposes and that no decision making is materially advanced.  However, to be safe, she may want to check whether the legislation or bylaws, explicitly or implicitly, mandate that such sessions be treated as duly constituted Board meetings.

As to the second question, it is my view that, regardless of whether the working session is treated as a duly constituted meeting or not, there are good reasons for permitting the Observer to attend it.  One benefit is to have the Observer verify that the Board indeed does not inadvertently cross the line and, in effect, enter debate of specific proposals, thereby materially advancing the decision making process.

Another reason for allowing the observer to attend is rooted in a suggestion that I often make to members of public Boards.  I propose that such members function as though they are under the public microscope all the time, and act accordingly.  This premise means that everything that a Board member says should stand to public scrutiny.  With this premise in mind, the mindset of 'I worry about my reputation if I allow myself to ask silly questions' does not fit.  Public Board members should take themselves lightly, while taking their work seriously.  They should be humble life-long learners.  Under this premise, there would be no such thing as a silly question, except, perhaps, for important and difficult questions that you don't ask. 

Eli Mina is a Vancouver (Canada) based Board Effectiveness Consultant, who specializes in meetings, rules of order, and effective decision making.  Eli holds the credential of a Professional Registered Parliamentarian.  His clients come from local government, boards of education, credit unions, native (aboriginal) communities, and the non-profit sector.   Eli is author of five books in his areas of expertise.  His web site is www.elimina.com

Book review - Presenting to Boards by Julie Garland-McLellan. Reviewed by James McRitchie, publisher of CorpGov.net Presenting to boards is just like presenting to any other group, right? Wrong. Most boards suffer from attention deficit disorder. Many of the members of most boards that I have encountered won't sit through a presentation of more than a few minutes without disruption. You'll need to focus like a laser on your main points; you must expect to get interrupted and be able to go in whatever direction feedback warrants. Your ability to do so is important both to the board (you wouldn't be on the agenda if it wasn't important) and to your career (don't miss your opportunity to raise your level of importance to the firm). For those who have never made board presentations, the author provides a very basic primer that will help you to get to know your audience. For those with more experience, McLellan provides organizing principles, both generally around several standard presentation types, as well as quick tips and "tales from the trenches." Most readers will pick up several pointers in a few minutes. Like your own ideal presentation to the board, the author doesn't waste your time but covers the essential highlights. Available in both e-book and hard copy at Amazon.com

What's New? March was a busy month. It started with the AICD Governance Summit in Melbourne. The future focus was refreshing, albeit challenging, and gave a greater understanding of the complex array of social, technological and regulatory developments that will impact boards in the foreseeable future. Change, as they say, is the only constant! The Professional Speakers Australia conference was a much needed opportunity to focus on building my delivery skills so as to better serve my clients in future. As always, it was packed with fun and valuable insights. I have been selected to present at the Better Boards Conference 2017 in Brisbane (details below) and look forward to meeting you there if you can attend. My presentation will be a facilitated case study along the lines of the dilemmas in this newsletter. On International women's day my early career was featured in an article about women working in men's worlds. The great news is that my later career as an executive and director was considered to now be a non-gender-specific occupation; progress indeed! In addition to my public appearances I have enjoyed, as always, working with my private clients on resolving their board and director issues. If you would like a confidential director mentor or to discuss your board's needs for training and/or strategy facilitation please contact me at julie@mclellan.com.au.

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

“You cannot escape the responsibility of tomorrow by evading it today.”

~ Abraham Lincoln ~

A note on names - 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 'borrow' them from people I meet or things that I read. Nancy is a name that in Hebrew means 'grace'. Our protagonist will need grace and tact as she confronts the challenge of her dilemma.

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. I could not write this newsletter without your help and without the generous help of all the experts who respond each month to the case studies.

Be a contributor - if you would like to attempt a response to the dilemmas for publication you will be most welcome. Simply reply to this email and let me know.

Farewell until the next issue (due 1 May 2017). I look forward to greeting you again then. In the interim I hope you will enjoy health, happiness and hard work.

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.