The Director’s Dilemma

by Julie Garland-McLelland
Consultant at AltoPartners Australia

These dilemmas are based on real events that have occurred during my twenty years’ experience serving on and consulting to boards. This month our case study protagonist faces a dilemma that occurs more frequently than it should. It will require a politically astute response that is sensitive to the needs of the director concerned, the shareholder, and the needs of the organisation. Boards don’t only succeed when the organisation is profitable or growing; they succeed when they avoid becoming front page news, banned or fined. I help boards to succeed in both these ways, by strategically identifying latent problems, and guiding clients to address threats before they eventuate. 

Justin chairs a government-owned board. He was appointed for a five-year term just before a change of government and, hence, Minister. The new Minister respects the professionalism of the board, the business has met its targets, and relations have been cordial.

The chair of the board audit and risk committee reached the end of his tenure in December and the Minister appointed a replacement without consulting Justin. The new director is a qualified accountant. However, he has been appointed to three other government boards in the past six months and already had a portfolio of six directorships including three large listed companies. Justin was initially pleased to have such an experienced director join the board and looked to him as a potential successor.

In just four months the new director has upset his board colleagues and staff. He has asked questions when the answers were clear in the papers, failed to attend the induction training, and is often distracted during board meetings. Justin had a quiet conversation with the director asking him to be more attentive; the director was polite but made it clear that he had higher priorities and “the Minister is aware of the other demands on my time”. 

At the last meeting the director seated beside the new appointee was able to see his laptop and, after the meeting, she sent an email to the board saying that he had been responding to correspondence about one of his other boards. 

Justin feels he must make another attempt to restore good practice or risk losing the cohesion of his board. 

How should he start?

Mpho’s Answer

Justin should have a meeting with the new board member and have a stronger conversation about his behaviour. He should ‘call out’ this behaviour during the board meeting when it happens again – because his perceived silence will compromise his credibility with the rest of the board. 

The new Minister respects the professionalism of the board and the relationship is cordial – against this background, Justin should use this ‘currency’ well to request a meeting with the Minister to discuss the challenge: 

1. Discuss the challenges faced with the new board member and Justin’s actions to-date and discuss joint remedies. The Minister should reinforce the role and authority of the Chairman to the new board member. 

2. Discuss and agree on the Chairman’s mandate on such issues in the future. 

3. Discuss and agree on ‘ways of working’ between him and the new Minister on several issues, including (but not limited to) future appointments, regular effectiveness measurement of the board, exiting of ineffective board members etc. and some of these decisions may flow into the Board Charter for proper governance. Despite the appointment being the Minister’s mandate, prior discussions with Justin, referencing of candidates, etc are important for both the Minister and Justin and the board that the best candidates are appointed. 

4. Propose / discuss / agree on the maximum boards a NED can serve to avoid future appointments of board members with limited capacity. 

Mpho Nkeli is a non-executive director of Impala Platinum and Life Healthcare, she is also a Director of AltoPartners South Africa. She is based in Johannesburg, South Africa.

Julie’s Answer

In a recent survey more than 56% of directors said their boards had one or more ineffective directors but had not taken steps to remedy the issue and improve performance or remove them from the board. Justin has made one attempt and must make others until he succeeds.

He should start by talking with the director who sent the email. Board performance is Justin’s territory and she should have brought the matter to his attention alone. She now needs to trust Justin and allow him to address the issue without further interference. 

Although government boards lack the prestige or remuneration of a listed board, they are highly prized appointments that allow directors to work in areas they are passionate about. Justin’s new director accepted the role for a reason. Justin should find out what that reason was. He must rekindle whatever passion brought this director to his board. Ideally, he will talk with the new director; if he can’t get a second audience he should talk with the Minister and/or appointing panel. 

A formal board performance review, with individual director assessments and results published in the annual report, can also help. Carefully crafted questions make clear who is adding value, and who is not. Knowing that the review is coming will be an incentive to prioritise this board. 

Finally, Justin needs to look in the mirror. Performance has been good. The directors are engaged. Is it possible meetings are too frequent, long, or operational? A strategic agenda energises and enthuses directors to give their best. Improving the board’s operations may catalyse better performance. 

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

Steve’s Answer

Under Queensland law, a government-owned corporations (GOC) is a public company limited by shares and as such, the federal Corporations Act 2001 applies, except to the extent excluded by the GOC Act 1993. The Treasurer and the Portfolio Minister are the only shareholders. 

The new Minister apparently respects the professionalism of the Board and has no issue with the performance of the GOC. 

There is research around on what constitutes a high performing Board. The characteristics of the Board Members include active engagement evinced by a collaborative and co-operational attitude. Best practice boards also have a process for reviewing the performance of the Board, its Committees and each Director. 

The Board could have an independent review of its performance. It’s assumed that the review will back up the anecdotal evidence of the other Board members. Justin could discuss some options with the Deputy Chair e.g., 

1. Reduce the number of Boards the recalcitrant Director is on.

2. Remove the Director from the Board. 

Justin and the Deputy could meet with the shareholding Ministers to provide the evidence on how the behaviour of the Director is impacting the performance of the Board and the ability of the business to meet its targets, which may lead to questions in the Parliament or comments from the Auditor-General, if that performance deteriorates: both of which Ministers would prefer to avoid. 

Should there be no remediation, Justin may need to decide if he remains on the Board. 

Dr Steven Austen is a Board and Finance Committee Member of Independent Schools Queensland and acting Company Secretary of Whitsunday Anglican School. He is based in Mackay, Queensland, Australia.

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