What keeps you Awake at
Night?
A master-class for directors of GTOs
16 October 2008
Topics
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Defining governance
A ‘proper’ focus for the board
Frameworks, principles and guidelines
What directors worry about (really)
Building better governance
Directors’ Role
Management run the company the board see it is run properly
Shareholders
Board
Own the Company
Ensure the company meets the
shareholders’ needs
Manages the company to achieve
the plan endorsed by the board
CEO
Senior
management
Middle
management
Staff
Implement the plans and
report to the CEO
Defining Governance
• The framework of rules, relationships, systems
and processes within and by which authority is
exercised and controlled in corporations
• It encompasses the mechanisms by which
companies, and those in control, are held to
account
• If management is about running a company,
governance is about seeing it is run properly
Defining Governance
• In groups discuss the difference between
governance and management
• Then discuss the difference between
directors and managers
Feedback your observations
to the whole group
Board v. Management focus
Directors’
focus
Strategic
Financial
Operations
Compliance
Management
focus
Governance Environment
Stakeholders
Suppliers
Operations
Staff
Clients
The role of the board
Compliance roles Performance roles
External
role
Internal
role
Provide accountability
Strategy formulation
Approve and work
with and through
Monitoring and
the CEO
supervising
Past and present
orientated
© Robert I. Tricker, International Corporate Governance: Text Readings and Cases
Policy making
Future
orientated
Where does your board spend its
time?
• Consider the Tricker model – what
proportion of your board’s agenda is spent
in each quadrant?
• Where would you rather your board spent
their time?
Feedback observations to the group
Using roles and focus
• You can use the ‘roles’ diagram or the
Tricker model to govern information given
to the board
• Ensure information is presented in context
• Keep information at the ‘right’ level
Governance Information
External
role
Internal
role
Compliance roles
Performance roles
Annual report
Statements of intent
AGM
Board Charter
Delegations of
Authority
reviews
Monitoring / Performance
Reports
Compliance framework
Past and present
orientated
© Robert I. Tricker, International Corporate Governance: Text Readings and Cases
Culture
Policies
Procedures
Controls
Future
orientated
Information Hierarchy
‘cascade’ - appropriate detail at each level
Shareholders
Board
FUTURE / PERFORMANCE INFORMATION
Statement of Intent: What shareholders and
stakeholders need to know about our plans
Strategic plan: Long term direction — what
CEO
Senior
management
Middle
management
Staff
our organisation is going to do and how
Business plans: How to implement our
Strategic Plan. eg forecasts, financial plans,
marketing plans and HR plans
Operations plans: How each
function/operation will implement its Business
plan. eg production plans, training plans,
recruitment plans
Using frameworks
• What guidelines, principles or frameworks
do your boards use?
ASX Recommendations
1. Lay solid foundations for management and
oversight
2. Structure the board to add value
3. Promote ethical and responsible decisionmaking
4. Safeguard integrity in financial reporting
5. Make timely and balanced disclosure
6. Respect the rights of shareholders
7. Recognise and manage risk
8. Remunerate fairly and responsibly
Bob Garratt’s fundamentals
• A director’s primary loyalty is to the company as a
separate legal entity
• Respecting the board’s collegiality and collective
responsibility
• The chairman is the ‘boss of the board’ and the CEO is
the ‘boss of the daily operations of the company’
• The board must develop effective annual selection,
induction, evaluation, development and renewal
processes to keep itself healthy and sufficiently diverse
• The board must ensure its connectedness to the rest of
the organisation to test quickly the effectiveness of its
policies and strategies, and have the flexibility to learn
from them
Measuring performance
• Who measures their board’s performance
against:
– The charter
– The constitution
– ASX principles
– OECD guidelines
– Other standards?
Feedback to group
What boards worry about
No of mentions
70
60
50
40
30
20
10
0
Issue
Issues by sector
Percentage of respondents
Government
40%
Commercial
35%
Not for profit
30%
25%
20%
15%
10%
5%
0%
Government - Detail
Trend
35%
Percentage of respondents
citing issue
Issues Raised:
• Regulation
• Change of
government
• Policy, legislative or
regulatory change
• Change in funding or
support
30%
25%
20%
15%
10%
5%
0%
2004
2005
2006
Quick quote
“Tax and regulation
strangle a lot of
perfectly good
businesses. It's time
to cut back on both of
them. Regulation too
is another cost: but
how can we regulate
the regulators?”
The Adam Smith Institute
Resources - Detail
Trend
20%
Percentage of respondents
citing issue
Issues raised:
• Loss of staff
• Loss of IP with staff
• Shortage
• Unavailability
• Poor utilisation
15%
10%
5%
0%
2004
2005
2006
Quick quote
“The stone age did
not end because
they ran out of
stones.”
Bjorn Lomborg
Strategy - Detail
Issues raised
• Implementation
• Lack of decisionmaking
• Lack of leadership
• Poor communication
of strategy
Trend
25%
20%
15%
10%
5%
0%
2004
2005
2006
Reputation - Detail
Issues raised
• Donors
• Government
• Customers
• Investors
• Markets
• Banks
Trend
16%
12%
8%
4%
0%
2004
2005
2006
Quick quote
“… our principal
concern at that time
was to stop American
wheat growers from
getting our markets.
We thought Mr
Flugge would fight
hard for the Australian
wheat industry."
Leadership - Detail
Issues raised
• Poor leadership
• Cultural change
• Board failure
• Management don’t
support strategy
Trend
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2004
2005
2006
Financial - Detail
Issues raised
• Cash flow
• Performance
• Availability of capital
Trend
30%
25%
20%
15%
10%
5%
0%
2004
2005
2006
Issues by director experience
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Novice
Experienced
More experienced
What didn’t they say?
No mention of:
• Ethics or morality
• Sustainability, Environment or CSR
• Fraud
• Terrorism or acts of war
• Diversity/group-think
• Tax (or equivalent regime)
• Lack of people willing to be directors
Talking about the issues
• Who encourages open ended discussions
with their board about the issues that the
GTO faces?
• Who starts those discussions?
• What are the results of those discussions?
Building better boards
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•
•
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Skill based recruitment
Induction
Education and training
Paid boards
Performance reviews
Succession planning
Celebrating governance
• Don’t forget to be grateful for the board
you have
• Even if you are building a better one!
More information?
Information on:
• Directors
• Boards
• Roles and duties
• Ethics
• Strategy
• Risk
• Government funding and
reporting
PO BOX 97
Killara, NSW 2071
M: +61 4 11 262 470
T: +61 2 9499 8700
F: +61 2 9499 8711
[email protected]
www.mclellan.com.au