Archive for July, 2012

Why your board might have to conform to “best practice” (even though it might not sound “best” to you)

When I was a much younger lawyer, I had one suit which I kept hanging in the cupboard at work.  If I had to go to court, I’d change into the suit.  The rest of the time I would get around in a motley collection of pants and jackets.  In my head it was all about my abilities and my results, not how I dressed up.

Then my career took off in a much steeper trajectory, and it was, not co-incidentally I believe, about the same time I bought two snappy Italian suits and shaved off my beard.  Within the Melbourne corporate and professional establishment (into which I had been thrust by my employer) there were some things that had to be conceded if you really wanted to make your mark.

I had that same kind of issue with a board I recently reviewed.  The organisation has had some significant successes in getting to their current stage of development, but needs to take the next leap forward.

Their immediate challenge is the composition of their board:

  • 50% of the directors work for or are significant suppliers to the organisation
  • the chair is part of that 50%  – definitely not independent
  • the skillsets on the board are heavily skewed towards the organisation’s core business, with only two out of ten having backgrounds outside that core.

I commented in the last blog about not always having to meet the alleged “best practice” norm to be effective.  However, the problem that has emerged for this board is that the organisation’s major funders look at the board, and it just doesn’t look like what they are used to seeing.  (Just like the corporate lawyers and merchant bankers no doubt looked at me before my Italian suit epiphany.)

For example:

  • The funders are looking for some assurance that there is an objective overview of the organisation’s financial situation – they would like to see some solid and independent financial or accounting expertise on the board.
  • The control mechanism for the potential conflicts of interest in directors being major service suppliers is, as expressed to me by one director: “We have complete and implicit faith in our colleagues.”  (To which I would say, tell that to the National Safety Council.)

Look, I know that even the ASX Corporate Governance Guidelines say: “There is no single model of good corporate governance”.  But the Guidelines also say that if you don’t meet their version of best practice, then you need to explain why.

This board has its own views about why their present structure is right for the organisation.  But they haven’t yet been able to articulate their reasons why in a way which the funders have understood.  It feels like the board is saying:  “We’re different, we know what’s best, its complicated but it works – so just give us your money and trust us.”

Unfortunately, one or more of their funders may not find that sufficiently convincing enough to keep writing cheques.

The board has said it is considering making some changes to their structure, and hopefully those changes will be soon enough.

So while you may think that just having a structure that works for your board is good enough, there are expectations of others, often drawn from bitter experience, which dictate that sometimes, to be able to play the part most effectively, you also have to look the part.

Particularly for up-and-coming corporate lawyers.

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