Archive Page 2

Business and family – can you have it all?

George McGovern died this week. He is probably most remembered, if at all these days , as “the liberal presidential nominee routed by Nixon”  in 1972 (a result which America may well have later regretted).

His obit in the SMH noted that:

In 1994, his daughter Teresa, who had suffered from alcoholism and mental illness, froze to death, acutely intoxicated, in a car park snowdrift in Madison, Wisconsin at the age of 45.

“That just about killed me,” he said years later.  “I always had a very demanding schedule.  I didn’t do everything I could as a father.”

Hang on George, you were busy fighting a good fight: against the war in Vietnam, the draft, and incomes below the poverty line, and for civil rights.  You were doing really important things.

His regret jumped out at me, I suppose, because I had been having a few reflections myself about fatherhood.

Can great things, even just good things, get done without a price, without somebody suffering for their achievement?

I’ve been chatting with a CEO recently, who has been involved in an enormous reconstruction effort in an organisation which was standing on the edge of a self-dug precipice.  He has paid a price and so has his family. I thought about the other CEOs with whom I have worked closely in my career, 6 of them, and another half dozen whom I have coached or advised.

In nearly every case, the demands of their job meant sacrifices for their families.  You can’t lead any organisation, in my experience, without having to put in at least one and a half times the effort set out in your position description.  Without some sacrifice, realistically the job just won’t get done.

You’re usually not just doing it for your own glorification, or the allegedly inflated salary.  You are responsible for the security and income of the shareholders, the jobs of the staff, and the interests of all the other stakeholders.  If you are a non-profit CEO, you have the added responsibility of “the cause”.  You are doing important, meaningful, even essential work.

But at home your partner, your kids, your dog, often pick up the crumbs of your time.

The CEOs whom I have seen resolve the business/family divide most successfully are the ones who had a clear acknowledgement of the time they would need to devote, the willingness (though often grudging) to devote it, and the recognition that it would come at some family cost.  Also, an explicit belief that it was the right thing to be doing at that time, rather than letting it happen by default.  Oh, and did I mention an incredibly understanding and supportive partner?

The ones who didn’t had troubled, or crumbled, relationships and families.

So here is my two bob’s worth – no, you can’t have it all.  But what you might be achieving on one side can validly go towards balancing what you might be missing on the other.

Just do it with your eyes (and your family’s) open.

david white

The mug’s guide to running the AGM

It’s that season again, when your organisation needs to hold its annual general meeting.  I have seen AGMs conducted badly, and possibly invalidly, for want of a little bit of procedural knowledge.

The chair is probably stressing already about having to run the meeting, remembering how they had to fluff their way through it last year. So here is a mug’s guide that should allow your organisation to hold an effective AGM which meets the legal requirements.

I make a couple of assumptions:

  • The AGM notice has been properly drafted with the necessary items of business set out in it
  • It has been sent to the organisation’s members with the required amount of prior notice
  • You don’t have any of the variables referred to in the PS at the end of this blog.

So here is what the chair should do in running the AGM:

Declare the meeting open (and note the time for the minutes).

Welcome those present, and note there is a quorum (you will have checked this in the constitution before opening the meeting, because the meeting can’t formally start until a quorum is present). 

Note who is present – directors, members, auditor, observers or visitors – and any apologies received, so these details can be recorded for the minutes.

Note that the notice of meeting has been sent out.  Take the notice as read.  Remind the meeting that all the business at an AGM is special business (which is business of which prior notice has been given), so only the agenda items specified in the notice of meeting can be dealt with at the meeting.

Deal with the minutes of the previous AGM.  (As these minutes will hopefully have entered in the company’s minute book within a month of the previous meeting, you generally won’t be approving the minutes of that meeting at the next AGM.)  Just note that the minutes of the previous AGM have been entered in the minute book and members can inspect them or ask for a copy.

Deal with each agenda item in turn.

The first item is likely to be the receipt, adoption or acceptance (however it is phrased in your organisation) of the annual financial statements, the directors’ report and the auditor’s report.

Note the accounts and reports have been circulated to the members with the notice of meeting. (This is an important step that is often overlooked – if it hasn’t been done, make sure you do it next year! And for this meeting, just make the best of it and advise the meeting that the accounts and reports are available for inspection.)

Invite questions and comments from members.  (The law provides that the chair of the AGM must allow a reasonable opportunity for members at the meeting to ask questions about, or make comments on, the management of the company. 

If the auditor is present, invite any questions from members to the auditor.  (Again, the law provides that the chair must allow the members a reasonable opportunity to ask questions of the auditor about the conduct of the audit or the auditor’s report.)

When all questions have been satisfactorily dealt with, it is usual practice for the chairman then to advise the meeting that the annual financial statements and reports are received by the meeting.

Although it is not a legal requirement, some organisations like to pass a formal resolution receiving the accounts and reports.  If yours is one that likes to do this, clearly state the resolution to be passed in the form set out in the AGM notice.

Then ask all members in favour of the resolution to raise their hands.  Ask for all members against the resolution to raise their hands.  Declare the resolution passed (or not, in the unlikely event that the majority of members has voted against it).

Deal with each remaining resolution in the same way – state the nature of the resolution; invite questions or comments; formally state the resolution to be passed in the terms set out in the AGM notice; conduct the vote; announce the result.

Remember, if directors are being elected or re-elected at the meeting, each director must be elected by a separate resolution.

There may be items on the agenda that require special resolutions, such as amendments to the constitution.  If so, note when stating the resolution that it requires a special resolution, and if and when it has been passed with the required majority, advise the meeting that it has been passed as a special resolution.

When each resolution has been dealt with, note that there is no further business, and declare the meeting closed.  You do not have to accept any further business or motions from the floor of the meeting.  Note the closure time for the minutes.

It can be really helpful to write these steps down in a script for the chair to follow, so essential steps aren’t missed in the heat of the moment.

If you follow these simple steps, you can take the stress out of the AGM, and meet the legal requirements at the same time.  Happy AGM.

PS There are a number of other variables which aren’t covered in this short guide, such as:

  • when members who can’t attend the AGM have sent in proxies so that their votes can be counted at the meeting
  • when members may have an entitlement to more than on vote at the meeting (for instance because they have a number of shares in the company, and they call a “poll” so they can use these votes (since they are only entitled to one vote when a show of hands is used to vote)

I’ll provide some plug-in steps for these situations in the next blog.

 

 

 

10 questions you should ask when approving the annual financial report

Yep, it’s just about that time again.  The board has to approve the annual financial report in a post-Centro world.  Like the judge said:

“All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4).”

The approval of the annual financial report, which includes making the directors’ report, is arguably the single most important action the board will take on an annual basis.  So how can you best cover your ass?

After Centro (this is a great summary), here is the most important thing a reasonable and diligent director should do:

  • Actually read the documents – including the financial statements.  While non-accountants may not be able to follow all of the technical matters, every director should be reasonably familiar enough with the company’s financial position to make some contribution to the process – even if it is picking up typos, adds or formatting errors.

One of the Centro directors admitted that they didn’t actually read the annual financial report, but just looked at a summary.  You’ll never found a defence on actions like that.

Here are 10 questions which I reckon address matters that should always be considered before any resolution is passed to accept the financial report.  And please note, I am not an accountant, just a director who wants to hang on to his assets.

Questions for management

1.         Who prepared the accounts and who checked them?

It is reasonable to want to know that the work in preparing the accounts has been carried out by someone whom the board can expect to have the necessary skills and experience, and trust to be doing things the best way possible.  This may be particularly important when the accounts are prepared by an external party.

2.         What process has been followed to ensure compliance with the accounting standards and corporations regulations?

The board is required to pass a resolution about compliance, so directors should be explicitly asking about the steps taken to give them the grounds to do so.

3.         How have the valuations of assets been conducted, and/or the carrying values been ascertained?

The value of the company’s assets is ultimately a question for the board, so the board will want to know how that value has been ascertained, and that it has been ascertained in a reasonable way on some reliable evidence or information.  Feel free to test the basis of the valuation until you are happy that it is appropriate in the circumstances.

4.         What are the areas where judgement has been exercised in coming to the result recorded in the accounts, and if there are any, how was the judgement call arrived at?

Part of the process of preparing the financial statements is to make assessments of particular aspects of the company’s financial performance and position.  One of the commonest, and potentially scariest areas where judgements are made  is the making of provisions.  The board must fully understand the reasons for provisions being made, and how the amount of the provision has been arrived at.

Other areas where judgement may be exercised in coming to the position recorded in the financial report are:

  • Valuation of assets, discussed in question 4.
  • Depreciation rates and life expectancy of assets.

5.         On what basis can we be sure that there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due?

In view of the gravity of the solvency declaration which has to be made when approving the annual financial report, directors need to be sure that there are proper grounds for making it.  Remember, directors are personally liable for debs incurred if the company is trading while insolvent.

Directors are generally not responsible for the actual preparation of the annual accounts, and they are allowed to rely on information they receive from “competent and reliable” people who advise them about the company’s state of solvency.  They need, however, to take sufficient steps to test what they are being told, for instance:

  • are they happy that the people advising the board about solvency are “competent and reliable”?
  • is there anything about the company’s current trading position which might suggest the need for further specific enquiries?

A company can still be able to pay its debts when they fall due, even if it is in a loss-making position at the time.  It may have the support of its lenders, and sufficient income to service all of its creditors.  In such a situation, though, directors would need to understand very clearly how they can safely make the solvency declaration.  Particularly in this area, there is no such thing as a dumb question.  After all, it’s the roof over your family’s head that may be on the line.

6.         Has anything significant happened in relation to the company or its activities and operations since the end of the financial year which might be important when looking at its overall position?

While the annual accounts report on the performance and position of the company for the last financial year, there may have been events that have occurred since that time which may put that performance and position in a different light going forward.  This can include things like:

  • The sale of important assets or business operations
  • The acquisition of new businesses
  • The instigation of major litigation against the company.

This is another area of judgement call by the board, as to whether anything that has occurred is significant enough to require disclosure in the directors’ report.  If there is some uncertainty about the level of significance, try running it past the auditor and see what they might think.

A question for yourselves as directors

7.         Do the accounts reflect what we as directors, individually and collectively, would have expected given what we have seen of the company’s activities and operations over the financial year?

The annual financial report must comply with specific regulatory requirements, which are not always intuitive in either their form or substance.  But if the financial report shows the company making a loss, and you think it has made a profit, or perhaps more importantly, it is the other way round, you need to have a decent understanding of why that is.

There may be clear reasons why the recorded result may be different to what you understand to be the real world result, like:

  • The creation, or writing back, of a provision
  • The sale of important assets.

The board can apply an important sanity check to the financial report, and while there may be technical requirements which mean things must be reported in certain ways, there should still be a reasonable correlation about how the company has actually performed, and what is being reported.  Make sure you understand what that correlation is.

Questions for the auditor

8.         How did you find the state of the company’s records?

The board is making some important statements about the company.  An external view of the state of the company’s records can be an important indication of whether it is safe and reasonable to be making those statements.  The auditor will have accessed many of those records during the course of the audit.

9.         What level of co-operation did you receive from management while conducting the audit?

If management or staff have been unco-operative, unhelpful, or even evasive, it may be an indication that they have something they either don’t want looked at too closely, or may actually want to hide.  Again, an external view on a factor like this can be re-assuring, or a warning bell suggesting some further enquiry before the board commits itself.

10.       Are there any other matters you consider you should bring to the board’s attention which have not already been discussed?

Despite having asked questions 1 to 9, there may still be some important issue which the questioning has not uncovered.  This is your final opportunity to maximize the benefit of the external overview which the auditor has applied.  Don’t feel backward about taking that opportunity.

And finally …

The thrust of all these questions is the same.  Don’t take anything on face value, or gloss over something you don’t understand because people are telling you it is technical accounting stuff.

You may not be an accountant, but you can still make reasonable enquiries and do your best to ensure that proper processes have been undertaken to truthfully show what the company’s financial performance has been, and what its financial position is.

After all, you don’t want to be bitten by the Centro bug.

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.

Should you always practice what you preach?

As consultants we make a living out of telling other people what they should do.  But have you ever been doing something, and felt a ghostly admonition saying to you:  “Why don’t you practice what you preach?”  Or more likely, heard the echo of an old family authority figure telling you: “Do as I say, not as I do?

I walked out of a remarkably successful board meeting a couple of weeks ago.  The next day I was scheduled to attend the meeting of another board where I was to be regaling them with “best practice” – how to get the right mix of skills and experience on the board, how to be clear about the expectations directors have of each other, how to develop an explicit board culture.

As that first board meeting finished, I pulled the vice chairman, and spiritual leader of the board, aside and said, “Mate, I am just doing that thing in my head about what I will be doing over the next 12 months, and I want to know if you need my board spot for someone who is better networked than me, to bring in some more money.”

To which he replied: “Get expletived.  You do other stuff for us.”  And I thought, wow, we’ve just had a board skills audit, and we didn’t even have a consultant facilitating a workshop to get there.

I love being on that board.  It is one of the most effective NFP boards I have ever experienced.  But we don’t:

  • Pursue diversity – we are all blokes in a certain age demographic, and (apart from me) are all practicing corporate heavy hitters
  • Have an explicit board culture – the unspoken rule is about having fun and taking the piss out of each other
  • Have a blow-by-blow director’s induction program
  • Talk about succession
  • Have a formalised risk management framework
  • Have a nomination committee.

However, this board still kicks ass – supports and mentors the CEO;  brings in a prodigious amount of money;  puts their hands in their own pockets;  promotes and champions the organisation at every turn;  has robust discussions, even fierce ones;  and makes fast and effective decisions.

So what’s the deal then, Mr Consultant?  I guess the lessons are:

  • if it ain’t broke, don’t try and fix it
  • it’s always about the people, and their intent  – there is no shortage of ego on this board, but ego is always subsidiary to commitment to the cause.

The CEO endearingly calls us “the boys”.  She sings her board’s praises to counterparts in the sector, and they are envious.

This board doesn’t fit the paradigm but it works.  “Best practice” is not the only practice.   Even the august ASX Corporate Governance Council says: “There is no single model of good corporate governance.”

That doesn’t mean, when boards are struggling, that there isn’t a place for good processes and practices, or consultants to guide the directors through them.

But I could perhaps better be more careful about what, and how hard, I preach.

Governance is not a 4 letter expletive – a couple of lessons on the G-word

I learned a couple of unexpected lessons last week, and like many lessons in life, I’m not sure I feel the better for having learned them.

I have the pleasure of hanging out with a team of clever, capable consultants who mostly work with the management in client organisations, while I help their boards.  We were doing a workshop together, as part of a team training day, on “governance”.

I have an esteemed and proper friend who commented to me a while ago that: “After the C-word, (which he in fact spelt out carefully in all its 4 letter glory) the second worst word in the English language is ‘governance’.”  Apparently he was still scarred by an experience related to the G-word in a continuing professional education session he had recently to endure.

So here’s Lesson No. 1:

When I asked the group each to talk about what the term “governance” brought up for them, the broad consensus was that it is (in a verbatim from one team member) a “necessary evil”.

Somehow we have created around the concept of good corporate governance some strongly negative perceptions – of a function that has to be endured, rather than one which adds value.  It seems pretty clear that it is time to shift the debate, even if for starters we just edge gradually towards “necessary, but not evil”.

And Lesson No. 2:

Rather than spend the whole afternoon talking about legalities and structures, I hoped it might be enlightening to actually hold a board meeting – well, a mock one anyway.

We took as the major piece of business for our board meeting the most likely scenario this team would encounter in their day to day interface with boards: the approval of the organisation’s strategic plan for the next 3 years.

I allocated each team member an admittedly stereotypical role as a director, then let everyone know the broad nature of each other person’s role, and gave each of them some additional detail about their own role that the others wouldn’t know.  We used an abbreviated version of an actual client strategic plan as our documentation (but kept ourselves under Chatham House rules).

A couple of the roles were for directors who had some reasonable and objective misgivings about aspects of the plan;  another director was to play the self-appointed black hat thinker.

The chairman, without being specifically scripted to do so, took on as his job to get this strategic plan adopted.  While he carefully gave each director an opportunity to express their views, including the doubters and dissenters, he eventually applied a firm hand to push strongly for, and ultimately achieve, a resolution in favour of approving the plan as tabled.

The insight for me?  Major pieces of board business can take on a life of their own, with some real or manufactured imperative seeming to require their acceptance as proposed.

A debrief with the team afterwards revealed that the directors with concerns and misgivings felt that, even though they had been given a hearing, they had been steamrollered by the eventual adoption of the plan.  Their concerns, while having been aired, were not given sufficient consideration to be addressed by any amendments to the plan.

The chairman, though flushed with the success of having secure his resolution, was candid enough to admit subsequently that he might have been “a little manipulative”.

The comprehensive and internally consistent plan just looked, to the majority, too bullet-proof to accommodate challenge and tweaking.

Chairs, and supportive majorities, need to be careful not just to believe that giving dissenters a hearing is enough to deal with their issues; and to recognise that those issues might be serious enough to stop the momentum, and allow consideration of changes to that all-encompassing plan set out in the 65 very impressive PowerPoint slides from the consultants – even if doing so might all seem a bit inconvenient.

Note to chairs:  no, it’s not actually all about you, and whether you get the proposed resolutions up.  It’s what is best for the organisation as a whole, remember?  Which is not such a bad way to run a board, is it?

The 8 traits of a great CEO

I’ve never been a CEO; I’ll fess up on that one at the outset.  I was going to have a shot at it on two different occasions, and thought the better of it.

For the past 20 years though, I have sat beside a whole range of CEOs as company secretary, colleague, coach and chairman.  I have seen the good, the bad and the hopeless.

I have observed 8 factors which I reckon are common to great CEOs:

  1. A deep wellspring of energy.  The demands are huge, and unless you have been in close proximity to a CEO in daily action, you might not see the effort required.
  2. An ability to see the big picture, and in particular where the organisation they are heading sits in the wider world.  The pressure from the board, the market and other motley stakeholders to focus on the immediate and the specific, rather than beyond the current financial year cycle, is intense.
  3. A willingness to get down and dirty in the detail when required and actually understand the inner workings of the business: and, god forbid, even write the first draft of something really important instead of throwing that task to an underling.
  4. A thick skin which shelters and protects them: from the intra-firm political machinations; the detached thoughtlessness often displayed by the board of directors; or the short-sightedness of executives protesting against near-term pain in the cause of medium-term gain.  The capacity not to take it personally as a CEO is priceless.
  5. Sufficient self-awareness to enable them to temper a highly-tuned ego, an unavoidably essential attribute for an effective CEO, with sufficient insight to make it healthy rather than destructive, charismatic rather than ruthless.
  6. Preparedness to take one for the team.  There’s nothing that builds loyalty  like the boss taking the rap for some executive screw-up for which they themselves weren’t actually responsible; or going into bat , notwithstanding the inevitable belting from above, for a staff bonus when there’s been a big team effort but the KPIs haven’t strictly been met.
  7. A spouse or partner prepared to go on the journey, or at least let the protagonist get on with it.  The time demands on a CEO are relentless (see point no. 1) and there’s no such thing as a weekend, let alone a holiday, without the job intruding.
  8. Someone to periodically debrief it all with, preferably outside the organisation.  Sometimes it’s a mentor or coach; sometimes it’s a guru; sometimes it’s a mate.  In rare cases it’s that understanding spouse/partner.  Whoever it is, the value of having a non-involved but open listener to spill to is one of the best pressure valves going.

So given these factors, what is the pass-mark for an effective CEO?  I’m tempted to say 100%, but realistically 6 out of 8 will likely get you there.

There are probably work-arounds for most of the above if you can’t tick any particular box.  I’m certain, though, that without a big dose of point no. 1 you may as well not apply.  No. 7?  Well, make your own call on that one.

I gave myself 5 out of 8 and withdrew from the pursuit of that particular milestone. I like going on holiday without a BlackBerry.

 

P.S.  This analysis doesn’t look specifically at leadership, a whole other dimension.



%d bloggers like this: