Good governance? Lessons that come close to home

I thought you might enjoy this from that renowned bastion of good governance, the Russian government. First Deputy Prime Minister Shuvalov was quoted in a recent edition of The Moscow Times.com, extolling the virtues of high corporate governance standards:

"If Russia is to become a major financial center, we need to embrace evolving corporate governance standards," Shuvalov said.

Deputy Prime Minister Zhukov backed this up:

"We want to be seen as a country with a good deal of responsibility in business..."

So I suppose that means it's all OK then. Remember though that this comes at a time when the State seems determined to take control of BP's Russian subsidiary through political, rather than market, channels (throwing in challenges such as heavy back taxes and visa problems for company employees). Perhaps this real-life tussle gives a truer picture of the current state of commercial affairs there.

As a result, I found another comment in the same article, on the role of government-appointed directors to state-owned company boards, rather more plausible:

"Very often, the time they devote to reading documents on the situation in the company amounts to the time they spend in a traffic jam on their way to a board meeting."

Yes, I know, it could never happen here. I hope not. But I'm still dismayed at the number of Board courier packs I see ripped open for the first time on the early-morning flight to the meeting - never mind that the papers are on view up the aisle for anyone to read. The director has at best 30-45 minutes to skim their papers; they can't hope to have a full grasp of the issues they'll be dealing with a few hours later.

If you're going to do this job properly, minimising the risk to yourself and the rest of your board, as well as the company, you need to know what's in those papers: not just the content, but you need enough time to think about the issues they raise.

If you don't, you just might end up in the position of the board of the New York Stock Exchange (other side of the Atlantic this time) a few years ago: thanks to their Board members not reading their papers in advance, they ended up having to pay their departing CEO about $US140 million (oh, and it was a not-for-profit).

Happy reading!

How do we fill his boots now he's gone?

If you live in New Zealand or Australia, and have even a passing interest in rugby, you'll know that Robbie Deans, one of New Zealand's finest coaches (if not the finest - but that debate has filled plenty of other blogs) has said his farewells to the Crusaders, the most successful team in Super Rugby history.

Just in case you've been on a clandestine trip to Mars, suffered radio failure and missed the news while you were away, the ultra-successful coach of the Canterbury-based Crusaders, after missing out on his dream job of coaching the All Blacks up to the 2011 Rugby World Cup (even more blogs), has been lured - 'snapped up' might describe it better - across The Ditch to coach the Wallabies for the next four seasons.

Actually, this week's post has nothing to do with rugby. What caught my eye was a comment last week from Hamish Riach, the Crusaders' CEO, that Deans would have no say in choosing his successor. And the controversy that this has caused.

Surely, goes the argument, Robbie's been so successful that he should have a hand in picking his successor? Well, I agree with Hamish. However great a coach, or a CEO, or a Board Chair has been, you never, ever, want a clone to replace them. The people who will be held accountable for the success of the new appointment need the freedom to make their own choice. Certainly, let them consult the person who's leaving (more often I've seen the departing leader offer their opinion anyway), and let's have, preferably, a couple of people being groomed to take over when the time comes. That's just prudent succession planning.

But, come selection time, all bets and promises are off the table, and the Board's Appointments Committee must have a free hand. Usually the biggest mistake it can make is to try to find someone in the same mould as their predecessor ('...to carry on the legacy...'). This fails for two reasons: the new person will almost inevitably fall short of expectations (and unfair comparisons), and, secondly, the departure of a key person gives the Board an opportunity to look at what type of person we need for the next few years - rather than slavishly continuing what has worked over the last five or eight.

So, Robbie, I don't know what you think of this - if you've had time to think about it at all in your new job. But my instinct is that the Crusaders have already shown what makes them successful, in making yet another good call: brave management decisions are all part of the mix. I won't be in the least surprised to see the Crusaders continue their winning way, whomever they appoint to fill Robbie's boots.

And, living in Wellington as I do, it hurts me to admit it.

Why me? What do I need to know?

A friend of mine phoned a couple of weeks ago to tell me he'd been invited to join the Board of quite a large company. He was keen on the opportunity - and the company - and told me he was meeting the Chairman the next day. What were some of the questions he should ask to help him decide whether to accept?

Some of you will already have noticed one positive feature in this: it's natural that we should be delighted by an invitation like this. As an experienced company director once said to me: 'It's never a bad day when you're invited to join a Board.' After all, it's a compliment to one's (perceived) skills and experience. But, as he went on, 'I thank them for the invitation, I enjoy the moment and I'll start my due diligence tomorrow.'

In this case, I think my friend's best move was to resist the temptation to accept the offer immediately, or, as I see so often, to put up no more than a token display of modesty or questioning.

It's easy to fall into this trap in the glow of the moment, but you need to stop and consider what you'll be getting into. Companies legislation is usually quite 'binary' about responsibilities of directors - you either are or aren't a director - so you need to understand that, legally, you carry the full weight of directors' responsibilities from the day you sign on (there's no allowance for 'training wheels').

What, then, are some of the things you need to find out before you accept?

Let me add that this is not a comprehensive list - nor 'expert advice' - and that you need to apply your own 'care, diligence and skill' (the typical legal description of the duty of directors) in assessing what information you need - and how much is enough for you to make your decision. I'm also not talking here about the basic information you should obtain, such as what you can find from trawling the website or strategic/business plans, or your assessment of the organisation's financial position (please remember that cash is what pays the bills, so pay particular attention to where the cash is coming from and how reliable those sources are).

One thing you might do is to ask to read the Board's Minute book. A review over the last couple of years should give you a good sense of how the organisation works, its strategy (whether it has one and how well it's working), financial performance, major challenges, quality, clarity and consistency of decision-making, and many other things that will help your understanding of the organisation. And if the Chairman is reluctant to let you see the Minute book, ask yourself why - and whether this is an organisation and team you really want to be a part of.

As with everything here, what matters to you in all this is how the future looks, not just past performance.

1. Why me?

I think this is one of the most useful questions of all and the answer can tell you a lot. If it's along the lines of, 'Well, we've asked seventeen other people; they've all said no, and we can't think of anyone else ...' (it won't be quite this obvious, but make sure you read between the lines), you might want to look elsewhere. But if the answer is, 'We've got these issues ahead of us and we think that your background in [insert details here] will give us that perspective we need at the Board table,' then you may just have stumbled right onto the main things you'll be expecting to deal with, if you accept.

2. How well can I work with these people?

How many people join a Board without even meeting the people they'll be spending their time with? You don't need to be best friends with them, or even agree with them all the time (if fact if you do, then perhaps you're not the best person to bring a fresh perspective), but, to be effective, you must be able to work constructively with them. You must share a common vision for where the organisation is heading and be comfortable with how it does things (its values and culture). So, at the very least, meet the other Board members, the Chief Executive and top management team: you need to know them and they you.

3. What are the big trends, opportunities and threats facing this business, and what are the Board's big priorities for the next year or so?

You don't just want the answers: you need to know how well the current Board has thought about these things. If you're not happy with the answers, this may not deter you from joining, but at least you know what one of your early priorities will be.

4. How good are relationships with key stakeholders?

It may be pointless to join a Board which has fallen out with its major shareholder or key customers, because chances are that you'll be dealing with some pressing issues, not of your making, in the near future - unless, of course, it's the key shareholder who wants to appoint you to help address the problems.

5. Is the organisation aware of any significant legal action (actual or pending)?

Similar in a way to the previous point: this is not so much about any personal liability - since you may (note - may) be protected against actions that preceded your arrival (please make sure you understand what your actual position is). But, if the issues are significant, they will almost certainly be a serious distraction for the Board, and get in the way of progress in your core business.

6. What's the time commitment?

Don't underestimate this. My rule of thumb is 'three for one': in other works, if we have a four-hour board meeting each month, I'll mentally 'budget' twelve hours a month (say about a day and a half) for the role - four for the meeting itself, four for preparation (reading the papers and doing what else you need to keep up with the issues - wider reading, networking and so on), and the other four for all the other things that you get involved in, such as informal discussions with the Chairman, representing the Board at customer functions, visiting company facilities ...

To do this job properly requires you to put in time and effort. And if you don't, then not only will you be letting down the organisation and your fellow Board members, but you're potentially exposing yourself to greater risk because you won't have as good an understanding of what's going on as you should have.

7. Do I really want to do this?

This is a vitally important question - which you need to ask yourself rather than anyone else. I've found that you need more than director's fees (don't even think about 'status' - that's largely a myth!) to keep you motivated as a Board member: you need a 'burn' that you really want to play a part. Unlike an executive role, where you're in the business every day, as a Board member you may only be involved a few days a month.

I believe you need a sense of excitement and a desire to make a difference in order to keep you engaged. I've found from experience that, if that's missing (perhaps it's a sector that doesn't really excite you), then you may go through the motions, and you may even play a full part at Board meetings. But you probably won't do much more than the minimum and, quite soon, you'll start to regard that courier delivery of next month's Board papers as another chore, rather than opening a window on the next exciting episode.

As you may guess, I've written this from experience of mistakes I've both seen and made. I hope it helps with your 'due diligence'.

If, after all this, you go ahead and join that Board, as I hope my friend will, then good luck with the job ahead ... I trust you will enjoy making a difference as part of your organisation's top decision-making body.