News Flash – Boards Don’t Work!!

What’s this all about… “Boards Don’t Work”… take a few seconds to think about it.

A bunch of Non-Executive Directors turn up once a month (maybe once a quarter) and after reading a few documents, and maybe receiving a quick executive briefing, suddenly start making brilliant decisions steering their organisation towards its vision, mission, goals, objectives etc etc.

Now you’re either thinking …that’s exactly what these directors do, they are extremely talented individuals, no wonder they get paid so much (or not paid in the case of most not for profit boards) … or you’re thinking …there is no way, no matter how smart and experienced you are, as a non-executive director you can’t do much more than do a bit of mentoring and steering.

Well the truth is that it’s probably a bit of both. The point we are making in this blog is that the performance of individual directors, and boards as a whole, can only be as good as the information they receive from the organisations that they govern. If directors don’t get the right information delivered to them in a timely fashion, no matter how smart the individual directors, or their levels of experience and expertise, the board can’t work effectively.

Directors can ask the hard questions but ultimately, if they don’t get the information they request, they end up like a blind folded captain of an ocean liner on autopilot … the ship will keep on going full steam ahead until ultimately, when meaningful decisions need to be made in the face of adverse risk events, disaster will more than likely strike. In corporate terms this means financial loss, reputational damage and potentially destruction. Think ABC Learning, Allco, Great Southern, Enron, Lehman Brothers, Merrill Lynch, the list goes on and on.

So why is it that when most people talk about corporate governance they usually focus on the Board of Directors,  Independent Chairs, Board Room Evaluations, Non-Executive Directors and Board Decision Making Processes (let’s call this Board Governance)?

Why is there so much focus on Board Governance when, simply put, “Boards Can’t Work without Organisational Governance”? Who cares if there is an independent chairperson, or a majority of independents on the board? If the board is not getting the right information, at the right time, it cannot make meaningful decisions.

Organisational Governance is about delivering financial and, critically, non-financial information to senior management and to the board of directors.  Organisational Governance is about establishing robust governance programs and internal policies and procedures (think enterprise risk management, compliance, business continuity, human resources, work health and safety, complaints handling, privacy, conflicts of interest, related party transactions, operational guidelines to name a few) that are integrated and linked to strategic goals and objectives. Organisational Governance is about transparency of process, monitoring organisational performance and, perhaps most importantly, the ability to extract meaningful financial and non-financial information in a timely fashion so that those at the helm can make meaningful decisions based on reliable information.

This is not a case of the chicken and the egg. To those that maintain that organisational governance systems will naturally follow once a good board is put in place, we say rubbish (respectfully of course)!

The reality is that there are now a plethora of laws in Australia that confer personal liability on directors (600+ and counting – one of the most recent being the new Work Health & Safety laws – see D&O Executive Briefing Paper for more).   Quality candidates for board positions are now looking before they leap and only joining up once they are satisfied that the organisation has an adequate organisational governance framework in place which will protect them from the increasing risk of personal liability and reputational damage.

How would you rate organisational governance in your organisation?  Does your senior management team and your board of directors have clear visibility of your organisations material business risks, key compliance obligations, complaints etc? Is your organisation attractive to experienced directors and officers?

How can CompliSpace Help?

We are Australia’s leading experts in organisational governance. Our business is built around utilising a combination of technology and consulting expertise to assist clients to streamline their internal governance programs, to ensure that their policies and procedures are fully integrated into their day to day operations, and to establish systems through which organisational performance can be easily monitored and reported against.

Over the years we have worked with hundreds of organisations ranging from ASX 100 companies and government owned entities, through to not for profits and small private businesses to make corporate governance come alive and add real value through the reduction of business complexity and increased productivity.

For more information please visit www.complispace.com.au or contact us on +61 (2) 9299 6105, +61 (8) 9288 1826 or contactus@complispace.com.au