On 22 August 2019, as part of its Professional Series, financial advice firm Stanford Brown hosted several experienced directors presenting their insights on how a company board should perform, with hints for prospective board members.
Elizabeth Bryan was the first woman to run a large financial institution in Australia at State Super from 1992. She is currently the Chair of Virgin Australia and Insurance Australia Group and a member of many government panels.
Chris Cuffe took Colonial First State from a start up to become Australia's largest investment manager during his 14-year tenure as CEO. He is now chair or director of several companies, including Australian Philanthropic Services. Chris worked with Elizabeth on the board of Unisuper, succeeding her as Chair in 2011.
The discussion was hosted by Vincent O’Neill, Director of Private Wealth at Stanford Brown. This is an edited transcript.
VO: The reverberations are still being felt from the recently-completed Hayne Royal Commission. Elizabeth, can I ask you about the changing roles and responsibilities of directors.
EB: The duties of directors pre-Hayne and post-Hayne have not changed. The duties of directors are to the company in perpetuity. At the beginning of his report, Hayne emphasised the values that should guide Corporate Australia. They are simple values about fairness, trust, transparency, obeying the law, doing the right thing. Nothing very complicated. They are the core values that reside in our society. In the complexities of some of the big financial companies, he felt that these values had become lost, leading to some the egregious situations outlined in his report.
There is, however, a gradual change in society's expectations of big companies. Businesses provide many of the essential services of our society and people expect to be dealt with in a certain way. Customers don’t want complexity, they want fair, honest and reasonable dealings with these big organisations.
And so the directors’ job has changed because of high social expectations about what society wants from these large companies. And that's what you read about in the papers.
VO: Do you think there’s been an awakening among directors of how expectations are changing?
EB: The perception that directors are either bad or asleep is not correct. Most directors of Australian companies are diligent, smart, hard-working people, and they do the best they can. But the expectation has shifted from maximising shareholders’ funds to serving the needs of various stakeholders. And that’s a big change.
VO: Can we focus on the transition from management into board life by exploring some of the motivations behind the move, and perhaps some words of caution.
CC: There are many motivations. Some people do it for the money, some for the power, and some to remain relevant. Not everyone wants to play golf all day at the end of their executive career. Some want to maintain contacts and networks. There's also a bunch of people, and I am one of them, who feel they have accumulated knowledge in a particular domain and we feel we can share that knowledge with other groups.
It's important to understand what your motivation is, but to be a director simply for the sake of being a director is not good. Some people treat being the director of a listed company as a trophy, but believe me, there are many obligations and responsibilities, and it can even be a bit scary.
VO: Elizabeth, what continues to motivate you in particular roles?
EB: It’s important to consider what organisations do. I think I’ve got some frustrated public service policy role in me. I think companies in essential public services are worthwhile, so we put the hard work into getting them right. That's where I get my pleasure from.
VO: Many people serve on charitable boards. Is that a stepping stone to other professional boards?
EB: I'm not as experienced as Chris on charity boards, but as chair of a company, if somebody is brought to me for a non-executive director (NED) role, their participation on a charity board is of no consequence.
I’m looking for two things in an NED on a big public board. First, some kind of domain experience that is seriously relevant to the business and the needs of the board. A deep domain knowledge that the person holds. For example, as chair of an insurance company, it’s really useful to have a few directors who have actually worked in the challenges of the insurance industry. And you need deep domain experience is a role such as the chair of your audit committee.
Second, you must have the ability to work with a small group. You have to have the personality, the breadth of knowledge, the willingness to be part of a team, and you have to have the EQ to sense what your role is in that group. The role of the chairman is very different from the role the NED, and the role of the brand new NED is different from someone who's been on the board for six years. You need the social skills to interact in a team environment of seven or eight people.
CC: I’ll add that if you're considering a NED career, some people have deep domain skills and want to stay in that area, while others span across broader areas such as corporate governance. In my experience, I've tended to stay in the area of investment, superannuation and finance generally. I did step outside my expertise once but I found that I didn’t really enjoy it because I was not adding the value I wanted to. I needed to know better what was fact or fiction.
VO: What key role does diversity play on a board? Elizabeth?
EB: You need to set up a collegiate atmosphere around a board table, where people respect and listen to each other but come at things from slightly different angles. That is diversity.
The second step some people take is that for diversity of thought, there needs to be diversity of background and diversity of experience. At some point, you have to realise that the board members must be able to talk amongst themselves. When boards are structured with one person from every state, and three of this and four of that, and someone representing something else, you never find a common ground.
VO: Have you had experience with poorly-functioning boards, perhaps where the line between management and board was unclear?
CC: Yes. When you first move from a CEO to a NED, it takes a bit of restraint. It’s the role of a seasoned chairman, early in the piece, to take a new director aside and make clear where that line is. There's nothing worse than board members fiddling in management matters and management don't like it. It’s dysfunctional because everyone starts second-guessing. For me, the main role of the board is to support management, not try to catch them out.
EB: Boards can go wrong for many reasons, and directors should take a good look around the table at who they are working with. Are they the solutions or the problems? You have some individuals who want to dominate, or the chairman’s worst nightmare, the incessant talkers. There is no polite way to shut them up but you have to find a way to do it.
At the other end of the spectrum are people who never say anything or even worse, don’t say it at the meeting but talk about it afterwards. The social construct of a board is difficult, so you need the knowledge, the experience, and then you need a social construct that enables members to act effectively as a group of people. And that's the real seriously tricky part.
CC: I once served on board with Elizabeth when she was chairman and I was a new director, and she said the role of chairman was worth about twice any NED. Later I thought it’s at least two times, because you spend so much time on the EQ stuff. A chairman is like the conductor of an orchestra and you need to know how to play all the instruments.
EB: Can I add that boards in Australia are going through a difficult patch, as we’ve lost the high moral ground. Anyone thinks they can have a cheap shot and there's not that much you can do about it. But here’s my personal view. There’s been a change. We've had very high growth rates out of profit-maximising capitalism, but what it's done to our income distribution, to our service levels, to the kind of values that exist in some parts of the business community and society, is questionable. And I personally think we're seeing the customer turn. With the companies that I work with and advise, my energy goes into getting ahead of the wave on these issues, thinking how you can find something that blends with your business model but also contributes to a wider group of stakeholders.
If you just go for either platitudes or philanthropy, you don't have something that's sustainable. In my view, the key for all leaders in the business community now is to understand the business deeply enough to know what they can do that makes a wider contribution to their societies, but also works with a business model.
CC: I agree but smaller companies are more about surviving. If you’re on the board of a small company, worrying about the community or whistleblower policies or cultural statements can waste a lot of time. You have to pay the wage bill next month. It's horses for courses.
EB: Yes, I was talking about large companies. I add that you must be very careful with buzz words like sustainability, transparency and the one I hate most, agility.
Graham Hand is Managing Editor of Cuffelinks and he attended the presentation as a guest of Stanford Brown.