Magazine article

When Kieran Biddle GAICD was asked to join the board of IMB Bank he had good reason to feel confident about his readiness for the role. “I was a business lawyer with a strong interest in property work,” he says. “I had run a private mortgage practice and acted as a panel solicitor for a number of financial institutions. I understood about borrowing and lending, enforcing and recovery because I’d been doing these things all my working life. But I quickly discovered that what I actually had was an adequate starting point. The skills required in the boardroom were much more sophisticated than I had anticipated, and there was a lot more that I needed to learn.”

These days, it’s not only first-time directors who find themselves challenged by the demands of the boardroom. “Being appointed to a board doesn’t mean you’re automatically a repository of all wisdom,” says Kate Costello FAICD, managing director of Governance Matters and a director on a range of boards. “However experienced you are, there is always something else to learn.”

While directors are typically recruited to provide specific expertise such as accountancy, law or marketing, there are some skills that everyone appointed to a board needs to master. For example, five years ago, the findings of the Centro case made it clear that a certain level of financial literacy is essential. “The notion of only needing one member on the board who is able to read accounts is wholly outdated,” says Caron Sugars, director, board advisory services, at KPMG’s Western Australia office.

Directors who move into an unfamiliar sector or industry will have a substantial amount of groundwork to do. “A good induction process will provide some background, but only in a cursory way,” says Costello. “There will certainly be a need for a broader and more profound understanding.”

Some sectors also demand more specialised training. “When I became a director of a community housing company, I thought it was important to undertake cultural awareness training,” says Pamela Edwards MAICD, an experienced director and former international corporate lawyer who is currently on the board of Argyle Housing.

Keeping pace with change

The latest edition of the ASX Corporate Governance Principles and Recommendations states that companies should provide directors with ongoing opportunities for professional development.

“In a world where change is the only constant, keeping directors up-to-date in their knowledge is key to creating a resilient and sustainable organisation where strategies are appropriately targeted and emerging risks can be identified and managed,” says Sugars. “Directors need to be agile and adaptive to changes inside and outside of the organisation. They need a working understanding of new and emerging performance issues such as technology and disruption, big data, social media and evolving social behaviours, as well as non-financial issues such as ethical risks in the supply chain.

“It is also important that they can analyse their own skills honestly and assess the relevance of their role. Directors are the custodians of the company and they are there to guide and support the executive team. They should feel confident that they have the skills and experience to challenge management rather than rely on their own management experience.”

Robert Gordon GAICD, chief executive officer (CEO) of Board Accord, welcomes the trend towards professional development in the boardroom, though he is concerned that some approaches are too limiting.

“I believe that directors can only achieve their optimal leadership and performance capability if they undertake personal as well as professional development,” he says. “Today’s directors need cognitive capability, emotional/people literacy and team intelligence if they are to govern effectively.”

He also believes that leadership capability is the one indispensable director competency across all domains. “We need leaders who can navigate global VUCAD – volatility, uncertainty, complexity, ambiguity and disruption,” he continues. “And, whatever the jurisdiction, professional development must help leaders to align compliance with consciousness so that they can collaborate effectively with management to deliver exceptional outcomes.”

Staying on top of risk

Professional development has gained traction in the boardroom since the spate of corporate collapses that occurred in the early 2000s.

“A core benefit of professional development is staying on top of risk,” says Geoffrey De Lacy FAICD, owner of Polaris Consulting. “Directors have to make decisions based on the degree of risk involved and you can’t do that without the appropriate skill base. I think the fall of companies like Enron and HIH Insurance brought this home to the directors who were around at the time and, since then, there’s been growing awareness that staying up-to-date must be taken very seriously.”

However, some board members are yet to be convinced. “You do still come across directors who think they know everything there is to know and see no need to commit to ongoing education of any kind,” says Costello. “In some cases, the biggest challenge is convincing directors that professional development has value for everyone, not only the less experienced board members.”

Gordon suggests that framing professional development as the natural outcome of a boardroom performance review can help to overcome resistance. “A review is an excellent way of identifying directors’ personal and professional strengths and weaknesses,” he says. “It also gives the consultant an opportunity to make a convincing case for professional development during the one-on-one debriefs.”

Other obstacles include a real or perceived lack of time, energy and resources. “These can all present a challenge, but boards need to think very carefully about the potential cost of not upskilling directors,” says Gordon.

A range of options

Edwards recommends a broad-spectrum approach to professional development. “Directors should expose themselves to programs and information from any source that could be relevant,” she says.

The Australian Institute of Company Directors’ (AICD) Company Directors Course™ continues to be a popular starting point and according to De Lacy, it is now regarded by many boards as the equivalent of a “licence to drive”.

Some boards adopt a more tailored approach. “Along with performance reviews of the board as a whole, I have found that self and peer assessments by directors can be particularly helpful in identifying specific needs for training or development,” says De Lacy.

If the board needs to call on external support, Sugars recommends that the chair works closely with the provider to ensure that the training is effective and delivered in an efficient way.

“While the best training is often done on the job it’s also important to be open to other options,” she says. “For example, at KPMG we have found that board members often benefit from personalised training in a classroom setting.”

Less structured training can also be productive. “Service providers such as the organisation’s external and internal auditors will often be happy to share insights and thought leadership,” Sugars says. “This could be presented as a document followed by a 20 minute session in the boardroom so that directors have an opportunity to discuss the paper and ask questions.”

Directors might also benefit from new approaches to training, such as scenario planning sessions, observing board meetings in other organisations and having guest directors attend their own meetings. “These alternatives might initially take a bit of time and effort to organise but they could also encourage different ways of thinking,” says Sugars.

Balancing cost with value

The priority afforded to professional development is likely to vary according to the size of the organisation, its corporate culture and the sector in which it operates. “Not all boards allocate a budget provision for ongoing education,” says Edwards. “Those that do must balance real need against the benefit gained. Accountability to stakeholders must also be taken into account in comparing costs with benefits. That means there are bound to be differences between, for example, listed public companies and not-for-profit (NFP) organisations.”

De Lacy points out that a decade ago, few charities would have had any budget at all for ongoing education.“These days they’re much more aware of the risks associated with financial stewardship as well as reputational risk,” he says. “They know it’s just as important for them to keep their directors up-to-date as it is for a commercial enterprise, but it would be natural for them to focus on lower-cost options.”

Whether or not they’re supported by board policy, many directors take professional development into their own hands. “I keep up with the continuing professional development that is compulsory for lawyers and, where possible, I focus on the area of company work,” says Biddle. “I read a lot, network and go to conferences. And I’ve found that seminars can be particularly helpful because you hear about the latest developments from people who are experts in a relevant field and you can also exchange war stories with fellow participants. I’ve also found the learnings and experience I have gained in one organisation to be enormously valuable when I have joined another board. I’m a great believer in cross-fertilisation.”

Sharing positive news

Today’s investors, shareholders and other stakeholders are very interested in the quality of the boards with which they engage. Ongoing professional development might be seen as evidence of a commitment to good governance. “I do think people appreciate this, not least because it indicates a lack of arrogance,” says Costello.

So how can a board best communicate the work it does in this area? “A good way is via investor and stakeholder updates,” says Edwards. “This information could also be included in a dedicated part of the company’s website.”

Most companies include information about performance reviews in their annual reports, though Costello believes that this would be more useful if it were clearer, more accessible and more comprehensive.“There’s no rule that says that the governance report has to be impenetrable and boring, but most are,” she says.

“And rather than simply mentioning that you have an annual board review, you could easily put some meat on the bones by talking about your professional development policy, how it works, the directors who took advantage of it, the topics you looked at and the experts who came in to update the board. This shows a genuine commitment to keeping pace with changing demands in the boardroom and, increasingly, this is what today’s stakeholders want to see.”


A guide to professional development for directors

Who needs it?

Every director needs to stay up-to-date with matters of governance and to keep pace with rapid change and emerging issues such as digital disruption and cyber security.

What are the benefits?

An informed, agile and responsive board which is in the best position to lead the organisation at a time of disruption, complexity and uncertainty.

What are the challenges?

  • A real or perceived lack of time, energy and resources
  • Reluctance to engage
  • Directors failing to practise what they learn
  • Stakeholder accountability – finding the right balance between cost and return

Where is the best approach?

An up-to-date skills matrix together with regular, structured performance reviews will highlight the areas that need to be addressed by identifying the strengths and weaknesses of the board as a whole as well as those of individual directors.

What is available?

  • A sound induction process
  • Courses and updates provided by institutions such as the Australian Institute of Company Directors and other providers
  • Conferences, seminars and other industry and networking events
  • Online education
  • Professional reading
  • Director Self-assessment Tool (a free service for AICD members)

Why is it of interest to stakeholders?

A clearly-communicated policy on professional development can help to reassure stakeholders that the board is committed to high standards of governance.

For more information on the AICD’s Director Professional Development (DPD) program, visit companydirectors.com.au/DPD