Last year marked the 40th anniversary of my entering the business world and this year the 40th anniversary of my first position as a director. The business world I entered was one in which business people were lauded and, particularly, directors of listed public companies were seen as important and good people.
A lot has changed since that time. Today we are living through substantial public questioning of corporations and what they do. A realisation is beginning that for companies to be successful, they have to have a broader purpose than just making profits in the short term.
The result of this is a movement to look more broadly at involvement of the company within its society and for corporations and boards to have regard to the sustainability of their enterprises.
My view is that it is vital for those involved in managing companies to look more broadly — whether it be to repair the image of our corporations, build trust, make the company a good place for staff to work, assist in its sustainability in the longer term or just to provide us with a pride in what we are involved in.
It requires listening to consumers, regulators and other shareholders. It involves seeking to ask is this the right thing to do rather than whether the law allows it — and it involves thinking way beyond the next profit announcement.
I want to look at how we as directors can live up to this new paradigm. I do not believe I have all the answers. By providing some suggestions I will encourage you to start to formulate what we need to do as directors.
To come to a decision of what is not just legally right, but ethically right, and to do it ahead of the problem, clearly the choice of directors is paramount.
My greatest worry is that most people in our community don’t understand what the role of a non-executive director is and, indeed, should be. I am also not sure that a great deal of the community understands what risk actually means in business. I do worry that our appreciation of honest failure is not what it should be.
How can a community appreciate what I am doing if they don’t know my role and can’t be in a position to assess whether I have succeeded or failed? I suggest we need to ensure the community knows that directors are “human” and, indeed, that corporations are made up of humans. This is vital. I believe we can achieve this as directors by doing things like the following:
We should allow our shareholders to know more about who our directors are. For years I was against the now traditional concept of directors who come up for re-election standing up at the AGM and speaking in favour of their re-election. My argument against it was that this was not a popularity contest and what could the directors say in their support other than potentially making promises to do good things, which was not the nature of the election at hand? I now believe directors should speak at AGMs in support of their re-election, as I now realise that shareholders probably view these speeches as a way of getting to know the director, and not as a platform for wooing their vote.
Indeed, I suggest we should go further. When we have a new director should we think of a podcast, video or some other way of introducing that person to the shareholders, staff and the community? One may not agree with everything a director says, but it is much harder to ignore their thinking if you understand them as a person.
I feel that the biographies we give in the annual report and on the websites concerning directors are not enough. Perhaps we should embellish these to give shareholders an insight into who the person actually is rather than just listing (impressive as it may be) previous directorships and professional involvements.
Directors should be involved in their communities more generally. This is an area that not only should be encouraged, but also celebrated. The community would be amazed how many company directors give unpaid time and effort to the community.
To be seen as more human, directors should speak out on issues that are important to them. I congratulate (Qantas CEO) Alan Joyce on the steps he took on the same sex marriage issue. Sometimes it is difficult to delineate the difference between a CEO and the company they represent. But for us as non-executive directors it is much easier to do that and we — taking suitable care to ensure it is expressed as our view and not that of our corporation — should speak out on issues important to us. I cannot tell you the joy being involved in education has given me.
We need to encourage more discussion and attention about the whole background of what company directors and businesspeople do rather than just articles when they make a mistake.
We need also to educate the community on what we do. Simple things like who runs a company day to day, what does a board do, what risk a shareholder is taking and what the board is ensuring will happen. Being about to complete my second school education review, it occurred to me directors should visit schools and universities to talk about what we do. It would be advantageous not just to educate the young, but to listen to them. We should extend this to talking to shareholders and the like.
Today we have to have a sense of what is not just legally right, but ethically acceptable. This is essential to winning back the reputation I believe we deserve and rather than debate whether this is our role or not, we should accept it and as a consequence discuss how we achieve it. To come to a decision of what is not just legally right, but ethically right, and to do it ahead of the problem, clearly the choice of directors is paramount.
We must have gender diversity. How can we make the decisions now required of us without representation of 100 per cent of the population rather than only the male 50 per cent?
Board member geographic diversity in larger companies can be useful — broadening the board’s knowledge of the world and the trends and emphasis experienced outside of our shores.
We need diversity of skills and employment backgrounds. The concept of people the same as me sitting round a table deciding what is right and ethically correct is a terrifying one. The concept of surrounding oneself with people who have different ideas, philosophies and so on provides a much safer panel to make that decision.
Whilst I see great benefit in having people on the board who have a depth of knowledge in a particular area such as IT or accounting, these and everyone round the table must be generalists as well. The issues we are dealing with are very complex and one has to be able to rely on everyone around the table to put a view on broad issues not just specific ones. We need directors experienced in business and life.
To cope with the new issues, the way we run board meetings must also change. The best way to run a board meeting is to have the CEO report ex tempore on the issues of the day.
Our vulnerability as board members is the flow of information and our weapon is our own questioning and perceptions. I have seen board papers of enormous size and often have been left at the end questioning whether I have been “snowed” with detail. Seeking to include in part of the board meeting not only those who work for the CEO, but also the next layer down and being able to test whether what the board has been told on items of the day can be extremely valuable.
To determine whether the company’s going in the right direction, it is imperative one sees the body language, listens to the thinking and is able to question. In order for us to deal with the ethical questions of our roles as directors, it is vital that directors have regular discussions with directors who are not involved in the problems they are dealing with, nor with the companies they are in.
We need to seriously think about mentorship programs for directors generally. The AICD Chairman’s Mentorship Program assisting women to start careers as non-executive directors has been excellent, but perhaps it is time a further program for all directors — new and old, male and female — be instigated.
I also believe that discussion groups through the AICD and generally should be encouraged on issues much broader than just the issues of the day. In this regard, we should broaden the discussion from just social licence, diversity on boards, remuneration and the like, to discussion on the ethics of what we do — and maybe the involvement of The Ethics Centre and so on would be a good thing.
Lest you should think we will be searching for topics, let me give you the first one: “are we meant to be operating for the short or long term or both?” I have a view, but believe that discussing this broadly would aid in my dealing with this perennial issue. This is but one issue requiring discussion and serves as a good example.
I love being a director and I’m proud of the involvements I have had. All of us are part of a community and it is imperative that we work with that community to make our institutions both strong and successful in the long term.