alan finkel

Zeroing in on the 2019 Australian Governance Summit theme of “rising to the moment”, Chief Scientist Alan Finkel AO had the undivided attention of a packed house when he addressed the governance challenge of the banking Royal Commission, advising the appointment of “highly capable people who think first like good humanists, and second like good engineers” to boards, to create “a high-performing unit”.

He asserted the continuing primacy of top-quality personal leadership in a generation that has seen the flowering of artificial intelligence (AI) across society and the economy. At the same time, he reinforced the urgency of structuring boards to give them the best chance of successfully tackling his other theme, the innovation “imperative”.

Finkel was part of a heavyweight line-up of keynotes, which attracted a record 1400 participants to the March summit. Summarising his experience as a director on public company boards, chairing a not-for-profit and as an engineer, scientist, business founder, investor, philanthropist, university chancellor and advisor to government, he defined a good director as more than “competent, intelligent and well-meaning”, noting those people “are not all cut out for the job”.

“We should choose directors because they are special, not because they are ordinary… fired with a sense of the company’s mission and trajectory,” he said. They should also come with “relevant and abundant” life experience and “make it their mission to go beyond what they are told. Good directors know they have no excuse to be ignorant, and that competent directors only fail to see problems if they fail to look”. They should be able to “smell a rat” and focus on the question: “Should we do this?” rather than merely assessing whether or not something can be done.

In practical terms, Finkel urged attention to the skills matrix of any board, as one of a suite of design parameters derived from “thinking like an engineer”. “Engineers know their job is the art of optimisation,” he said. “A good engineer optimises the design to satisfy multiple parameters. A good chair should do the same.”

About half the board should have executive experience in a company’s industry or field, or a related one. “It sounds so obvious, but when I led the review of the National Electricity Market in 2017, I was shocked to find the board of the Australian Energy Market Operator, the company that actually runs the physical electricity system, one of the biggest and most complex electrical machines in the world, included only one technically trained person.” This has been fixed.

Finkel Tips

  • Streamline processes to optimise effectiveness of the board, create succinct board papers, get verbal reports from subcommittees, and have regular strategic planning sessions./li>
  • Rigorously assess potential members to ensure relevant experience (at least half should be in the industry)./li>
  • Pay attention to human “bandwidth”. Chairs should not spread themselves between more than two public companies; directors across no more than four./li>
  • Build in a culture of integrity so everyone in the company is effectively supported to live up to its values.

Innovation

Innovation threaded through his address, unsurprising given his career has been built on it. Finkel’s trajectory has taken him from his specialties of electrical engineering and neuroscience, through his 1983 entrepreneurial startup Axon Instruments; to his roles as chief scientist, advisor to the federal government in such sectors as the national hydrogen strategy, and deputy chair of Innovation and Science Australia.

He intrigued his AGS audience with the news that Hong Kong venture capital company Deep Knowledge Adventures had appointed a robot director, “Vital”, to its board in 2014. Finkel considered whether that meant a generation of “director-bots” would supersede the human variety, given the ubiquity of AI in industry (the answer is no, but more on this later).

However, Finkel also praised innovation that didn’t rely on technology, using Rio Tinto’s commitment to safety as an analogy for creating a culture imbued with integrity.

He said Rio Tinto’s success — injuries fell steadily over decades — “was possible because they changed human behaviour to focus on safety all the time”. This meant asking employees to report accidents at home as well as on the job, to “raise awareness of the importance of safety in all aspects of employees’ lives”.

At work, the company taught safety to new employees, reinforced its importance to existing staff, ensured no-one was penalised for prioritising it, and avoided any incentives that might inadvertently lead to risky behaviour. Finkel advised companies to replicate those four steps, substituting “integrity” for safety.

Nuts and bolts

Other suggested parameters were ensuring transparency and trust and guidance for working within the “bandwidth of humans” — resisting the temptation to chair more than two public companies or to serve on more than four public company boards. Chairs should ensure directors aren’t “snowed with documents” by breaking board papers into two packs — one essential, the other for background; and avoid exhaustive (and exhausting) committee minutes by calling for narrative reports from subcommittee chairs. For major projects, consider assigning a “task-and-finish” committee of two or three directors to do the work. Finally, be fearless in talking directly to senior management to gain deep, candid perspectives.

This “nuts and bolts” approach was exemplified during Finkel’s chancellorship of Monash University in Melbourne. He recalled starting with “21 council members, hundreds of pages per meeting, six two-hour meetings per year, plus an annual two-day offsite strategic planning conference”.

“But is it reasonable to only think strategically once per year?” he asked. “Eventually, we decreased to 15 council members, split the papers into two packs, increased the number of meetings to eight per year and increased their duration to three hours.” This meant time in every meeting to think strategically, and the annual offsite conference was dispensed with.

Part motivational speech, Finkel’s address was also an endorsement of confidently modifying a system far from obsolete. Deep Venture Knowledge’s Vital, which can predict risk by crunching “millions of data points across 50 parameters describing a target company”, and has the power of veto over investment decisions, is still missing a crucial quality: artificial general intelligence.

This is “the digital equivalent of the package deal of human abilities, human insights and human experiences,” Finkel explained. “The experts tell us the world of artificial general intelligence is unlikely to be with us until 2050, perhaps longer.

In a nutshell, the role of directors is governance and guidance. If you just focus on governance, you’re an auditor. If you just focus on guidance, you’re a life coach. If you achieve both, you’re a future-proof director. AI, eat your heart out."