MGSM
Being a Director: Independence & Conformity in the Boardroom.
Published on the MGSM web site, July 2005.
Pictured left to right: Ann-Maree Moodie, John O'Grady & Marilyn Smith
MGSM's June A-List event featured a presentation by Ann-Maree Moodie, Managing Director of The Boardroom Consulting Group Pty Ltd, who examined the recent boardroom reform process, raised the notion of boards' "group think" and dissected spectacular corporate failures.
Therefore, there are four parts to the board's role; to understand strategy, to make decisions about a course of action, to communicate those decisions and to monitor the achievement of organisational goals. A close analysis of the composition of the board reveals that most board members had highly successful individual careers as senior executives. However, their predicament is their implicit need to make the right decision, as a group.
Ann-Maree Moodie seriously questioned the ability of a group of highly successful individuals to eliminate the possibility of "group-think". She raised a number of questions, including how can group-think be avoided among a homogenous group? How can these people challenge each other to think differently? How do you encourage a group of people to think differently about the same situation? Ann-Maree Moodie also noted that organisations and boards are not only expected to make money for shareholders but to be conscious of corporate social responsibility.
Answering some of the questions she posed to the guests, who included professional company director Anne Keating and the Chairman of Australian Unity, Alan Castleman, Ann-Maree Moodie examined the effect of diversity in the boardroom, and the need for diversity to be more than boardroom parlance. Diversity does not mean having a token female board member; it is appointing a group of people who can examine the same situation in different ways. It also means eliminating the golden rule of paternalism – acting in one's own best interests, instead, making the right decision for the organisation and its shareholders. As Justice Neville Owen, the Royal Commissioner in the investigation of the HIH collapse said, "boards must be prepared to ask 'is this the right thing to do?'"
This led to Ann-Maree Moodie's statement that boards are often not prepared to ask quality questions. Speaking from a background in journalism, she encouraged board members to examine whether they were only asking questions to which they already knew the answers. Instead, she suggested they go straight to the source and ask basic, open and direct questions. Simple questions including what is the role of the board?, when do you assess the performance of the board?, why don't you assess the performance of individual directors? and how do you plan for succession for the board? may elicit answers that allow the board to make progress.
Asking questions may also help directors understand the information presented to them. Ann-Maree Moodie also asked the question "how can you be sure someone is not pulling the wool over your eyes, if you don't understand the information?". Many of the reasons for not asking questions presented to her by directors centre on conflict avoidance. Whilst arguments are seen by our postmodern society as negative events, we continue to avoid debate as we are worried we might cause offence. However, those with strong opinions are labelled opinionated, those without strong opinions lack conviction. This is reflected in our conversations, which remain punctuated with qualifying terms such as "but", as an excuse for raising questions.
Raising more questions for guests, Ann-Maree Moodie asked the group to consider whether regulation and industry response had created a "tick the box" mentality for corporate governance. The ASX has imposed strict guidelines, but are boards really examining their behaviour and seriously debating each decision? Are they looking at every opportunity from every angle? Ann-Maree Moodie believes they are not, and that a culture change must occur to allow debate to happen, and the right decision to be made.
One example where the media questioned whether the right decision was made, was the James Hardie case. Although moving overseas might have been the right decision for the shareholders, this decision severely tarnished their reputation. Was it then the right decision?
Ann-Maree Moodie believes the answer to many of the questions raised is to provide directors with a job description. More individual accountability ensures board members' advice does not become sacrosanct. This is also avoided by ensuring each individual has a basic understanding of corporate law and finance. She believes CLERP 9 states the obvious, as it requires the Chairman of the audit committee to be financially qualified.
To Ann-Maree Moodie, being a director is to be a guardian of reputation. Without a good reputation, everything else falls away, she said. Reinforcing her earlier point, Ann-Maree Moodie concluded by saying directing is about the board steering and setting the course. Governance is about the systems that allow the organisation to get there by reducing risk, planning strategically etc. A director's legacy should be an organisation with a good reputation. Governance is not about the individual person, but about the purpose. Directors need to stand up and be counted and not just say what they think the rest of the board would like to hear.
