A great board has an excellent understanding of the company’s business, strategy, and vision.
Mr Maxsted was appointed Chairman of Westpac Banking Corporation on 14 December 2011, having been a Non-executive Director on the Board since 1 March 2008. Mr Maxsted is also Chairman of Transurban Group, a Non-executive Director of BHP Billiton Limited and BHP Billiton plc, and the Managing Director of Align Capital Pty Ltd. He is a Director of Baker IDI Heart and Diabetes Institute, a Member of the Advisory Board of Coolmore Australia, and a Fellow of the Australian Institute of Company Directors. Mr Maxsted was formerly a Partner at KPMG and was the CEO of that firm from 2001 to 2007.
1. WHAT DO YOU THINK DISTINGUISHES A “GREAT” BOARD FROM A “GOOD” BOARD?
A great board has an excellent understanding of the company’s business, strategy, and vision. Directors’ views are aligned around what the organisation should do and be, and this is understood in the context of the broader external environment.
As part of its vision and strategy, a great board also sets the culture and tone of the organisation. It does this directly through its actions, which filter through the organisation, as well as indirectly through the type of person it appoints as CEO (and, further, the types of persons who the CEO appoints).
Great boards are comprised of individuals of high integrity who always put the company first. Board members are collaborative and cooperative, but at the same time they are prepared to challenge views when necessary.
Members of great boards will be current and aware of what is going on outside of the organisation. This allows them to view the company through different lenses, not just rely on being informed by management. They might engage in regular discussions with informed external contacts. For example, I have a regular session with the head of Financial Services at my old firm KPMG to discuss matters relevant to the sector and, specifically, Westpac.
Great boards also understand the role of the board versus the role of management. They have a mutually respectful, transparent, and open relationship with management.
2. WHAT ARE SOME OF THE LEVERS THAT YOU HAVE SEEN BOARDS USE EFFECTIVELY TO DRIVE ORGANISATIONAL PERFORMANCE?
Clarity of vision and strategy is important. This provides an anchor for board decisions; the board can judge the appropriateness of its actions as against a clear vision and strategy.
The appointment of the CEO and executives is also crucial, since they, not the board, run the company day-to-day. It is the CEO who has the greatest capacity to impact performance through his/her leadership skills.
A clear understanding and enunciation of risk appetite is also important; that is, what risks are acceptable and what are unacceptable. For a bank, this will include (amongst many other things) agreement around the level of capital, short-term funding, credit rating, concentration of credit risk,, and exposure to international markets.
The board should reward good behaviours, and have no tolerance for bad behaviour. In this context, performance should be judged on many metrics – not just short term financial results. Good boards are fair in their assessment of executives and consider performance across a range of key indicators.
3. WHAT DO YOU THINK ARE SOME OF THE MORE CHALLENGING ASPECTS OF BEING A BOARD CHAIR?
Selecting the right board members is a challenge. The board needs to be collaborative, but at the same time open-minded, and challenging of management and board colleagues. It is important to avoid “group think”.
Board selection involves getting the right people with the right set of values, and the right skills mix, as well as considering how people will behave in the boardroom. This latter factor is particularly significant where an organisation is under stress and really difficult decisions need to be made – how will the board interact during those times?
The Chair’s relationship with management is really important. A balance needs to be struck between ensuring you are supportive of management, while not being compliant to management.
The Chair also needs to see the bigger picture – understanding where the company really is other than through the eyes of management.Further, the Chair needs to ensure that the board is using its time effectively. This involves constantly questioning whether the board is talking about the right things. Is the board spending enough time on key matters of the day and matters impacting the future? What is not on the agenda that should be on the agenda?
4. WHAT DO YOU THINK ARE SOME OF THE EMERGING CHALLENGES THAT BOARDS ARE LIKELY TO FACE OVER THE NEXT DECADE?
A key challenge is likely to be the speed of technological change and consequent disruption to business models. In the banking sector, business models that were so effective for many decades are being challenged. Boards need to be aware of and fully understand the issues before it is too late. They need to appreciate “where to from here” and avoid getting caught in a “Kodak moment”.
If something goes wrong, there is a growing tendency by consumers, class action law firms, and regulators (pushed by governments) to blame corporations and their directors. This can be distracting and unproductive. It also raises the issue of the continuing ability of organisations to attract quality directors – it may be that the benefit/burden equation for being on a board no longer works for many.
For those corporations that are outgrowing our domestic markets (given our population size), there is the issue of having to compete where their strategic advantage is less clear. Boards need to understand the associated risks.
A further challenge is the increasing inability / unwillingness of governments (for a variety of reasons) to provide a consistent and supportive framework in which to conduct business. Boards and business generally need to be able to deal with a constantly changing, and often counterproductive, public policy and regulatory environment and still be able to profitably grow their business for shareholders.
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