Q&A with Rick Lee FAICD

A “great” board has members with views based on diverse experiences, robust and independent thinking, and makes constructive enquiries of management.

Rick Lee FAICD is the Chairman of Oil Search Limited and a Director of Newcrest Mining Limited. Mr Lee has extensive resource banking, finance and international commercial experience. His previous senior executive roles include 16 years with CSR Limited and 9 years as Chief Executive Officer of NM Rothschild Australia Limited. He is a former Chairman of the Australian Institute of Company Directors.

1. WHAT DO YOU THINK DISTINGUISHES A “GREAT” BOARD FROM A “GOOD” BOARD?

A “great” board has members with views based on diverse experiences, robust and independent thinking, and makes constructive enquiries of management. These elements are combined through good processes and enlightened leadership. Cohesiveness is important; even if board members demonstrate the right capabilities, you will not get the right outcomes if the chemistry does not work. But be careful to avoid “group think” A good team is better than the sum of its parts.

The relationship a board has with management is also important. This relationship needs to be constructive, supportive and respectful, while maintaining the delicate balance of power between the board and management.

From a market perspective, good boards will be tested most in bad times. Boards can add real value when times are tough.

2. WHAT ARE SOME OF THE LEVERS THAT YOU HAVE SEEN BOARDS USE EFFECTIVELY TO DRIVE ORGANISATIONAL PERFORMANCE?

A reward and incentive structure aligned to strategy and its successful execution and performance is a basic requirement in corporations. But the reward structure is not the whole story and its importance can be overemphasised and diluted by complexity.

Another key lever is the choice of CEO. If a board is deeply unhappy about an organisation’s performance, the most effective way to bring about change is to replace the CEO.

A board might also consider initiating a strategic review. This enables a rigorous analysis of important issues (that are not “business as usual”), and can facilitate the airing of diverse and challenging views across the organisation. The strategic review can be carried out by resources internal or external to the organisation or often both. The board can use this review to redirect/refocus management’s attention to improve outcomes.

3. WHAT DO YOU THINK ARE SOME OF THE MORE CHALLENGING ASPECTS OF BEING A BOARD CHAIR?

While a Chair has the power to influence and oversee strategy formulation and implementation and the day to day activities of an organisation, the power of execution is vested in management. This can be a challenge for effective leadership.

The Chair also needs to manage debate and dissent in the boardroom. Chairs can help to maintain a constructive boardroom culture conducive to high-performance by working through issues with directors individually or as a group, and seeking involvement from subcommittees or further work from management, rather than putting issues to a majority vote. In my experience, contentious issues are rarely resolved by a majority vote.

Chairs are also increasingly exposed to pressures from shareholders. Shareholder activism today is much greater than it has been in the past, and the Chair is expected to engage with shareholders on a regular basis. Chairs need to be mindful of the limitations on what information they can share with particular investors and what matters are appropriate to discuss. It is important for a Chair to manage dialogue in a constructive way, avoid a  “them” and “us” approach, and be confident in the position articulated.

It is also challenging for a Chair who becomes personally associated with difficult issues that arise in their organisation – the future has a habit of becoming tied up with the company’s perceived success or failure.

4. WHAT DO YOU THINK ARE SOME OF THE EMERGING CHALLENGES THAT BOARDS ARE LIKELY TO FACE OVER THE NEXT DECADE?

Boards will increasingly need to deal with the expectations of broader stakeholder groups in the social responsibility area. Directors need to think carefully about how to deal with these issues in the context of the duties they owe to the company and shareholders.

Technological issues are increasingly significant and organisations cannot afford to be complacent. In our rapidly changing business environment, the board must be vigilant to avoid disruption by new products or services, new (or old) competitors and new approaches to business.

People issues are also becoming increasingly complex and challenging. The board needs to consider how to attract and retain talented people, motivate them and drive particular performance outcomes that add value. Approaches that have worked previously may do so no longer. For example, younger employees may have different attitudes to job rewards and security and a totally different approach to career. Be sure to listen to their views and create a culture that is open and adaptable.