A time for balance Cover Story

Helen Lynch, one of Australia's leading directors, earned her stripes during some rocky times at Coles Myer and recently Southcorp. As she tells Deborah Tarrant it is time for boards to once again concentrate on strategy, corporate performance and creating shareholder wealth.

A time for balance

Helen Lynch, one of Australia's leading directors, earned her stripes during some rocky times at Coles Myer and recently Southcorp. As she tells Deborah Tarrant it is time for boards to once again concentrate on strategy, corporate performance and creating shareholder wealth

She may be one of Australia's most sought-after company directors, but Helen Lynch AM does not mince words. She'd like an urgent rethink of boardroom agenda - an acknowledgement that the framework for improved corporate governance has been duly considered and implemented - and a fast return to other issues of importance: leadership, strategy, values, culture and reputation. "It's time to get the balance right between conformance and performance," says the director of Westpac, Southcorp and the deputy chairman of Pacific Brands who was made a member of the Order of Australia in 1994 for services to banking and finance industries.

Between discussion of the needs to comply with America's Sarbanes-Oxley Act, the UK's Higgs Report and locally the ASX guidelines on corporate governance, and CLERP 9, Lynch says she's having deja vu at corporate functions these days.

At board level she believes there's a disproportionate amount of time spent conforming, rather than focusing on what's actually going to make the difference.

"Appropriately there has been a heightened awareness of corporate governance, what directors should do and how they should speak up,"she says. "But the pendulum needs to swing back now to strategic issues, trends, margins, the real drivers of business and what will add value to the shareholders."Ticking boxes does not change the culture, she points out.

"If the culture is right and something goes wrong people put their hands up. If the culture is not right and something goes wrong, they will try to fix, hide or deny it,"she says.

Lynch's views on compliance take on more gravitas with the knowledge that she chairs Southcorp's audit and compliance committee and, while no longer chairing the equivalent at Westpac, she remains a member of the bank's audit and risk committees.

In an era when the role of the non-executive director (NED) and the conduct of boards has been intensely scrutinised, Lynch is a standout, with a reputation for being hard-working, high-energy and with a strong eye for detail trained by more than 35 years in banking. But in the mid-90s she surprised many when, after turning 50, she resigned from the executive committee of Westpac to pursue a portfolio of directorships.

She has well-considered views on a gamut of controversial topics from tenure for NEDs to the need for restraint on executive salaries, the management of conflict within board meetings and the broad sense of public mistrust that she believes permeates business, and other institutions.

She is known for her candor, both within the boardroom and beyond. As the guest speaker at the annual Chief Executive Women dinner in 2003, she said: "Business, in common with all our major institutions, is caught up in a pattern of mistrust, which affects the value of our brands, the productivity and morale of our people, and our relationships with our customers. In short, it's costing us money to be thought of so badly. It is costing us reputation and it is setting a poor standard for future generations."

Behind closed boardroom doors, she is apparently no less vocal.

Asked how her fellow directors might describe her boardroom style, she laughs. "Oh, I hope they would call me well balanced, considered and rigorous. I am not the sort of person who would be influenced by board peer group pressure to inform the decision I make."

When Solomon Lew was spilling the beans on national television during his stoush with the board of retailing giant Coles Myer in late 2002, he named Lynch as one of the three directors he had been told would quit if he retained his board position. He was not re-elected - and Lynch resigned from the board last April, a year short of finishing her third three-year term.

"People asked me why I would voluntarily leave one of the biggest companies in Australia. I felt we needed a block of people to go to change the dynamics in the boardroom. I think that was achieved. I am pleased that I elected not to stay any longer,"says Lynch who has never spoken publicly about her resignation, adding: "I will probably speak about it when I retire."

As a public advocate of tenure for non-executive directors, she would have made a self-imposed exit from Coles Myer this year anyway.

Tenure is not a popular concept, but in Lynch's view after three terms of three years "if you haven't added value, then you're not going to." Her argument does not rest lightly with many long-serving directors and it's one that's easy to refute with notable exceptions. Rupert Murdoch and Frank Lowy are just two.

Lynch is talking general rules, conceding there may be extenuating circumstances. "When you first join a board you do a tremendous amount of work upfront to get to know the business and its people, and understand the environment. After 10 years or so you could potentially become a bit comfortable, maybe not as rigorous in analysis because you have been part of a lot of the decision-making. In an era where CEOs don't last 10 years, I don't think it's appropriate to have such long-serving directors."

In line with her view, Lynch, who was re-elected for a third term to the Westpac board in December, says this will be her final term.

Her thoughts on executive remuneration are also clear. To be told something is acceptable because it is common practice - too often the excuse for escalating executive salaries - is the metaphorical red rag to a bull. "Common practice does not make it right,"she says. Salaries and "the more worrying payouts to CEOs who have not performed" have given her the greatest cause for reflection and deliberation. The culprit in the blowout, of course, is the disclosure rules because they have encouraged competitive jockeying. "There has been an appropriate hardening of people's views. Boards are now focusing on the contractual arrangements and the hurdles agreed at the outset,"she reassures.

While she agrees in principle with better two-way communication with shareholders, she does not agree with CLERP 9's non-binding shareholder vote on executive pay. "You need to know a lot about the business, the individual qualities and leadership that a chief executive brings to be able to properly evaluate their worth."

In the course of this interview, Lynch details the prerequisites for a good board - diversity of skill sets and experience and insightful, independent minds - yet what emerges powerfully are her views on the role of the chairman, as the key leadership role in an organisation. "As an individual non-executive director you have no power - the power is with the collective,"she says.

Lynch herself had an all-too-brief 11-month stint in the chairman's seat at OPSM. She chose to cut short her term because of the imperative to act in the best interests of the shareholders - which she and fellow board members did last year when they recommended the acceptance of a takeover bid for OPSM by Italian eyewear group Luxottica. Paramount for the effectiveness of a board is the ability of the chairman to handle conflict, Lynch believes, going on to express frustration with chairmen "who baulk at conflict and think the way of handling it is to never put the issue on the table".

In another instance, she puts the onus on chairmen to ensure the right balance of information flows between executives and non-executive directors, noting "sometimes I am absolutely overwhelmed by the volume of paperwork I get and underwhelmed by the content.

"The quantity of paper with the changing rules and regulations, whether it be corporate governance or accounting standards or a new regulatory regime, means directors have had to spend a lot more time on it than they would have three or four years ago."

In her speech at the Chief Executive Women dinner, Lynch also focused on chairmen, expressing her belief that the most underestimated corporate asset is the relationship between the chairman and the CEO, and the CEO and the board. "A trusting relationship between board and CEO, which allows rigorous debate, and for the possibility of error, while at the same time celebrating success, is essential to the health of corporations."

She observed: "The modern CEO is often characterised by nothing so much as extreme nervousness. The average tenure of a CEO is three years, and there appears to be zero tolerance for mistakes."She continued by calling on chairmen to play an important, "spine-stiffening role"for CEOs.

We are left to wonder what or who had prompted such remarks, but she is drawn further only to say: "Most directors who have been around a while like me have been in situations where there has been aggression in that sense .. and it's very difficult."

Boardroom culture has definitely changed with the spectre of corporate collapses and new regulations. Lynch observes these days if someone obviously is not doing their homework then the chairman would very quickly tell them to be better informed. There is a tangible heightened awareness of risk, particularly among the directors sitting on audit or risk committees, she confirms, identifying a further potential danger for "things to fall between the cracks"between the audit and risk committees.

The backlash from bygone reckless years may be a tendency for former CEOs to shun directorships, she warns, in preference for going out on their own. "I don't see too many volunteers to be the nominated "financial expert"as is required under Sarbanes-Oxley."

For her willingness to speak up in moderate tones, Helen Lynch commands respect. She insists that courtesy plays a big part in the boardroom, along with diplomacy. "If you are too aggressive or single-minded, you lose the capacity to influence the debate."

Not surprisingly, she is a strong advocate for one-on-one annual board evaluations, which have been conducted for several years at Westpac. These involve self-evaluation, an assessment of individual directors by other directors and key executives.

The process is still not widely embraced - Southcorp, for example, does a collective review - but Lynch is certain about the benefits. "For a NED to get on a board and think they know it all is very old-fashioned. We have to be into continuing education to keep ourselves up to date and one way of reinforcing that is knowing that the value that you add is going to be appraised annually."

One-on-one evaluation is an indicator of a board that is very contemporary in its thinking about corporate governance, she suggests. "You would find a strong correlation between individual board performance reviews and no retirement allowances for directors going forward and tenure rules."

Since the behaviour of boards has been scrutinised and regulated, Lynch delivers a clear message: much of what needs to change now is down to individuals. Corporate social responsibility rests with everyone in an organisation, and not as a motherhood statement or in token gestures.

It becomes clear that what drives this contemporary thinker is old-fashioned values. She lists them: integrity, trust, respect and courage - the ones taught to her by nuns as a schoolgirl in Charleville in outback Queensland. These are the values which she believes need to be instilled in business, starting at board level, to truly move forward and counter risk.

As this venerable banker explains: "A lot of things that make a difference are not on the balance sheet."

A bankable career

Helen Lynch joined Westpac's retail banking division in Charleville, Queensland in 1959 and held various roles at branches throughout the state and Papua-New Guinea.

In 1978 she was appointed Australia's first female branch manager and in 1984 made regional manager in Sydney's CBD.

In 1987 she was appointed executive chief manager, retail banking, New Zealand, followed two years later by the role of general manager, South Australia and Northern Territory.

She was named The Bulletin/Qantas Business Woman of the Year in 1990 and in 1994 was made a member of the Order of Australia for services to banking and finance industries - the same year she retired from Westpac.

Her boardroom and similar involvements include Pacific Brands, the Westpac Staff Superannuation Plan, Southcorp Limited, Sydney Symphony Orchestra, the Institute of Molecular Bioscience, University of Queensland, Caliburn Partnership Advisory Board, Mallesons Stephen Jaques Advisory Board and the judging panel for Ernst & Young Entrepreneur of the Year.

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