Boardroom unity a fraction too much friction

Sunday, 01 January 2006

Helen McCombie photo
Helen McCombie

    A lot can be said for the productivity and results generated by healthy board bonding. So how do you create an environment of unity around the table – without eroding the independent views of directors? Helen McCombie writes.

    There can be no greater example of board disunity in Australia than last year’s stoush at the National Australia Bank (NAB) where a manageable, operational issue got out of control, paralysed the board, destroyed shareholder value and damaged the bank’s franchise.

    Around the same time, the country’s largest telco – Telstra – was having its own board upheaval, which eventually resulted in the departure of its chairman, Bob Mansfield.

    Coles Myer chairman, Rick Allert – who endured his own long period of boardroom turmoil in the lead-up to the departure of dissident director, Solomon Lew – said he felt sympathy for the Telstra and NAB boards and their respective chairmen.

    “It makes it much harder to function, it’s not good for the company, it’s not good for the management, it’s not good for anybody, so when a board’s in turmoil, I do feel sympathy.”

    According to Allert, the lesson for anyone involved in boardroom discord is simple: “You must solve it as quickly as you possibly can, because it has an effect on the management, it has an effect on the board, it has an effect on shareholders.

    “As you saw in the case of NAB, the disunity dragged on and on and on. Obviously they all wanted to solve it quickly, but it proved too difficult and it just reinforced the lesson for me – solve it quickly.”

    The power of persuasion

    While not exactly embroiled in boardroom dissent, David Gonski, knows a thing or two about having to remake a board – a task he undertook when he assumed the chairmanship of Coca-Cola Amatil in 2001 at a time when the company’s board was perceived by the market as lacking independence.

    The market had been critical of the influence of the company’s largest shareholder, the Coca-Cola Company, which was alleged to be calling the shots – to the detriment of all shareholders. Gonski’s solution – to the criticism of the board’s make-up – was to use his significant powers of persuasion to secure the Coca-Cola Company’s support to make Coca-Cola Amatil more ‘Australian’.

    Gonski explains: “I think that what we realised was it was very important for the company to have more Australian-based input. That was more important than independence.

    “We felt it was very important that there should be an Australian at the head of it. Of course, all of this happened in conjunction with getting the new CEO who was Australian-based, but we also felt it was important for the company as a leading Australian company to have more Australian input. We thought it would be good for the company to be seen to be independent – even if maybe it was independent anyway – and that’s what we spoke to and that’s what we’ve achieved.”

    The Coca-Cola Company supported Gonski’s proposition. “We took a good hard look at our board and, with the agreement of the Coca-Cola Company, we made it smaller – for a start. Secondly, we introduced some new directors over time who were, in the main, Australian-based and basically independent of the businesses both here and overseas.

    “This was all done in conjunction with the major shareholder because it made good business sense, quite frankly, for the company and for them,” says Gonski.

    Fostering independent thought

    While board disunity inevitably makes its way to being publicly aired in the media, the decision-making of boards can also sometimes become impaired by too much conformity – something that may never become public. It’s possible that a strong chairman can impose his or her will on the entire board. But Michael Chaney, former CEO of Wesfarmers and the new chairman of NAB, doesn’t see this as being a significant issue in Australia.

    “I think where the chairman is the CEO – which happens in other countries – there’s more danger of that. But if you do have a strong chairman who is overriding other directors, you’ve got a problem. I think that one of the essential roles of the chairman is to allow people to express their views – their independent views – and to draw a conclusion on the basis of those,” Chaney explains.

    So how does the chair of a board ensure an environment of unity without crossing the line and enforcing conformity? According to Chaney, it’s the selection of the board that will generate independent thinking.

    “You’d hope to have a board of directors with different backgrounds and experience. If you have such a board make-up, you’re more likely to have different perspectives on different issues and that’s a very healthy thing…As well, males and females sometimes think differently and people from other backgrounds – whether they are minorities and so on – think differently. It’s healthy to get those perspectives.”

    Gonski too, argues for diversity.

    “I think the most important thing about the board is the chemistry of diversity. By that I mean that I’ve been on boards where everyone disagrees and it has been absolutely debilitating. It’s not because they disagree, it’s because they wanted to disagree. It was a question of hatred, distrust, argumentativeness and so on.

    “If people respect each other and want to do the best by the company, and they genuinely disagree for the benefit of the company, it’s very healthy – extremely healthy. So I’d suggest that one should look at the reason or the chemistry behind the dissent and, if it’s good and people are trying to get a debate going, then I think it’s fabulous. But if it’s done for some other reason or because of a hatred or distrust, that can be very worrying,” he cautions.

    To this, Gonski adds that, for a board to be successful, there must also be mutual respect. “I think, above all, it’s important to acknowledge that people have a right to their view and that their views count for something. In my experience, if a chairman of the board admires and trusts the other members, this can lead to better decision-making, because people are happy to talk without fear of being maligned. It’s openness – and I think a good mix of openness and admiration and acceptance for people’s views – that ultimately leads to a successful, working board.”

    A ‘maverick’ in the midst

    While there’s general agreement that directors should be allowed to have dissenting views from the majority of their colleagues, Chaney says, there is a limit as to how far a board should go to accommodate a serious dissident.

    “It’s a case-by-case issue really,” says Chaney. “While directors have a right and I think an obligation to speak their mind and express their views, there does come a time in any situation where – for example, all the other directors share a different view – that it is simply time to accept it and get on with the job. Getting on with it either means accepting the majority view and carrying on, or in extreme circumstances if you can’t live with the decision, resigning.”

    On this point, Chaney admits that if he found himself to be the odd person out on a board, he would have no option but to resign. “I think, personally, if I found myself in that situation where what was being done was unacceptable to me, I would tend to leave. I think I would leave.”

    By the same token, there are also times when the chairman has to stimulate debate. Gonski’s approach to this is to encourage people that their views are equal to everyone else’s on the board.

    “Often, particularly in matters of specialisation – for example, when you’re dealing with a legal matter – people, like lawyers, do dominate debate. And that’s fine. But quite often I’ve found that if one encourages others – not to just take what the lawyers say, but to go back to their fundamentals as an engineer or as a businessman or businesswoman generally and to analyse it – some incredible things can come out, which even the lawyers sit back and say, “I didn’t think of that”, because they look at it as lawyers,” says Gonski.

    Allert, on the other hand, says he has never had to push directors of the boards that he has chaired to be more independent. “I haven’t seen board members that I’ve been associated with just wanting to toe the line, to not have an opinion. I don’t think they would last long as directors.

    “Bear in mind that, these days, we have board effectiveness reviews conducted annually and each director is rated by their peers and by the senior management. If someone wasn’t participating in discussion or wasn’t pulling their weight or making a contribution, it would show up in those evaluation processes. It’s then up to the chairman to do something about it,” he explains.

    Allert’s recipe for board harmony is one that perhaps all directors are likely to support. He says: “I like the boardroom to have a climate where people feel as though they can express a view. They don’t need to feel as though they need to express a view at every occasion, but can have healthy debate and then get on with the matter.

    “I think you have to create a climate, a culture where people feel as though they’re part of a team, but have the ability to be heard and to be taken seriously. I think we have that culture on the boards that I’m on. It’s also important to have an excellent working relationship between the chairman and the CEO, because that provides a culture in the boardroom of trust and inclusiveness. If the board thinks that management is hiding something, it’s not going to lead to constructive debate,” says Allert.



    Rick Allert, chairman of Coles Myer
    “The only tip I would have for managing dissent is to make sure that all the issues are on the table. People bottling up views or meeting outside of the board meeting should be discouraged by encouraging that everyone’s views be put on the table and thoroughly debated before a decision is made. Then, once a decision is made, everybody should get on with life.”

    Michael Chaney, chairman of National Australia Bank
    “The best way for managing dissent – if you’re talking about extreme dissent – is to avoid it. That’s achieved by good communications. I think often one of the reasons difficulties arise in any situation – not just in the boardroom – is that people don’t communicate well enough. It’s a matter of keeping people informed about why things are being done and listening to their views, trying to accommodate them and explaining why if you can’t.”

    David Gonski, chairman of Coca-Cola Amatil
    “I think if you go in as somebody who respects the people around the table, it’s easier to manage, because it’s not condescending, it’s not trying to put people down. Instead, it’s a situation where you’re genuinely interested in their views and can try to bring together a consensus. If there is mutual trust and if everybody has the same feeling to put forward, I think you can – without being dogmatic – bring together a consensus. Current chairmen have to be hard, but I don’t believe that a chairman is a good chairman if he or she is trying to get their view across all of the time.”

    Helen McCombie is a communications expert, working in a boutique media and government relations company. After a decade of reporting for Australia’s premier business current affairs program, Channel Nine’s Business Sunday, Helen now consults to a wide range of companies on media and communications strategies.

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