Agenda

A round-up of recent governance news.

Assessing board strategy

Among all of the important oversight work boards are charged with, there are always a few crucial, high-profile issues of which directors must continuously be aware. These issues may change somewhat from year to year, depending on external market conditions as well as shifting internal strategy.

To help address these issues, Phyllis Deiso, a partner at RSM has written an article for the US-based National Association of Corporate Directors (NACD) magazine, highlighting five key questions that should be on every board’s radar. These, Deiso says, are evolving scenarios that should be frequently revisited to ensure boards remain on top of changing circumstances.

1. Do we have a coordinated plan to deal with activists? Deiso says that most boards understand by now that running and hiding is not an option where activists are concerned. They are here to stay and it is vital that boards think about a constructive engagement plan, and define roles and responsibilities that all board members understand and can adhere to. She suggests implementing a communications plan for regularly engaging with activists and all other stakeholders and paying careful attention to delivering a coordinated message through a designated spokesperson, such as the CEO.

2. Do we have a global investment plan? Do we need one? While global supply chains mean virtually every company now has an international presence, Deiso says it is worth assessing how global investment syncs with the organisation’s overall business strategy before committing to any sort of global expansion. She says it is important to carefully set risk tolerance levels to understand what metrics and warning signs will alert to problems and help determine remedial measures, and at what point it would be appropriate to pull the plug.

3. Do we have the relevant expertise needed to ensure our strategy succeeds? As strategies shift with some frequency, board composition should be regularly revisited to ensure alignment between the support the strategy requires and director skills and experience, says Deiso. She says with pressures to compete, make sure the board is a valuable resource to the CEO and operating team, with knowledge and expertise to ask the right questions, challenge management when needed, and provide necessary guidance.

Are we preparing for the unexpected? Risk must be continuously planned for and assessed, either by the entire board or a specialised committee. For this reason, it is important to ask whether there is a process in place for both identifying major risk categories and developing a practical plan to address each, Deiso says. However, while cybersecurity may be the risk du jour, Deiso says it is imperative not to neglect others, including business disruptions related to global geopolitical issues, product recalls, terrorism, and weather and climate-related issues.

How do we plan against the moving target of geographic opportunity and risk? Wild swings in various markets are not uncommon and can be of particular concern when businesses operate globally. With a competent board at the helm and a panoramic view across the enterprise, Deiso suggests disciplined processes and early warning systems can be implemented to allow companies to plan for resource and capital allocation to prudently tap the markets that will provide future growth. “The global business environment is in flux, perhaps more than ever; however, that doesn’t mean your board has to be adrift,” she says.

Third-party claims on insurance money

In New South Wales (NSW), there is a statutory mechanism by which a third party can claim against an insurance policy held by an insured individual or entity. This mechanism, which is contained in section six of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), is currently being reviewed by the NSW Law Reform Commission. 

In a submission to the commission, the Australian Institute of Company Directors has called for section six to be repealed. The section’s unclear and ambiguous drafting has made it notoriously difficult to interpret, resulting in inconsistent application, unnecessary complexity and an unacceptable degree of uncertainty for insurers, insureds, third-party claimants and advisers.

From the perspective of directors, a key difficulty with this provision is the uncertainty about whether it can affect the ability of directors and officers to access insurance money to meet their defence costs. 

Additionally, the continued need for a mechanism like section six in New South Wales is highly doubtful. Section six was introduced 70 years ago to address concerns that a third-party claimant may not recover full payment from an insured because the insured had disappeared or frittered away the insurance money, or entered into a collusive agreement with the insurer. 

In our view, these concerns are today sufficiently addressed by Commonwealth legislation, the common law, the NSW workers’ compensation and motor accidents regimes, and modern insurance practices.

The fact that no other state government (note that the territories do have a similar law), nor the Federal Government, has enacted a similar provision supports the conclusion that section six is unnecessary.

To the extent that any material public policy need persists (which we question), it should be addressed at the federal level, not through state legislation. 

Making the switch

For those public sector servants transitioning into a full-time governance career in the corporate, not-for-profit or government sectors, Tony Featherstone offers 10 top tips worth considering before making the move.

1. Plan your governance transition. Ideally, start planning the transition at least a few years before leaving the public service. Do not underestimate how long it can take to build a governance portfolio that provides a significant income.

2. Do the AICD Foundations of Directorship Course. This course is invaluable for current and prospective directors, and often a starting point for those wanting to build governance careers. Even if you do not become a director, the course provides general governance skills that can be used in a variety of executive roles.

3. Build your governance visibility. AICD provides a range of events and networking opportunities across public, private, not-for-profit and government sectors. Being an active AICD member can lift your profile in the governance community.

4. Find a mentor outside government. Public servants who want to develop their commercial or NFP skills, as part of their transition to governance, should consider finding a mentor in these areas. Having a well-known supporter in the governance community is an asset for all emerging directors.

5. Register your interest with an executive search firm. Meetings with a top-tier international search firm that works on executive and board appointments in listed companies, a boutique search firm that focuses on smaller public or private enterprises, or another that specialises in NFP appointments, is an important part of the governance transition.

6. Build your board experience. Look for roles on government advisory boards or those in the NFP sector, where permitted, while in the public service. Being able to demonstrate governance experiences and contributions is a key asset for emerging directors.

7. Develop your commercial skills. Public servants bring many attributes to board roles, but a lack of experience in growing an organisation’s profit, raising capital or taking business risks can be obstacles to gaining directorships. Demonstrating your business skills and capacity to govern a for-profit enterprise is important.

8. Build a personal business plan. Identify what you want to achieve in governance, the organisations that best suit your skills and passions, and what you bring to their board. Be clear on your capabilities and develop a concise resume that is tailored for a variety of board roles.

9. Review conflict policies. The transition to full-time governance can be harder for public servants, given the potential for real or perceived conflicts if they get too close to business in pursuit of a board role, while still in the public service. Consider how to best communicate your governance intentions to your employer, and avoid or manage any potential conflicts of interest.

10. Be realistic. Competition for directorships of ASX-listed companies and larger NFPs can be intense, and board renewal is often a slow process. Top public servants who have moved straight into prominent governance roles are the exception rather than the norm.

Q&A - The big question

Question

For charities registered under ACNC and Corporations Law, do audited financial statements need to be submitted to both entities or just to ACNC until it is disbanded? That is, does the current requirement to submit annual information statement to ACNC mean that Form 388 also needs to be submitted to ASIC?

Answer

The answer depends on the organisation’s status and size.  From 1 July 2013, provided you are registered as a charity you can lodge your information statement with the ACNC only.

The information provided here is relatively brief.  We suggest reading these in full and making sure they apply to your circumstances.

If there is any doubt, we suggest contacting the ACNC and get them to confirm their advice in writing.