Nora Scheinkestel talks to Tony Featherstone about how she became a trailblazer for professional career directors and one not afraid to ruffle feathers.
Directors often talk about governance as a "career" and their directorships as a "portfolio". For Nora Scheinkestel, directorship is something more: a vocation, a deep sense of duty, a 24/7 job and a rewarding life.
These qualities have underpinned a remarkable career in Australian governance. As debate builds about the need for more female directors, Dr Scheinkestel FAICD has governed around 25 organisations, including some of the country’s largest, over more than two decades. She became a full-time director of Australian Securities Exchange (ASX) listed companies long before it was fashionable.
After a successful career in project finance, Scheinkestel left one male-dominated world (investment banking) for another (listed company boards) in the early 1990s and never looked back.
She served on mining, health, finance and infrastructure boards, across the public, private, government and not-for-profit sectors, as a non-executive director (NED) and occasional chairman.
Scheinkestel is a NED of Telstra Corporation, Orica and most recently Insurance Australia Group.
She recently retired as a director of AMP after serving on its board for 10 years and in June, she retired from the Pacific Brands board after four years.
Among other roles, previous directorships include Newcrest Mining, Mayne Group and Mayne Pharma, IOOF Funds Management, PaperlinX, MBF, North and Snowy Hydro.
For all her achievements, Scheinkestel has a relatively low public business profile. The Argentina-born Scheinkestel does not court publicity or enjoy the limelight, possibly because the most effective directors work behind the scenes, with little fuss or fanfare, and always preserve the sanctity of the boardroom.
A media search of previous stories shows only one profile and she rarely features on public panel discussions or public-policy debates.
But in the arenas where it counts most – the boards of the top 100 Australian companies – Scheinkestel is regarded as one of Australia’s most powerful, influential NEDs.
Nobody gets to govern Telstra or AMP over a long period, and to continually be among the country’s most sought-after directors, without tremendous governance skills or a humility and generosity usually found in business leaders with real power.
By her own admission, Scheinkestel is willing to "ruffle feathers in the boardroom" and has been described as a courageous director who always puts the organisation and its stakeholders ahead of individuals, even if that comes at great personal cost to her directorship.
"My lack of concern for ruffling feathers in the boardroom is true," says Scheinkestel. "When I think it is important to raise an issue, even if very difficult to do so, I will do it in a way I hope is constructive and productive."
In our interview, Scheinkestel says highly effective NEDs are "influencers" in the boardroom. A huge work ethic and sheer dedication helps them quickly understand the company and win management’s trust, which in turn creates a mutual partnership where assumptions can be tested, debated, measured – with steps taken by the board, if needed, to help influence and shape outcomes.
Scheinkestel’s laser-like focus, honed by governing organisations across 15 industries and working on "every corporate transaction imaginable", as she puts it, must reassure and terrify executive teams at times.
It shows the great benefit of having directors with decades of business knowledge, who can take experience from other organisations, to help executive teams develop breakthrough thinking.
It also highlights the benefits of having professional, full-time directors who develop deep governance experience that complements their broad business experience – and see governance as a vocation, rather than just a job. And, who more than anything, constantly ask questions on behalf of stakeholders and are never satisfied with unchallenged truths.
In her academic life, Scheinkestel now focuses on corporate governance as an Associate Professor at Melbourne Business School, helping the next generation of business leaders understand the complexities of modern governance. She is also a member of the Australian Government Takeovers Panel.
Here is an edited extract of her interview with Company Director.
Company Director (CD): You have served on more than 25 boards over two decades. What are some of the biggest changes you have seen in boardrooms during that time?
Nora Scheinkestel (NS): Undoubtedly, the professionalism in boardrooms has increased.
Today’s directors are much more conscious of the seriousness of the responsibility their role carries. The high workload has taken out those who were not prepared to pull their weight.
Boardroom diversity has also increased. Although there is still a long way to go, there are more younger people, as well as greater gender and cultural diversity, in boardrooms, which is a big improvement on the very homogenous boardrooms when I first started as a director.
CD: What are some aspects of governance in Australia that have not progressed fast enough during that time?
NS: One area is our response to the changes in the environment around us. There is no doubt the regulatory and compliance burden has increased substantially. But we also spend a lot of time complaining about it.
That is not to say we should not argue our case or talk regularly about areas we think could be improved. But in the meantime, if we focused more of our attention on embedding compliance into the corporate DNA, so it just becomes part of the way we do business, it would free directors up a lot more to focus on strategic and business issues.
CD: Do you favour having a quota for the number of women serving on ASX-listed company boards and if not, how can Australian boards become more diverse?
NS: I am passionate about diversity and its importance in improving the quality of decision-making, not only on boards but in our executive groups. Gender diversity ought to be one of the easiest aspects of that. There is no doubt that as human beings we are most comfortable surrounding ourselves with people who think and talk and look like we do. Sometimes you do need intervention to change those patterns of behaviour.
I was pleasantly surprised at the results from the change in the ASX Corporate Governance Guidelines [in 2011] on gender, which introduced a requirement to report on gender diversity or explain why not. That change had an immediate, positive effect. I was getting phone calls every day from head-hunters asking for suggestions on women who could be put forward for board positions.
Since the guidelines were introduced, we have seen the number of women on boards increase. Is it enough? Of course not! Also, the guideline is focused only on gender and I believe diversity on boards should be much broader. But it is a good start – an initiative we should let run its course. If the progress is shown not to be enough, then we need to look at something else.
CD: If you could rewrite the rule book for boards in Australia today, what are some key things you would change to help boards become more productive and effective?
NS: I would reduce the rule book by at least half or more. There is no doubt that what we see after every crisis is a legislative and regulatory response. If there is one thing we can be sure of, it is that what will happen in the future is the one thing we have not legislated for.
In fact, it has been said that every time there is new legislation after a crisis, it is legislation for prevention of the last crisis, but probably creating the breeding ground for the next one.
It was fascinating when, after the HIH Commission [in 2003] Justice [Neville] Owen, who presided over it, questioned whether we should go back to the concept of a director as a fiduciary – a position of utmost good faith.
Maybe that’s a bit too simplistic, but I suspect it is a lot closer to capturing the spirit of what’s required of a director than a Corporations Act 2001 of the size it is today.
CD: As chairman of Telstra’s audit committee, you obviously followed the landmark 2011 Centro decision closely. Two years on from that case, how has Centro affected audit committees?
NS: One of the very useful things that came out of Centro was that it reminded directors what the purpose of the financial statements was. That is, to communicate to our key stakeholders, particularly our shareholders, what happened in the business in the last financial year.
One practice I have adopted in all the companies I am involved in, is that not only at the audit committee meeting, but in the board meeting that considers the financial statements, ideally the CEO, or the CFO, should sit down and take the directors through the key 10 or so events that happened during year, and then explain how these are translated into the financial statements, taking directors to the line items or notes that relate to those issues. There should be a discussion among directors and then we should pause and ensure there is nothing else we believe should be included in the accounts.
CD: Was the federal government’s two-strikes legislation, which gives minority interests more say on executive pay, a good or bad idea, and how has it changed board thinking on pay?
NS: There is no question that the move to the remuneration report being voted on at annual general meetings (AGMs), albeit a non-binding vote, plus the two-strikes rule, has caused boards to spend a significant amount of time on the issue. Remuneration is important because the community and shareholders are concerned about it and it is a key mechanism for boards to attract and retain key talent for the organisation. However, some might argue that a disproportionate amount of board time is being spent on the issue.
My concern about the two-strikes rule revolves around where the threshold has been set for the vote, at 25 per cent.
We have already seen how this low threshold allows room for mischief-making and for the provision to be used as a tactic for completely unrelated purposes.
If the threshold were set at a higher level, I would be entirely comfortable with it.
CD: Do proxy advisers have too much influence in Australia and are institutional investors sufficiently engaged in the analysis of governance?
NS: Proxy advisers can perform an important function in the market. There are some institutional investors that do not have the resources to have a team ploughing through all the material that needs to be reviewed to take decisions about AGM resolutions. Even highly professional institutions with big in-house teams struggle to get through the workload.
From a director’s perspective, we are concerned about whether the people undertaking that proxy advisory role have a good understanding of business so they are able to understand the context of decisions and are open to engaging companies and understanding why certain decisions have been taken.
The concern is where proxy advisers, due to the high workload peaking around reporting periods, rely on a template approach to assess governance.
Having a one-size-fits-all rule with box ticking does not work and that is where some of the conflict and concern over proxy advisers has come from in the director community.
CD: Do you favour the worldwide move towards integrated financial reporting, where companies will publish more detailed non-financial information about their performance? How will this development affect audit committees?
NS: Some companies have already been doing this for a long time through their sustainability reports and other aspects of the annual report.
One concern about more formal integrated financial reporting has been the debate around the extent of financial projections and forecasts to be included in the report. Discussion has focused on the potential liability of making such forecasts.
However, more fundamentally, I believe boards should approach this issue with an "under-promise, over-deliver" philosophy. They should not get caught up in putting out far-reaching, aspirational statements that create a large gap in expectations.
More holistic, easy-to-understand reporting will be a really good development. But bold, aspirational statements may compound the difficulty boards and management sometimes already get into in managing market expectations.
CD: Moving to general governance issues, you have obviously seen lots of good, and some bad, boards during your career. Why do good boards go bad and how do you fix a bad board?
NS: Hubris, complacency, thinking you are smarter than the competition, groupthink, a lack of diversity – these are all issues that can cause boards to come unstuck.
They show why it is so important to have diversity of thinking around the boardroom table. Board renewal and fresh blood is also critical.
The risk is the board starts to coalesce towards groupthink over time and becomes stale.
As to fixing a bad board, it comes back to being constantly restless about challenging assumptions management build into its models.
The global financial crisis showed that a lot of things that were unchallenged truths were not what came to pass.
Good boards continually strive to test and challenge assumptions and are very alert to changes in markets.
For example, changes in technology and globalisation have come as a surprise to some organisations that were not sufficiently alert to them, because their boards were not rigorous enough on challenging assumptions and testing different scenarios.
CD: How do you know if boards you serve on are effective and productive?
NS: That’s an interesting question. Simplistically, it is reflected in the performance of the company and its share price, so that is one measure.
But sometimes, despite the best management team in the world, and the best strategy and board, left-field factors throw you off course.
In these cases, good governance performance is about preserving the shareholder value that might otherwise have been lost.
An effective and productive board also has a very strong stakeholder focus. Having a good reputation in the eyes of stakeholders is critical, so you make sure you get external feedback and internal feedback from employees and use these as performance indicators.
Directors have to get out of the boardroom, visit sites and meet different people in the company.
It is very easy for directors and senior management to sit around a board table and convince themselves they have a vibrant, open culture that permeates through the organisation.
But that is not always the case and you will not know as a director unless you make an effort to find out.
CD: You govern some very high-profile companies. In this age of social media, are boards paying enough attention to corporate reputation and are directors, generally, sufficiently abreast of social media and the incredible damage it can do to reputations in a matter of hours or days?
NS: Boards are very attuned to the issue of corporate reputation. But perhaps directors are not always conscious of the types of things that can damage it.
The reality is that directors are mostly of a certain age and relatively new to social media. The level of comfort around social media varies widely.
I was recently at an event where a US director told a story about a chairman who said Twitter was for his grandchildren and had never realised there were raging debates on Twitter about his company and him personally. He thought because he did not use social media, it did not affect him.
So yes, social media is something directors need to get a lot more comfortable with, quickly.
CD: In a rare profile on you, you were quoted as saying: "You sometimes sit around a table and look at people and wonder about the appointment process; that is, male and female. And at executive and board level." Is there sufficient rigour in how directors are recommended for appointment and should boards have more power to remove underperforming directors well before their next re-election?
NS: On the latter, we are getting much better at weeding out underperforming directors.
Underperforming directors today are generally much less tolerated and chairmen will normally act if there is a performance problem.
Also, non-performers do not have the same type of board longevity they once had because so many boards subject themselves to structured performance evaluation processes.
On appointments, boards are getting better at choosing the right directors, and the same goes for choosing the right executives.
There is an art form to it.
What makes a good director varies from company to company and the stage of development of the company. In terms of generic skills, you need people who can perform under pressure and in crises, who can challenge and support the management team at the same time and who can get across complex issues quickly, often with incomplete or insufficient data.
CD: What advice would you give emerging directors who seek their first or second board roles?
NS: Go in with your eyes open. Understand the attractions of the role, but equally what comes with it. Understand the great responsibility and liability that come with being a director. Understand the workload because it is very significant. Know it is a 24/7 job: you never take your director’s hat off. And understand why you are there: what can you bring that others around the table do not?
Most of all, take time to consider if the role is right for you and you are right for the organisation.
CD: You have served with some wonderful chairmen over the years. What makes a great chairman?
NS: Great chairmen create an environment around the boardroom that brings out the best in the board and management team.
It is a really open environment where people feel they can have transparent, robust discussion without feeling defensive, where information travels quickly and well in both directions and where external influences and different perspectives are welcomed.
CD: You have been described as one of Australia’s "most powerful directors", as "intensely private" and as somebody "not afraid to ruffle feathers". What would you list as your biggest strength as a NED and what aspects of your governance knowledge or style have you tried to improve over the years?
NS: I went to a session recently where it was mentioned that employers these days look for "T" people – that is, people with real breadth and depth. I think I’m a "T" person.
In my long governance career I have been fortunate enough to accumulate breadth. For example, I have worked across a very large number of companies, in different stages of development, across a range of industries.
And, I feel I have been involved in almost every corporate transaction known to mankind in these roles.
That allows me to sit in the boardroom and draw on those experiences when something comes up.
I can say: "In different circumstances, we dealt with an issue in the following way."
That experience can help management with breakthrough thinking on an issue. I would like to think I also bring depth in particular areas, given my executive career, and in academia and governance.
My lack of concern for ruffling feathers is true. When I think it is important to raise an issue, even if very difficult to do so, I will do it in a way I hope is constructive and productive.
I have been called courageous in some circumstances, even though it feels it has come with a high personal cost.
CD: I read a great comment from you that described the role of a NED as being an "influencer". How does a NED become an effective influencer in the boardroom?
NS: The director/management relationship is very interesting. It is based on mutual trust and respect, but these have to be earned on both sides.
From the NED side, you have to show you can contribute something to the management team, so you must put in the effort to understand the business well enough to make that contribution.
You have to bring an external perspective and challenge management, while being equally supportive and not crossing the line between directorship and management.
In turn, management needs to be open to the board’s challenges on business issues and underlying assumptions.
Over time, a unique relationship between boards and executive teams is built where questions are asked, responses received and a view formed by directors as to whether the organisation delivers on undertakings given.
If not, the board must probe again, and offer advice to help management address the issues.
CD: How did your career in investment banking and your background in academia prepare you for life as a director, and dare I say, a trailblazer for professional career directors and female directors in Australia’s largest listed companies?
NS: I didn’t know it at the time, but most of my executive career, in project and structured finance, was an excellent training ground for boards.
When you lend money to a big project, you must satisfy yourself about every aspect of that project and its ability to repay debt. You have to thoroughly understand the business – from finance to marketing, industrial relations, operations, strategy and so on.
In many ways, it is similar to being a NED, where you have to be across all these issues.
My academic career, a fairly small part of my portfolio, has also been complementary to my board work.
My work in boardrooms translates into the classroom, particularly now that I am focused exclusively on corporate governance and I take some great ideas raised in the classroom back to my boardrooms.
CD: What do you most love about being a director?
NS: It has given me access to extraordinary people and thinking. It has been a very intellectually stimulating career, one of enormous responsibility, where you touch so many people’s lives, and not just those of shareholders, but employees and the communities we operate in.
The chance to influence decisions that affect all these stakeholders is a great privilege.
CD: Did you set out to plan your governance career?
NS: No [laughs]. I completely failed at having a planned career. I have been very open to opportunities when they arose, which has led me to be where I am today.
I think good advice for all directors is to be open to new roles and not be too rigid on building a governance portfolio.
CD: How do you relax away from work?
NS: Relaxing is not the problem. Finding time for it is the issue. I love spending time with family and friends. I enjoy the arts, music, reading and being at my home at the coast.
There are many wonderful things when time allows.
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