What I've learned about being in business

AICD Western Australian Gold Medal Award winner Steven Cole FAICD reflects on some of the lessons he has learned in a 40-year career. 

When experienced non-executive director Steven Cole FAICD mentors aspiring directors, he tells them to think of themselves as a business. “You are your business as a company director,” he says. “So start thinking in terms of that. What are your skills? Are you maintaining your asset base? What are you doing about that? What’s your marketing plan? What’s your business plan to get on boards?”

Aspiring directors also need to have “a strong balance sheet” to fund the transition from executive to a non-executive role — likely on smaller not-for- profit boards with low remuneration, or a small stipend, if anything.

“No-one’s there just for governance,” he says. “You’ve got to have that strategic and business acumen. Where are you when the going gets tough and you need to roll your sleeves up and be accountable?”

He asks aspiring directors if they understand what they’re getting themselves into? Although NED roles are part-time, directors are expected to be available 24 hours a day, seven days a week if there’s an issue that demands their immediate attention. They should consider how that might intrude on their freedom to go on holidays, for example, and how active they actually want to be as a director.

“It’s a people business more than a business business, because you’re dealing in that microcosm of the board and its relationship with the management team,” says Cole. “There’s a populist view that being on a company board is great, but people need to give a bit more thought to it.”

Governance guru

A corporate lawyer since the early 1970s and now running his own governance consultancy, Cole Corporate, Cole was awarded the AICD’s 2022 WA Gold Medal in recognition of his significant contribution as a director to corporate life and to the wider community in Western Australia.

He is still a sought-after consultant for many organisations seeking either to enhance or remediate their governance capabilities, the AICD noted. “His time and expertise in leadership roles is highly valued across many sectors,” said WA state manager Carl Cockerham GAICD.

Cole has served on the national board of the AICD and as a councillor and president of the WA division. He is chair of Australian battery and recycling technology company Neometals, and of Perth’s Queen Elizabeth II Medical Centre Trust. He is a director of Matrix Composites & Engineering, and has held numerous other ASX-listed director positions.

Cole has also sat on community bodies, including the council of the Presbyterian Ladies College in Perth, and as chair of the Brightwater Care Group, an NFP charity, established for more than 100 years, which provides aged and disability care services.

Mentoring method

Along with these roles, Cole does a lot of mentoring of new and aspiring directors. “I have an awful lot of cups of coffee,” he says.

He says that aspiring directors aiming for a board seat in an organisation need to consider the value and skills they would bring to that organisation. Is there somebody else on the board who already has those skills? If so, is it really the right board for them?

While non-executive directors sit above and oversee management, Cole says there are occasions when they need to get more involved, although still ensuring they don’t encroach on executive roles. “From time to time, the sleeves need to be rolled up because there is an obligation when governing to oversight management and ensure it’s performing.”

In this situation, directors should focus on how they engage with the people in the team to get them working better as a team, how they support the team and what sort of wisdom and experience they can share. All this relies on the director’s intimate understanding of the business, which Cole says is one of the key roles of the director. His legal training has taught him to go to source documentation and drill down.

“Hopefully, you develop skills so you don’t have to go down every rabbit hole,” he says. “You know you can skip over a couple and still come up with a commercial outcome without being pedantic in your approach.”

Cole says directors should move from information and data through to understanding and judgement — and hopefully, at some stage, develop some wisdom. And corporate boards can learn from NFP boards. These boards have had to grow and adopt more commercial principles, and are delivering aged and disability care and welfare services as the government has stepped back from directly providing many of them. Yet they remain more relationship-based than many corporate boards.

“That relationship becomes relevant when you take the broader role in the ESG of a commercial corporation,” he says. “Where is that relationship? Where is that sustainability? Where is that partnering with suppliers, supply chain partners and whomever, to deliver a sustainable outcome?”

Despite broader definition of the role of the company in incorporating ESG, Cole says executives and directors shouldn’t lose sight of the economic benefits a profitable corporation can bring. They employ people, whose wages circulate in the economy. They pay taxes, which are used for essential government infrastructure and services. They pay dividends to pension and superannuation funds.

“All those benefits of the commercial aspect need to be borne in mind, as well as the broader social and environmental aspects.”

Board behaviour

In his role as a board consultant, Cole has put a lot of work into dysfunctional boards, which he defines as those not achieving their optimal performance. This can be the result of personal problems between board members, the lack of a relationship between the board and management or a board with a poor strategy. Sometimes the problem is a chair or founder who is past his or her best-before date, who is holding the organisation back by not allowing new talent to emerge or new ideas to come forth. There are also alpha-type directors who seek to dominate and don’t listen.

Cole relates the story of a board he sat on alongside a well-reputed director with a national profile. Every time a management person came to present to the board, “[that director] just wanted to go at them like a Rottweiler and challenge everything they were doing”.

The director didn’t realise he was demotivating the managers and losing the respect of fellow board members, says Cole.

Boards and companies can end up with a poor strategy when they don’t have the right people around the board table, people who lack the attributes that can help them build a better strategy — business and industry knowledge, strategic planning and foresight, and risk analysis.

Cole says another potential problem presents itself if the board isn’t prepared to engage strongly enough with management on strategy, and instead takes the easier course by allowing the CEO to dictate strategy rather than taking part in its development. “You need new people on the board who do their assessment and say, ‘We’re on the wrong horse. How do we get off?’ And who have the guts to get off. That takes a big call.”

Then there is execution of strategy, which is the job of management. However, the board still has to oversee this and continue with oversight, says Cole. Because strategy will change as circumstances and business conditions change.

Board functionality disorder

Steven Cole FAICD recently wrote a paper, Board Functionality Disorder: Identifying director types, characteristics, behaviours and practices that risk eroding effective board functionality.

A self-assessment tool, it identifies five problematic director attributes across 30 criteria, showing how they’re manifested, to assist directors in considering whether their boards are at risk of Board Functionality Disorder (BFD).

Cole says board cultural functionality and healthy team dynamics are critical to good governance outcomes and organisational performance.

“Cultural factors contributing to a healthy team dynamic include each team member’s personal characteristics, good governance practices and acceptable behaviours,” he writes. “Directors with questionable personal characteristics, practices and behaviours can materially erode a constructive board culture and adversely impact board functionality leading to risk of BFD.

“Typically, boards comprise individuals who are charged with fiduciary and other duties and who bring with them an array of skills, experience, knowledge, interests and attributes, and who, both individually and collectively, are charged with these responsibilities.

“However, boards should not be seen merely as a collection of talented or interested individuals working for the good of the organisation, but rather as a ‘team’ where the collective dynamic, effective workings and output of the team may have a synergistic effect so as to exceed the sum of the contribution of its parts.

“Academic research over recent years has increasingly focused on the value of team cultural dynamics and the factors and attributes of a ‘healthy team’ that may lead to enhanced performance outcomes.

“Research is now focusing not only on team task-related aspects (getting the job done) but also on team non-task, or relational aspects (how the job gets done).”

Cole cites research by Solange Charas, The Impact of Board Dynamics on Shareholder Value Creation, which found that the key to effective teams in an organisational governance setting includes director professional capital, social capital and behavioural capital — including cultural intelligence — as well as the team’s ability to generate an effective dynamic.

This article first appeared under the headline 'What I’ve learned about being a business' in the May 2023 issue of Company Director magazine.