Two decades as a non-executive director have taught Kathleen Conlon FAICD about psychology and the power of an open question. The former chair of Lynas Rare Earths explains the terrain and advises what to look for in a CEO. 

    Ask Kathleen Conlon FAICD about her most difficult board experience in her 20 years as a director and she also nominates it as the one of which she is most proud. She cites her 12 years as director and chair of Lynas Rare Earths. Specifically, its remarkable turnaround from delays starting up its Malaysian plant and financial near collapse to becoming a profitable ASX 100-listed company scaling up to meet accelerating global demand for minerals essential in modern electronics.

    When things were at their worst, Conlon considered whether she should leave.

    “Now, we’re a large ASX several billion-dollar company, we’re highly profitable, I get to be cheering, but it was really, really difficult,” she says. “The personal decisions you get stuck with during that situation are very painful.”

    After three years as chair, handing over to John Humphrey MAICD at the 29 November 2023 AGM, Conlon told shareholders she knew Lynas had an ambitious and worthy goal — to be an outside-China supplier of ethical and responsible rare earth products for use in current and future technologies. “However, I certainly didn’t imagine the journey we would go on and the challenges we would need to overcome to achieve our position,” she says.

    The transformation underscores the importance of performing due diligence when joining a new board. Conlon’s lessons from the experience extend from understanding what’s driving behaviour to dealing with regulators in foreign jurisdictions (see breakout p40).

    “If you don’t understand that emotion drives all behaviour, you often get yourself into trouble, because you are overly reliant on logic and the rule of law,” she says.

    Conlon joined the board in 2011, just as Lynas was about to go live with its major processing facility in Gebeng, Malaysia. It failed to get its licence, had huge troubles with the plant and Conlon faced a reconstruction of board and management — and impatient creditors.

    She recruited current CEO Amanda Lacaze MAICD to the board in 2014 and together they restructured management, closed the Sydney headquarters and Lacaze relocated to live near the plant, outside of Kuantan in east Malaysia. “We had to do the right thing for the business,” says Conlon. She reiterates that many organisations, especially those with Anglo-Saxon engineering cultures, think stakeholder management is about logic and rule of law — they don’t [relate to] the underlying drivers of why people behave the way they do. “People will do what is in their best interests,” she says. “If they’re doing something you don’t understand, it’s because you don’t understand what their best interest is.”

    After ongoing regulatory travails, in late 2023 the Malaysian government updated its licensing conditions to March 2026, after Lynas proposed a new technology to extract radioactive elements from the waste it produces. This removed a condition requiring Lynas to shut its cracking and leaching facility. Conlon says this allows Lynas to grow with the market, with a new Kalgoorlie rare earths concentrate processing plant and the development of a rare earths processing facility in Texas, strategically supported by the US government. Last December, the Kalgoorlie facility hit another milestone, receiving the first feed into the processing plant from Lynas’ Mt Weld mine.

    “One of the quotes I saw on [online stock market forum] HotCopper was, ‘It’s disappointing to see the dynamic duo broken up’. But we’re at a milestone position and it’s time,” says Conlon. “It’s easy to stay longer than you should and hard to go before you want to.”

    Career choices

    At a time when many directors are just getting into their stride in their board careers, Conlon, 60, has an impressive record under her belt, with current roles as a non-executive director at BlueScope Steel and Aristocrat Leisure, and as new chair of Pilbara Minerals. Her early exit from executive life, after 20 years with Boston Consulting Group, forms part of her best advice. She was invited to join the board of CSR in 2005 at 41, and REA Group in 2007. She also served on the national board of the AICD and as its NSW president. “I say to mentees to be explicit in career decisions, not implicit,” says Conlon. “You need to project forward and work backward. I wasn’t explicit — I took the path offered to me, not the path I should’ve defined. Board careers sound really sexy, and I’ve loved my career, but I advise people to stay in an executive career as long as possible because you can make a real difference. When I went to look for executive opportunities, I was told that I was a risk because I hadn’t run anything, even though my work as a consultant was on the plant floor.” Conlon has also encountered times when it was partly about her position and “frankly, a bit of sexism”.

    “In hindsight, I should’ve pushed much harder and spent more time looking for a CEO job,” she says. “If you don’t think about where you want to get, then you won’t necessarily put the building blocks in place to do that. It’s easy to do something you know how to do. It’s scary to take risks, but nobody ever got ahead who didn’t take a risk.”

    One example Conlon uses comes from her time at BlueScope, when the steelmaker appointed two senior women from functional roles into big operating roles — the CFO now running its biggest operating business, and the head of people culture, safety and engineering, running the US business. “It’s been very successful, because it was a defined risk and a managed risk,” says Conlon. “A lot of times, people will promote those who look like them, because they understand the risk profile.”

    She notes that in the past decade, more organisations have become focused on upskilling human capital capabilities and identifying and developing diverse candidates. “It used to be, who do I know that I’d like to work with?” she says. “Now it’s, what are the skill sets I’m looking for? In every board I’m involved with, we’re focused on making sure we have talent coming through, and we are explicit and involved in hiring and then promotion decisions. Boards are saying we need to get involved early on — even at the shortlist stage — because we want to make sure the risk lens bias is not being applied, so we’re not screening out people who are too threatening to us, or who come from different industries, because we don’t think they understand. I’ve seen that process achieve better hiring outcomes.”

    The power of a good question

    As a director, you have three tools in your toolkit, notes Conlon. The first is hiring the CEO, the second is approving capital and team remuneration — all very blunt instruments.

    “But really, the only tool you have in your toolkit is to ask questions,” she says.

    She advises thinking about how to use the limited airtime available in a board meeting.

    “You know you’ve succeeded in a board meeting, because you’ve asked a question that made management think,” says Conlon. “Does the question cause the people who wrote the board papers to think about something they wouldn’t have otherwise? It’s really about sitting back and asking if they’ve got to the essence of what matters.”

    The trouble with ASX boards

    Conlon argues that the ever-growing expectations on listed boards and disclosure pressures is hampering performance, creating more risk-averse directors. It’s time to get back to first principles.

    “Disclosure has become such a big risk. You spend hours on can we, should we, how do we disclose and are we disclosing properly? Let’s say the board spends three days a month on the business. Now they’re supposed to be sure everybody is safe, there’s no sexual discrimination, no modern slavery, and that privacy is protected. All that takes a huge amount of time — and how much time is the business actually getting to address where the real risks are?”

    Conlon notes that the increasing position of regulation is that the board must take responsibility. “In fact, the delivery of these things is the responsibility of the CEO and management team,” she says. “Yes, the board has to demand it, but it’s very hard to make sure it’s actioned. So we’re creating industries around auditing things that are important, but it all comes at the expense of the company’s performance.”

    She sees directors becoming increasingly risk- averse because there’s very little upside if a company is fabulous, but a massive amount of downside if anything goes wrong. “This equation of risk-performance expectations is actually hampering board performance,” says Conlon.

    “We need to step back and look at first principles. What is it we want companies and boards to do and what does that accountability look like? It’s increasingly difficult to be a fully effective, low-risk board and not spend a huge amount of money and time on compliance. If you’re a big enough company, you can afford it, but for smaller companies, it’s just impossible.”

    Conlon says boards make sure the organisation has the skills to deliver what the directors need and “that often means you’re putting cost into the business that isn’t delivering performance. It’s why the CEO is so important... The CEO is in the business 20 days a month, [whereas] you’re in the business two to three days a month. Where it still probably has to evolve from a board perspective is, if I can’t manage everything tightly, then I’ve got to be better at assessing organisational capability.”

    Six questions to ask when looking for a new CEO

    During her board career, Conlon has hired 11 CEOs and says it’s a skill people should be taught. Open-ended questions are best.

    • How do you lead the strategy?
    • How do you form your leadership team (internal vs external recruits and new skills vs those of long-term followers)?
    • Do you have a successor who could take over if required?
    • Do you manage by leading or by hub-and-spoke?
    • What is your approach to your remuneration?
    • How do you balance your internal and external focus?

    Lessons from Lynas

    1. Sovereign risk exists in all countries and locations to a greater or lesser extent. Companies relying on existing frameworks that reflect the letter of the law and Western Anglo-Saxon cultures are taking a risk.
    2. Politics are influenced by country culture, community perceptions and changing expectations. Politicians respond to these community influences in many ways and companies need to respond with a deep understanding of the drivers of these.
    3. The company must stay close to the communities in which it operates, share the value created and be extensive in communication and engagement. In Lynas, the CEO moved locally and engaged at all levels of the community, being sensitive to the culture.
    4. In my experience, Australian companies run stakeholder relations from Australia and place many expats in the country. This leads to a lack of true understanding of what drives the local community.

    This article first appeared under the headline 'Down To Earth’ in the February 2024 issue of Company Director magazine.

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