Boards with Purpose - Rachael Mclennan

00:00:06:00 - 00:00:27:20 

Speaker 1 

Today I'm joined by Rachael McLennan, co-founder of People for Purpose. Rachael, we've spent lots of time chatting not for profit governance issues over the years. I wanted to explore a little bit more about succession planning today, both from a board and an executive perspective. So great to see you. 

00:00:27:21 - 00:00:31:20 

Speaker 2 

Yeah, it is good. We've had lots of good conversations over the years. Feel good to be chatting? 

00:00:31:20 - 00:00:59:21 

Speaker 1 

Absolutely. So my observation is the governance world of not for profits has continued to evolve. We've seen higher community expectations and probably a much greater level of professionalism now expected of the sector. Has this playing out from your perspective in terms of succession planning, both from a board and a C level? 

00:00:59:23 - 00:01:26:05 

Speaker 2 

Yeah. I think the one overarching theme I would suggest is intentionality. So in the past, we've seen, boards constructed around specific kind of areas of skill and experience. But now increasingly with the weight of governance increasing and transparency, we're seeing more intentionality around the skills and experiences that we need, but also the diversity of perspectives that we need. 

00:01:26:05 - 00:01:48:15 

Speaker 2 

And there's a lot in that diversity of perspective buckets. So I see both things happening with more intentionality. And I also see that the boards who are doing a great job of succession planning, both board and CEO, actually discuss succession planning with great intentionality. They future forecasts and think about the road ahead as opposed to succession planning being a moment in time, if that makes sense. 

00:01:48:17 - 00:02:05:02 

Speaker 1 

So when you say intentionality, is that in terms of thinking about the purpose of the organisation at the forefront, and then what are the skillsets required for that purpose? 

00:02:05:04 - 00:02:36:08 

Speaker 2 

Definitely, yes. I mean, you speak about this in the I say days performance and governance review and study. That clarity of purpose is what's important as a starting point. And then the organisational strategy develops from there. And so the intentionality comes from building a board and a leadership team around that strategy. So I've sort of we've both watched governance composition evolve around, you know, traditionally sport boards might have been sporting people, hospital boards might have been medical people. 

00:02:36:08 - 00:03:07:12 

Speaker 2 

Start-Up not for profit boards might have been friends of the founders. Then we went to a phase of, a little bit more tick boxes. But do we have marketing, finance, legal, Covid? Now we're looking at do we actually have our strategy and our future underpinned not only by skills and experience, but also by, values and alignment to purpose and geography and a whole bunch of more complex themes, if you like. 

00:03:07:14 - 00:03:32:12 

Speaker 1 

And that is starting to get very complex, mindful. We've got such a diverse, not for profit sector. And if you say this on a 200,000, not for profits that are registered with the ATO, right, that goes down from very large organisations to quite small ones, that's getting quite complex for the smaller end of town. 

00:03:32:13 - 00:04:01:06 

Speaker 2 

Yeah, absolutely. And you're right. You know, I think the iCSC will tell you that about half of them are very small. So you're right, you do need to think about how complex that is in terms of the weight of succession planning for a smaller entity. But even still, if you're a small, organisation based in a particular community, say, in Victoria, and you're looking to expand to the next community, perhaps an example of intentionality is thinking about who in that additional community can help you bring that future forward. 

00:04:01:08 - 00:04:06:13 

Speaker 2 

So the little ones do need to think about it as well. But it's it's a lot less complicated. 

00:04:06:15 - 00:04:30:21 

Speaker 1 

Yeah. But I'm also mindful that if I've got a loved one being looked after, you know, by a relatively small organisation, I still want that level of care. Yes, it's going to be going to be exceptional. Right. So I don't care how big or small the organisation is. So it's a fascinating, part of the, of the sector. 

00:04:30:23 - 00:05:02:18 

Speaker 1 

The just that it's that sheer diversity. So at the if I look at the bigger end of NFP world and lots within the human services where we're seeing this increased level of compliance, new regulations in aged care and disability will come through later this year, etc.. We've moved probably away from just tapping the the local accountant and lawyer on the shoulder to say, come and join my board. 

00:05:02:19 - 00:05:03:24 

Speaker 2 

Definitely. Yes. 

00:05:03:24 - 00:05:05:01 

Speaker 1 

And that's a good thing. 

00:05:05:03 - 00:05:41:10 

Speaker 2 

It is. Yes, definitely. And I think again, back to strategy. If the is clear on purpose and strategy, then it should know what it's going to need in the future. And rotations as you know, are always going to occur. Succession planning is a continuum. So to actually take the time to think about what that large, complex organisation is going to need in the future, thinking about the fact that the context has changed and is a little bit more complicated, and there is more rigour and more, you know, lots of different complexities involved, thinking about it, giving it the time and space it needs and thinking about the complexity that's required. 

00:05:41:10 - 00:05:54:19 

Speaker 2 

Is, is important. Yes. And you're not tapping the the local lawyers on the shoulder. You're saying our organisation needs clinical governance because we have to comply to these things at a governance level. So who should we be speaking with? 

00:05:54:21 - 00:06:08:20 

Speaker 1 

Yeah. So the organisations that you're catching up with, tell me about how the good ones, are doing this. One of the things that they're doing on maybe on a regular basis to be thinking about succession. 

00:06:08:22 - 00:06:27:17 

Speaker 2 

So yeah, we have the great fortune of working with many, all shapes and sizes. And what I like to do is actually learn from the ones who are doing things well, succession planning as an example, and share that with the other organisations that we work with who are still on the trajectory of trying to do things well. So some of the ones who do things well, as an example and some of the things are quite granular. 

00:06:27:18 - 00:06:50:14 

Speaker 2 

I know of a board whose directors, when they're appointed, given a rough end date, I know boards who appoint directors who are excellent with their onboarding and their diligence around paperwork. And what I mean by that is we have a charter and we expect you to adhere to that, but actually fulfil that law. Who's joining with specific capabilities and experiences. 

00:06:50:19 - 00:07:13:10 

Speaker 2 

We've got almost a position description for you. You feel we'd love you to stay for three terms. The three year terms. And in that time, beyond the eight governance principles, we'd like you to do these couple of things because you're particularly good at these things. So it's an open dialogue about superpowers aligned to strategy. That's very clear. It doesn't have to be one size fits all. 

00:07:13:12 - 00:07:40:05 

Speaker 2 

Some syncopated non-executive director transitions with CEO and chair transitions. So a CEO might be given a five year contract that doesn't align to a three by three year term. Sometimes even chairs are given five year terms. That doesn't crash with a three by three. It just needs a little bit of time. I think the other thing that the ones who are doing well in terms of succession planning are really using their committee. 

00:07:40:07 - 00:07:48:21 

Speaker 2 

They have a committee established around nominations, remuneration, who understand the point of the committee and understand their responsibilities beyond governance and actually take it really seriously. 

00:07:48:23 - 00:08:08:09 

Speaker 1 

Yeah, compared to a couple of boards that I joined where I'll fill one. Take up too much of your time. Everything's going pretty well. But we'd love to have you on board. And then you get in there and realise, none of that was true. It's going to take up a lot of time and things aren't going to particularly well. 

00:08:08:12 - 00:08:25:06 

Speaker 2 

Yeah. Often the case and I think that fresh perspective is really valuable, I think to come into a board as a new director, you know, with a clean slate, obviously having done your due diligence, that's a really good time to call out some of the things that can be done to improve because you're you're the newbie. 

00:08:25:08 - 00:08:59:05 

Speaker 1 

Yeah. So we talked a little bit about, skills and skills matrices. And I'm mindful of saying that as a bit of a tick box approach. My observation is if you're in particularly in, say, Human Services, where you, got to have a broad range of skills and understanding, how do you make sure that you can get out to a broader network of people than perhaps you've used that in the past? 

00:08:59:07 - 00:09:24:02 

Speaker 2 

Let me come to the skills matrices point first, because, skills matrices can be used in very different ways. You know, some I elect where I feel like my strengths and capabilities are, and my board colleagues may do the same. And the combination of the data points is really valuable skills experience. But then there's a lot of other considerations that I think are really important around my operating style. 

00:09:24:02 - 00:09:50:13 

Speaker 2 

And having a really good review tool that tests things like operating style, like, am I very risk averse or am I very curious and creative? You want to have those kinds of things balanced on the board as well. And then also, you know, we look at things like, as I mentioned earlier, geography, demographics, degree or qualification, experience levels, even sometimes which side of politics you sit on. 

00:09:50:13 - 00:09:56:23 

Speaker 2 

All of these things need to be considered in the skills matrix. I forget the second part of the question. Sorry. 

00:09:57:00 - 00:10:35:11 

Speaker 1 

No, that's, That's fine. What? I, it's gone for my mind as well, so we'll probably just end up cutting out, that that completely. But that's fine. I wanted to get on to because something you mentioned about board, boards and board reviews and indeed the whole area. So it's really increased this concept of let's do some formal reviews, hopefully of everyone, including the CEO, individual directors and the board as a whole. 

00:10:35:13 - 00:10:44:04 

Speaker 1 

What's working well in that environment? Where do you see that falling down in, in your experience? 

00:10:44:06 - 00:11:11:23 

Speaker 2 

So the review needs to be appropriate. And what I mean by that is it needs to ask the right people the right questions. So sometimes a cookie cutter approach to a governance review is not going to solve or provide opportunities for betterment. And the other thing around reviews is that they need to be done consistently. So it's not I, I heard someone say recently a board review now is like going to the gym or exercising. 

00:11:11:23 - 00:11:28:03 

Speaker 2 

It needs to be done consistently. We see boards and I'm sure you do too. Who don't do them, haven't done them in five years. Do them ad hoc. I think every 2 to 3 years is a good time to do a review, but making sure you're asking the right people the right questions is the first part of it. 

00:11:28:05 - 00:11:38:24 

Speaker 2 

The second part of it is obviously then looking at the data and having someone or a group of people on the board, the committee perhaps responsible for the implementation of the improvements, that's often where it falls down. 

00:11:39:03 - 00:11:43:15 

Speaker 1 

Yeah, because a review happens and it gets stuck in the in the drawer. 

00:11:43:17 - 00:12:00:10 

Speaker 2 

And I think too, it's up to the organisations providing the reviews to make sure that the implementation piece is manageable. So there might be a lot of things that a board could do to improve its governance effectiveness, but there might be 2 or 3 things that are urgent and important that actually need to be done. 

00:12:00:12 - 00:12:22:09 

Speaker 1 

It's fascinating. We used to, do a very brief 15 minute review at the back end of each board meeting from one of the boards, those on. And that was fantastic. Yeah, because it first of all, made sure everyone paid a lot of attention during the meeting because you're getting I told you about but also built up a really strong level of trust amongst the board members. 

00:12:22:11 - 00:12:46:13 

Speaker 1 

And I don't think we've spent a lot of time thinking about, you know, how do boards build up that level of trust so they can make better decisions so that they can have those strong and robust conversations, but still can trust and work with each other. And I'm fascinated to see organisations who do that, who do that. Well. 

00:12:46:15 - 00:13:07:03 

Speaker 2 

There's a couple of things that come to mind. So of course, a really effective chair is very valuable. And their responsibility is to ensure that, like you said, you know, the chair, the board, the CEO and the leadership team are all on the same team and all striving to achieve the same purpose, the same social and environmental impact. 

00:13:07:05 - 00:13:32:11 

Speaker 2 

And and that can be hard because, you know, you can't deny the fact that boards are made up of humans, and humans operate in interesting ways. But somebody needs to take responsibility for building that team culture. I think to, the rigorous honesty piece that you mentioned and having that honest conversation, I think one thing that's really important is, as a director CEO, a leadership team member, you are a custodian of the entity. 

00:13:32:13 - 00:13:53:21 

Speaker 2 

So it's not about you. It's about you holding the entity through a period and handing it over to the next person group of people. So a review is not about am I doing well? Am I performing well? The review should be about how are we as a team working well together, and what can we as a team collectively be doing to ensure we're doing better so that our income, our impact is created? 

00:13:53:23 - 00:14:00:00 

Speaker 1 

So no stronger egos in the room? Rachael. How often are we seeing, that really happening? 

00:14:00:00 - 00:14:28:11 

Speaker 2 

Yeah, that's very hard. But I think to this practice and it is a practice of it's not about me, it's about the entity. And I am a custodian of the entity. It is a message to be continuously enforced. In fact, one of my favourite chairs says at the start of every meeting we do really serious work, but we don't take ourselves too seriously just to set the tone for we're all here trying to achieve the same thing, and we have important work to do, but let's, you know, be human and together. 

00:14:28:17 - 00:14:41:19 

Speaker 1 

Yeah, love it. Have you seen any bad examples? Some things that organise organisations just continually fall into the trap of. 

00:14:41:21 - 00:15:02:24 

Speaker 2 

Yes, and I'm sure you do too. The one that comes to mind, first of all, is Tanya holding onto Tanya way too long. As I said, I think the ones who do succession planning will give directors an end date on their start date. The chairs and directors who hold onto that board seat for 15, 20, 30 years. It's not allowing that fresh perspective to come in. 

00:15:02:24 - 00:15:27:09 

Speaker 2 

So yeah, there's lots of things that could be done better. But I think Tanya is one I think Tanya for the CEO also, you know, CEO sometimes do get a bit precious about the responsibility they have to lead. But again, if they come back to the custodianship that they are holding and that they need to have a solid bench and a good exit strategy and a good plan for when they're not there, even if it's for a short term with a continuity plan. 

00:15:27:11 - 00:15:28:14 

Speaker 2 

Important things to think about. 

00:15:28:15 - 00:15:50:23 

Speaker 1 

Yeah, and then in terms of the succession planning, various studies have looked at, are we better off to groom people from internally within the organisation to take on the next role, or look for that fresh perspective that a new city might bring? 

00:15:51:00 - 00:16:10:15 

Speaker 2 

I think I think that's contextual. I think a couple of things. I think you need to have options. So the first thing to do is to have an honest conversation on a regular basis with the CEO about their own succession, and that isn't done. And that's hard to do, but it's really important. The CEO really needs to be accountable for building their bench. 

00:16:10:17 - 00:16:31:17 

Speaker 2 

So in the short term, if the CEO is unavailable, there is someone to take over. But in the long term or in the medium term, if they do resign or disappear, there is a bench. There is some strength in the business to take over. But I think to for the board to have a conversation about, well, if our CEO was to leave or to get sick and have to resign or for whatever reason, what will we do as a board? 

00:16:31:19 - 00:16:48:21 

Speaker 2 

Will we look to internal? Will we look to use a search firm? Will we look to recruit ourselves? Who would lead that process? Having that conversation continuously, frequently, and knowing what the answers are going to be can absolutely help, because I guarantee the CEO will leave. 

00:16:48:23 - 00:17:28:04 

Speaker 1 

Yes, as will the chair, as will the other directors. You mentioned the importance of the chair. How do we understand, given the good chairs have often got great is I can listen really well. I can later and I've got good emotional intelligence. Apart from seeing them in other, roles and then poaching, are there ways to really delve in and understand someone's emotional intelligence and how will they will perform in that role? 

00:17:28:04 - 00:17:28:15 

Speaker 1 

As chair. 

00:17:28:20 - 00:18:00:15 

Speaker 2 

I think you just have to trust a process. You know, a process is maybe a set of structured meetings making sure due diligence is done on both sides, making sure the CEO has time to meet the chair more than once. You can also use some behavioural tools to test what the chair is like. You can reference check there's probably 8 or 10 steps that need to be done really carefully and you know, sometimes you just don't know because what works in one operating environment may not work in the other and vice versa. 

00:18:00:17 - 00:18:18:02 

Speaker 2 

You know what looks like not a very successful chair or director in one environment may be a fantastic chair in another, and we see a lot of organisations rush through that process. You know, the chair is going at the end of the year. We've sat on it for three months. We're now getting to crunch to this. But yeah, there's two things. 

00:18:18:02 - 00:18:31:14 

Speaker 2 

We need the right person and we need them yesterday. But the right person is way more important. So put a holding pattern together. Interim solution, and take your time to go through the process and trust the process. 

00:18:31:16 - 00:18:50:05 

Speaker 1 

And your observation about different organisations is probably also comes true in terms of as organisations evolve, what you need at one point of an organisation starting off compared to what you need 15 years down the track might be totally different. 

00:18:50:06 - 00:19:09:15 

Speaker 2 

Absolutely, absolutely, yes. And even to the point you made about the CEO being internal or external, that depends on so many things. It might be really important to have an internal CEO or an internal chair, because you've had some people in culture challenge. Equally, you might agree, as a business or an organisation, we need a fresh perspective. So we're going to look external. 

00:19:09:15 - 00:19:10:20 

Speaker 2 

So yes you're right. 

00:19:10:21 - 00:19:34:04 

Speaker 1 

Yeah. We talked I think a little bit about risk and risk appetites and mindful that everyone's own personal risk appetite will be different. Is that something that you can pick up in in new sort of skills matrices, things as well of that, that whole area of risk appetite. 

00:19:34:05 - 00:19:53:16 

Speaker 2 

Yeah, definitely. You can definitely ask a person how they where they feel they sit on kind of a risk like in the parameters. Yep. And you can definitely ask that person's colleagues where you think they sit. And for some organisations being very risk averse is important. For other organisations, not being risk averse or being risk taking is important. 

00:19:53:18 - 00:20:08:15 

Speaker 2 

If you're about innovation in new ways of doing things, you need to have a tolerance for risk. But I think being clear about as an entity in this moment and for the future, what do we need and do we have the right balance and testing it? It all takes time, but it's very important. 

00:20:08:20 - 00:20:26:05 

Speaker 1 

Yeah. It's fascinating. You use the word innovation or innovative because, you know, so often you'll ask, are we an innovative organisation and the mantra is of course we were innovative, but you didn't think about it. Well, actually, do we need to be innovate innovative at this point of time? 

00:20:26:05 - 00:20:48:17 

Speaker 2 

That's right. Absolutely. That's right. And, you know, AI is a good, conversation to have obviously, around risk because I think you noted in your last review, organisations are a little bit nervous about how to use AI. That's a great example of balancing that. You know, we can use AI to govern differently. We can use AI to work differently, and we can use AI to service our participants differently. 

00:20:48:19 - 00:21:10:14 

Speaker 2 

But we are nervous about what that comes with in terms of risk. So balancing that, because you may be able to move in leaps and bounds around your beneficiaries and what they want and need, if you can let go of some of that risk, it's important to have it the control. But knowing where you sit and knowing how to balance it and knowing what you need for your organisation, yeah, is important. 

00:21:10:16 - 00:21:40:16 

Speaker 1 

We've talked a bit about how the last ten years has evolved in the professionalism of the sector. What are you saying for the next period include you got AI is obviously talked about a lot and new business models for delivering of human services. Is there things that you're seeing on the right, that we need to be mindful of, particularly from a succession planning perspective? 

00:21:40:18 - 00:22:04:19 

Speaker 2 

I think we both saying, the conversation about remuneration being had more and more. I think the level of liability on many different levels now, and the value of people's time means the conversation is being had more and more. So I think that will continue to evolve. Plus, on the talent side, we're seeing a lot of individuals come to us and say, I can't take on anything that's not remunerated. 

00:22:04:21 - 00:22:30:19 

Speaker 2 

Yep. So that will continue to happen. I think AI is an example of technology in terms of the future, but I think we need to be future focussed beyond AI. There are, you know, geopolitical contexts and there are political contexts in their, human services contexts that we need to look at. So having people who are future focussed outside of AI is an interesting thing. 

00:22:30:19 - 00:22:49:04 

Speaker 2 

What will disability look like? How will policy evolve? Thinking about the future is really important. But coming back to my original point, I think intentionality is going to be what will continue, what is our organisation needs strategically to govern and lead and how are we best to go and find that fantastic? 

00:22:49:06 - 00:23:19:08 

Speaker 1 

Lots of discussion. And certainly in the last, NFP, study, we referred to the challenges around workforce. What are you saying in terms of that future generation of particularly executives and C-suite for the not for profit sector, and how do we make sure that the sector does get good quality people wanting to, work in those organisations? 

00:23:19:10 - 00:23:38:13 

Speaker 2 

Yes. I think, you know, individuals often get to a point in their career if they haven't come through. Excuse me, individuals often get to a point in their career where they've had fortune or misfortune that makes them want to contribute. And I think for those individuals, they really do need to understand the sector before they move into the sector. 

00:23:38:13 - 00:24:07:03 

Speaker 2 

But we will continue to see an influx of people with skills from outside the sector wanting to contribute. I think we need to be, conscious as boards that we are responding to the needs around package. It's always been a conversation to be had that we're solving very complex social and environmental problems. We need to pay for that talent and how we creatively come up with ways to remunerate or reward that leadership talent is really important. 

00:24:07:05 - 00:24:24:15 

Speaker 2 

I think we need to be really conscious of of burnout and how we take care of our leaders. We spoke of additional governance implications in the context changing. And so how do we take care of our directors? How do we take care of our CEOs? You know, we use a behavioural tool on all the CEOs that we work to support in placing into their roles. 

00:24:24:17 - 00:24:55:23 

Speaker 2 

And the one common element we see is that they will all put the organisations and everyone and everything in front of them. So as a board, we need to say to the CEO, how are you taking care of yourselves? Interestingly, for the future leaders, I read an article yesterday that asked the generation that is in management now, if you could have $180,000 a year to work in the office full time, or $120,000 a year to work from home, which would you choose that choosing the $120,000 work from home option. 

00:24:56:00 - 00:25:04:12 

Speaker 2 

So how we continue to navigate working from home as leaders move in and develop is also a really interesting theme. 

00:25:04:14 - 00:25:30:11 

Speaker 1 

It's it's fascinating. And perhaps I know we're getting close to to time you use that, example of coming from other sectors, perhaps the for profit sector, into the not for profit sector. And we've often seen that in the direct aligned as well this term of just giving back, because I feel as though I can or I should. 

00:25:30:13 - 00:25:57:11 

Speaker 1 

And my observation is at times that's very helpful and useful, but maybe at other times can be a little bit not as effective because the complexities, understood about the sector. So how long quite long would question of how do you best get those people with the real skills that I've had from the for profit sector and maximise them in the NFP space? 

00:25:57:13 - 00:26:16:03 

Speaker 2 

Yes, we will continue to say that in flux. Exactly. Field from from entrepreneur land, from commercial land, from government. I think those individuals need to be very clear on their purpose. So as you know, a bump on a seat is not good enough. They need to be genuinely committed to the impact the organisation is trying to have. Is the first thing. 

00:26:16:05 - 00:26:40:06 

Speaker 2 

The second thing is being very clear about their value, the value that they have to offer, but also they need to be very open minded about learning. We want to surveyed or interviewed six non-profit CEOs who had been CEOs in the commercial world previously, and generally they said it's much, much harder. It's much more complex. So you need to come in with your eyes wide open and your eyes wide open to learn. 

00:26:40:08 - 00:26:53:21 

Speaker 2 

But I think there's definitely and obviously, valuable contributions for those individuals to make. But they do need to come in knowing the contribution that they're going to make around purpose and skills, make sure the alignment is appropriate. 

00:26:53:23 - 00:27:07:21 

Speaker 1 

Fantastic, Rachael, some fascinating insights, as always when we chat. Love catching up. We could talk all afternoon, but we can't on this occasion. So great to see you again and thanks for all you do. 

00:27:07:23 - 00:27:17:19 

Speaker 2 

It's a pleasure for you. I do love our conversations around better governance and all the OECD is doing also. So thanks for having me. Good on you.