No compromise on values

Company Director, Fiona Harris, discusses why there is no room for diversity of values in the boardroom

When I started out on the road to being a director I remember reading about the Old Boys Club from which most directors were drawn. Naturally this was referred to in a disparaging manner, and it was seen as something that needed to be changed.

Having been a non –executive director for the last 12 years, it occurred to me recently that I now have a different understanding of what the Old Boys Club probably meant and a hint as to why it existed. And I thought it might be useful to share these thoughts with you.

My background growing up as the only daughter in a farming environment, my university job working on the wheatbins, and my career as a chartered accountant, (at a time when CA firms did not necessarily employ women), had left me fairly well equipped to deal with ‘blokey’ matters.   It also instilled in me from an early age a desire to show that the women could do the job just as well as the men. And, I was fortunate in that I decided to become a director around the time that a number of boards were thinking about the need to appoint women.

The first boards I was appointed to were a public sector board and a very large not-for-profit – which are the areas where it is typically suggested that people should initially focus when wanting to get involved on boards.

Looking back, however, I realised that, in both cases, the person doing the referring or deciding was a chartered accountant, so I suspect that their decision had something to do with the values and experience that they thought I would have as a result of my background and training. 

In particular, as a chartered accountant you had to sit an exam in a module about Ethics, and your professionalism was constantly tested in live situations. So I suspect that they had formed a view that I belonged to the same ‘club’ that they did and could rely on my values.

Values are really important. I now say to anyone thinking of joining a board that you want to make sure that the people sitting around the table with you have the same values as you do. Not the same gender, background, experience, age or anything else. Diversity in those things is good, but diversity in values is not!

I have found in my 12 years as a director that if one of the people around the table doesn’t obey the rules that you live by, that boardroom is a very dangerous place to be. For example, what goes on in the boardroom stays in the boardroom, or it should! If you have a board member that doesn’t respect the confidentiality of the board, then not only is he or she probably breaking the law, but that person also destroys the ability of the board to have an open and trusting discussion on matters of importance affecting the organisation. 

At its worst, this might involve individual directors ‘reporting back’ to another organisation. Or you might be faced with a situation where board members place their allegiance to another organisation higher than their allegiance to the company. For example, if a director is appointed to the board to represent a particular interest group, but every time a decision comes up that impacts that group, the director is unable to see that they have a conflict and still wants to be involved in that decision.

Or where a director’s personal circumstances influence their decision in the boardroom – an example would be where they have overgeared their borrowings using their shares as security. Anything that could result in a reduction in share price becomes a big issue for that director and at its worst, the director might not want to keep the market properly informed.

Again, this is a problem, because as a director you owe your duty to the company whose board you are on and if there is a conflict between the interests of the company and the organisation appointing you, perhaps you shouldn’t take on the board position. Directors must be able to put their personal circumstances to one side in fulfilling their obligations to the company.

Organisations can have wonderful values statements, but when you dig under the surface the reality might be very different.

An organisation might say that they will comply with the spirit as well as the letter of the law, but then get most upset when it is hauled up for some action that was legal, but might not have been the right thing to do. Ethics is about doing the right thing - not the legal thing!

An organisation might say it values open communication, but by its actions, it might be clearly telling people within the organisation to only bring good news to the top. This can be very dangerous as a board member, as it is almost impossible to know what you aren’t being told, and what doesn’t make its way into the formal channels. 

For these reasons, site visits and open discussions with management below the CEO, and with the auditors, are critical. Some CEO’s get very nervous about this and there is a school of thought that says that all communication from the board should go through the CEO. This is fine in theory, but in practice, there needs to be some dialogue outside the CEO, although there should be some protocols or controls because you cant really run an organisation as CEO if you’ve got all your board members telling individual staff members how to do their jobs. 

But sometimes even if you do have such discussions, people will be wary in what they say to a board member. It is only with hindsight when a number of seemingly minor occurrences are collated together, that you realise the extent to which a ‘good news’ culture exists.

Other common values are integrity, and respect. Yet you may be faced with the situation where a board member will agree to something at the board table, and then go and do something completely different. This is not good!

Bear in mind that the actions of one board member can cause the whole board to be sued. Not only can you can lose your house because of it, but you can be disqualified from working as a director either by order of the courts or if you become bankrupt.

In addition, what do you do if you find yourself in the situation where you look around the table and realise that the other board members don’t share the same values? Most people don’t want to be part of a group if they feel that they can’t trust the other members. Yet when you take on a board role, you have a fiduciary duty to act in the best interests of the company, and it is often not in the best interests of the company to have board members quit the minute that there is a whiff of something wrong. In fact, that is when good board members need to stand up and be counted, even knowing that they will probably suffer significant personal cost in the process.

As one mentor of mine put it: you can’t resign from a board until you have done absolutely everything in your power to achieve what needs to be achieved or fix what needs to be fixed. Only then, and as a last resort, can you resign.

So it makes the initial decision to join a board pretty important. All the talk you get from people about doing your due diligence before you join a board resonates pretty strongly once you have been through a few tough experiences. Its not just checking the financial health of the organisation that is important, but also the character of the people around the table.

How can you do this? Well, you can speak to people who know those people, and hope that they will be frank with you. Or you can know them yourself, though this can limit the field a bit - and until you have your back to the wall it is difficult to know how some people will react to tough circumstances. Or you can use some other proxy for these things, like the old school tie, or the membership of what we have come to call the Old Boys Club. 

In doing this, people are making an assumption that the same values that were instilled in them by the way they were brought up or by the ‘rules’ of the club, will apply to others who are members of the club.

When the accounting firm recruits a person from the same school that the recruiter went to, or when the chartered accountant recommended me for a board position, or when people on boards appoint people that they have worked with before on another board, they are using these indicators as a method of reducing their risk and ensuring that the people they are going to be sitting around a table with, have the same values that they do. In other words, there is actually a rational reason for the Old Boys Club.

Recent research reveals that most people who were appointed to the boards of Top 200 companies were already on the board of a Top 200 company. Is this good or bad?

Well to suggest that someone who has never been a director should be appointed to the board of a Top 200 company as their first ever board appointment would seem a bit unusual to me. We don’t put someone who has done the theory part of their drivers licence but never driven a car into the seat of a Formula 1 racing car. Similarly, the jockeys in the Melbourne Cup have usually ridden a few races before!

The most common way for someone to get onto their first Top 200 company board would be for them to be on the board when it is a smaller company, and to stay with it while it grows and is promoted into the index. Once they have that experience of being on the board of a company of a certain size and complexity they are more likely to be considered for other such companies.

It has become recognised increasingly that a person of good intentions and with high integrity can find themselves on a board that has poor governance practices. Also the way a board is structured doesn’t explain the differences between the companies that operate really well, versus those that end up in disaster – examples being Enron, Worldcom and HIH. The difference is actually to be found in social factors, rather than structural. So all the push from regulators that focuses on how a board is structured is likely to have little practical effect unless the team dynamics are also aligned.

The thing to bear in mind in dealing with boards, management, or companies, is that they are all made up of people. None of us is perfect, so naturally there will be things that do go wrong from time to time. Its also important to avoid ‘group think’, where the group sees people as either being ‘with us or against us’, so any dissent is stifled or seen as trouble making. 

Obviously dealing with issues in the boardroom takes some degree of personal courage, and this should not be underestimated in any of the boardroom dramas that you might read about in the papers. There are some pretty aggressive personality types who reside in the boardrooms of today, so the extent of conflict when something goes wrong is likely to be very great.

So in conclusion, I have enjoyed my time on boards over the last 12 years enormously, but there have been some less than satisfactory experiences along the way – experiences that one would rather not repeat. In a large part, those experiences come down to the values and behaviours of the people who are part of the board team. And, trying to get a feel for these values is probably the most important thing that you can do before joining a board. 

For these reasons, we shouldn’t be too dismissive if we see a person being appointed to a board who has already worked with another of those board members elsewhere. There is a valid risk mitigation reason for some of these appointments and I believe the Old Boys Club was originally based on this premise. Perhaps our challenge now is to open up the membership of that club, or to find another way of testing peoples’ values before we take the board seat next to them.