Just published, Richard's new book - "Guidance for the Directors of Banks"

I'm quite excited - not to say relieved - that the World Bank's Global Corporate Governance Forum (GCGF) has now published my short book, "Guidance for the Directors of Banks."

You can get your copy as a free download - from the GCGF's home page (www.gcgf.org), or here: http://bit.ly/1a36BBH.

I wrote the book mainly for three groups of readers: 

1. New directors who have experience in banking; 
2. Directors who understand governance, but with no banking background; and 
3. New directors who have no experience of either banking or being a director.

If you take a look, I hope you'll see that the principles aren't unique to banking! My aim, as I say at the start, is to generate some intelligent questions in your boardroom. If it does that, it has succeeded.

I'm only a director ... Yeah, right.

Recent focus on the role of 'trophy directors' ('Directors require skills, not a high profile') prompts me to re-publish this piece I wrote in 2010, when the matter came up before. I think it's still relevant today ...

[Then] Auckland mayor John Banks was quoted recently as dismissing his involvement in one company’s troubles with the explanation, “I’m only a director.”

How much should a director know? How responsible should he or she be for what goes on in the company?

It's quite reasonable that non-executive directors (who by definition don’t work in the company day-to-day) don’t have the detailed operational knowledge that we would expect of the chief executive and senior management.

I’m no lawyer, but the Companies Act seems quite clear: the board is responsible for management of the company. Even when the board delegates management to the chief executive, as normally happens in larger companies, the board remains responsible. So it’s understandable that, when a company runs into difficulties, all directors - including the non-executives - come under the microscope.

It may come as a surprise, but the courts won’t normally try to second-guess the commercial decisions a board makes: it’s not a crime to make poor decisions - we’ve all done that - or sometimes even to go broke. However, what the judges will consider is whether, in making those decisions - good or bad - the directors complied with their legal obligations.

In most cases, the main test for directors (section 137) is whether they have acted with “the care, diligence and skill that a reasonable director would exercise in the same circumstances.” Where I think that bar has been lifted a little in recent years is in what we expect a reasonable director to do. At the very least, the days of what we used to refer to as a “sleeping director” (the one who lends his or her respected name to the company’s letterhead and shows up for the annual general meeting, but makes little further contribution) are - or should be - past.

More positively, thanks to some recent cases, we have a few pointers about how the courts define a “reasonable director.” Among these,

• A “reasonable director” is one who turns up at board meetings - anyone who’s been around for a while will know that this is not a universal attribute of all directors. It’s no defence that you missed the meeting where the board took a bad decision. The logic here seems to be that the company has a right to the wisdom of its directors, so they in turn have a responsibility to show up. We can all applaud that one.

• A “reasonable director” is one who takes an active interest in the affairs of the company, and asks for the information he or she needs, to understand the company’s business and financial position. They have a duty of diligence and care to make sure - within reason - that the information they receive is complete and accurate. The longer I sit at board tables, the more I realise that one of the most important skills of a good director is the ability to ask good, thoughtful, questions, and to understand the issues well enough to ask the follow-up, “So, if that’s the case...”

From what I understand of directors’ duties, and of the courts’ attitude, I don’t think Mr Banks’ alleged comments would provide him much legal defence... Or even whether they’d sway that other jury, public opinion.

Risk and the Jakarta Moped

A few weeks ago, I was sitting in a taxi in rush hour Jakarta, when a motor scooter brushed past us, weaving through the almost-stationary traffic.

The rider appeared to be a young mother carrying two passengers: one a small boy, about three years old, standing on the scooter’s platform directly between her and the handlebar, wearing only shorts and a torn T-shirt; the other a baby perched on the woman’s lap, nestled in the crook of her left arm, wearing nothing but a disposable nappy. By contrast, their mother wore a safety helmet the size of a giant pumpkin.

As I’m sure most parents' response would be, my initial reaction was horror at how vulnerable her children were.

Then I thought about an article in the June 2012 Harvard Business Review – Managing Risks: A New Framework, by Robert Kaplan and Anette Mikes, in which the authors propose that we should look at our risks in three distinct categories:

• First the Preventable Risks – these are controllable and we should try to eliminate or avoid them. In a company, these risks would include things like internal fraud, health and safety hazards, and others that we can do something about. In that mother’s case, she appeared to be riding carefully and she had her children as well shielded as she could (given the real limitations of a moped with three passengers).

• Second the Strategy Risks – these we accept voluntarily in order to achieve our strategy. These are things like a bank taking credit risk by lending to its customers. If we want or expect a high return, we usually have to accept that the trade-off is a higher level of risk. The young mother obviously needed to get somewhere with her children, and she’d opted for this means of transport – I assume after some, probably unconscious, benefit/risk assessment of the alternatives.

• The third category of risk is the External Risks – these are events such as natural disasters and major political or economic changes, where we have no control over the likelihood of the event occurring. We can only mitigate its impact. She of course faced the risk, probably daily, of Jakarta’s chaotic traffic. I’m always surprised at how 4 million vehicles in one city can play ‘dodgems’ all day, with so few hitting one another, but most people seem to get to their destinations – eventually.

Thinking about this case, she’d mitigated the risk as best she could, while there was inevitably some residual risk. This is exactly how we operate in business – we’re not in the business of eliminating risk, but of understanding its various components and managing the bits we can. In her case, if the worst happened and they were hit, it would be more important for her to be in a condition to look after the children, than the other way around.

So maybe she had it about right. I doubt whether she’d read that article, but it was useful to think through its practical application. I hope that mother and her family continue to enjoy safe travels.

What we're thinking - also at www.boardsrus.net

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The Westlake Governance "Boardsrus" blog is about helping boards work more effectively - helping you to "FICKS" your board. (Come and talk to us if you don't understand what we're talking about here.)

• We'll tell you what we think about some topical subjects,
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There's an old governance paradox: When an organisation's working well, the CEO's the star; when it all turns pear-shaped -- "Welcome a-board!" We hope we and this blog will help to reduce the incidence of the latter.

We're keen to hear your thoughts too - whether or not you agree with us - so don't be shy about adding your comments.

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A Cruel and Unusual Punishment?

Although he has been in the role unofficially for at least a month, Geni-i boss Chris Quin formally took over last week as Acting CEO of Telecom for a couple of months, between Paul Reynolds’ departure last Friday and Simon Moutter’s arrival on 1 September.

It’s not unusual to appoint a senior executive into the Acting CEO’s role. But this is the first time I can remember a board appointing someone known to have been a candidate for the role, and one who publicly acknowledged his “disappointment” at having missed out, when he sent a note to his employees on the announcement of Mr Moutter’s appointment.

I know nothing of the Board’s thinking on this, but this seems an unusual strategy: “Chris, here’s the prize you really wanted. Try the seat for a couple of months. Once you get comfortable and used to it, we’ll snatch it back from you.” 

On the other hand, there’s always a risk for a Board that values and wants to retain a senior executive who has failed to win the top job: importing an outsider for a short time, over the head of Chris and any other internal candidates who also missed out, might have been an even greater risk.

I have great respect for the Telecom Board, and its Chair Mark Verbiest ... which makes me wonder whether he doesn’t have a rather more devious plan: “Here, Chris, try the hot seat for a couple of months: by that time, I think you’ll realise you’re having much more fun where you are.”

Regardless of what the Board was thinking, let’s wish Chris well in his brief tenancy of the Corner Office at Telecom.

Disclosure: 

I chair the NZ Telecommunications Forum, the technical working body of the industry. This role does not involve direct interaction with either the board or executive leadership of any of the main telcos and the opinions in today's musing are based solely on my own observations after reading publicly available information.

The Chairman as 'Super-CEO'? Or not?

Earlier this month I ran into a friend who'd just been appointed the independent chairman in a medium sized business. As he went on about what he hoped to achieve, how he had a clear picture of what he wanted to do with the company, and so on, I sensed that he was falling into the classic role confusion between chair and chief executive - and was seeing his appointment as some type of super-CEO position, or in his words the ‘ultimate decision-maker’.

For those who've never been in the position, this is a common misconception. When you look at the role of chair for the first time, it can be tempting to think that you’ve finally made it. But this soon changes: one of the first things you learn is that it's not your job to run the company. As an independent member of the Board - even as the Chair - you don’t have any executive authority of your own. (I also know from experience how frustrating, and potentially undermining, it is for the CEO to work with a chairman who can't stay away from the place, or your office!)

I don’t want to disillusion any budding Board chairs, but the reality is that you’re not the boss: under good governance practice, you are ‘first among equals’, with any formal decisions still coming from the full Board; you’re the chair of the Board as long as you have the confidence of your fellow Board members. One of the most useful ways I heard it described, when I was first appointed chair of a small Board, was to remember that you chair the Board... NOT the Company.


While the CEO’s job is to run the company, yours is to run the Board so that it adds value and gives the CEO the best possible chance to succeed. A useful reality check on whether the Board is adding value is to ask at the end of any Board meeting, ‘Is the organization better off now than when we arrived this morning?’ If the answer is ‘No’ or even ‘I don’t know’, your response should be, ‘So, remind me why we met today.’


I was thinking about how to identify some of the practical attributes that make a successful Board chair, when I came across this short article from Harvard Business, called ‘Leading when you don’t have formal authority’. The article describes what an effective project manager or independent contractor needs, when he or she doesn’t have authority to give orders or conduct performance reviews of the people they work with, but whose performance will determine their success (they are attributes you'll see in almost every effective Board chair): 

• Letting your enthusiasm be contagious;
• Demonstrating excellence without wearing your ego on your sleeve;
• Acting more as a coach than a captain.

These three valuable pointers need to become second nature if you're going to do the job well - and if you plan to stay true to them when times get tough in the boardroom.

As you can see, they're not the type of thing you'll typically read in a CEO's job description - although they are also not totally removed from some modern management thinking. The more I thought about it, the more I realised the article could have been written for my friend - yes, he now has a copy... and having chaired his first Board meeting he also understands how true (and timely) it is.


[First posted July 2009]

Evolution - the survival of those most responsive to change

As you will doubtless have remembered, April saw the 130th anniversary of the death of Charles Darwin, author of 'The Origin of Species'.  So often we misquote him by referring broadly to 'the survival of the fittest', but Darwin's thesis is far more encouraging than the cliche suggests:

• 'It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change.'

Any of us can take heart from that: how strong we are, and how intelligent, were both decided to a large degree very early in our lives (personal trainers and pop psychologists notwithstanding). But how responsive we are to change is a conscious decision, which we can take at any time.

If you want a dramatic example, finish reading here, then watch this short video on Youtube. I honestly don't know whether it's genuine - there is some debate - but I've looked at it several times and it still looks good to me. Regardless, take it at face value and think about the instant decisions this pilot had to take when faced with a catastrophic change that, according to all precedents and accepted attitudes, should have given him about five seconds to live... and how responsive he was to this change.  

Now think about the changes you (and your business) face in this period of global turmoil. And whether you'd prefer his challenges or yours.  

Have a good, adaptable, week.

(Here's the link again. To keep this window open while you open the link, click on the link with the right-hand button on your mouse and select the options of New Window or New Tab.)