Throughout my career, I have made it my mission to prepare businesses for the future and to equip Directors with the right tools to be successful and to avoid disaster. After all,, this is a high point in a director’s career. And not unlike a movie Director it’s your role to lead, guide, set roles & responsibilities and be accountable for the outcome.
So how can you prepare yourself to be a successful director? Firstly, we need to take a look at governance.
Governance is best defined as:
“the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations. It encompasses the mechanisms by which companies, and those in control, are held to account.”
Excerpt from Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiv.
Why is Corporate Governance Important?
As a director, you will play a pivotal role in establishing and upholding the standard of a company’s corporate governance. Serving on a board of directors is not an easy feat and is certainly not for the faint hearted – all the knowledge that you have gathered thus far is the reason that you have gotten to this point in your career but you really have to have a thorough understanding of what you are about to embark on and be acutely aware of the responsibility that it holds.
- Strategy & Direction
- Risk & Responsibility
- Role Clarity
Output 1: Strategy & Direction
When we consider the key outputs, it is important to reflect on how the roll of governance would play out in your case. What is the organisation you are governing and what is its purpose?
These answers will define what your corporate strategy is. Most of the answers will be found in the company’s constitution. If you are not already familiar with it, it is your first point of call.
Your organisation’s purpose is your key output, and all of your strategic decisions should be in pursuit of this purpose.
The decisions you make in pursuit of your organisation’s purpose could mean changing the recruitment processes, to firing your Chair or CEO to de-stabilise an ineffective culture.
Output 2: Stakeholders
Boards, Members, Executives and other organisational stakeholders are the make-up of our organisation funnel. We use this funnel for our governance.
Your external stakeholders will be affected by each and every decision you make. Your decisions will affect your creditors, employees, customers, shareholders or even the local Bilby population (depending on the organisation). So it is important that you are clear on your strategy and direction to ensure you make the best decision for your organisation.
Output 3: Risk Management
Risk management does not mean ‘risk avoidance’. Together with the board, you will need to manage risks of the organisation. The risks will depend largely on your risk appetite.
As a board member, one of your key outputs is to manage risk. This means you need to be able to:
- Recognise and identify potential exposure to loss or harm
- Assess that risk by determining the likely effect, value and sensitivity of the exposure
- Evaluate the likelihood of that event occurring
- Determine a course of action or policy (Accept/Reduce/Assign/Avoid)
- Monitor and Report on the ongoing exposure and effectiveness of the policy.
Output 4: Leadership
Good governance is good leadership. To have good leadership you must have:
- A strong vision of your organisation’s purpose
- A board that is both diverse and unified in its pursuit of that purpose
- A clear division of responsibility between the executives and management
This leadership structure is created when the board is effective. All executive members should have the appropriate balance of skills, experience and knowledge of the organisation to effectively carry out their responsibilities.
When the board is effective, it is empowered and responsible for the execution of the vision and accountable to the decisions that are made. This means the organisation is: capable to present an accurate and honest assessment, able to maintain sound internal controls and transparent in disclosing business activities to stakeholders.
Output 5: Role Clarity
Boards are responsible for the compliance and performance of their organisation. This includes: formulating strategies, supervising and keeping accountability.
The role of the company secretary can vary somewhat from organisation to organisation. In some organisations they will be responsible for shareholder communication and in other organisations this may be undertaken by the finance director. In many organisations the role is often undertaken by the organisation’s lawyer, or someone with a solid understanding of the legal processes and protocols required under the Corporations Act and ASIC rules.
Hopefully in describing these 5 key outputs I have been able to provide you a clear snapshot of the requirements of a board and its members.
You can download a PDF version here.
We are here to help
If you are reading this blog because you have recently joined a board, or are contemplating doing so, then please don’t hesitate to contact the team at You Legal. I will always advise to engage an expert when it comes to such important and possibly life changing matters.
Also, my book, ‘How to Avoid a Fall From Grace: Legal Lessons For Directors’ has been hailed as being a guidebook for all directors and is available here for purchase. You can NEVER have enough of the RIGHT tools for the job.