COVER STORY Fit for the Job? – Directors & accreditation

Director accreditation, according to recent issue of the Institute of Directors’ journal Boardroom, aims to “enhance corporate governance standards by providing register of directors who can show evidence of their professional capability in terms of their knowledge and experience”. That’s the word from IOD president Rick Bettle who, along with core group of others including IOD national councillor Denham Shale, has been plugging away at getting the programme off the ground for couple of years now. Sounds innocuous enough. In fact, in the wake of high-profile corporate collapses and the resultant fall-out, it should be welcome move.
Bettle, who holds directorships of number of companies of different sizes, lists the two main objectives of director accreditation as the ability to showcase experienced directors who are still learning, and to widen the pool of potential directors as newcomers work their way up through the ranks. (See box story “At glance” for more details on the programme.)
This second aim should help bust open the perceived lock-out by the “old boy network” and is being handled via the introduction of second-tier “provisional accreditation” scheme.
Richard Punter, full-time independent director and fellow of the IOD, believes the new accreditation programme will both reduce risk and add value for shareholders as organisations strive to get the best possible directors on board.
Shale, who says the institute is the proper place to run the accreditation scheme, notes that while the programme “won’t of itself lift standards” among directors it will hopefully be means to do so.
Sandy Maier, director of several companies, large and small, and long-standing member of the Institute of Directors, describes the programme as “good start” that is “directionally right”.
So why the fierce debate over the new programme? For some, it seems, the devil is in the detail. Maier says the IOD has “missed an opportunity and given signal that is open to quite serious mis-interpretation”.
He struggles with key clause that states accreditation “is not intended to be certification of the competence of member” but will rather “set an expectation of behaviour and standard of conduct”. In particular, he takes issue with section 4.3 ‘power of dispensation’ which states the accreditation board “can dispense with any of the criteria with respect to any application for accreditation”.
So while, in an ideal world, accredited directors should line up against all the relevant criteria listed (see box story “At glance”), any or all of these things may be missing, he says.
“Now I find that strange,” says Maier. “If I went to doctor and they said ‘well, maybe he went to medical school, maybe he didn’t’ I wouldn’t go there for brain surgery. So why should I put my investment at risk?”
Comparison with directors’ institutes in the United Kingdom, Australia and Canada shows the New Zealand institute alone has this facility to waive its own stated requirements.
“I made journey as child,” says Maier, “to the Museum of Modern Art in New York where they had these big paintings. One of them was big can of Campbell’s soup titled ‘This is not can of soup’. It strikes me that this thing has been positioned very cleverly as saying ‘this is not certification that anybody can rely on’ and it says so loud and clear in the words… We all know that this is going to be picked up on in the market as certificate, as an authority, as some kind of seal of approval… You don’t like people joining the association and just paying some dollars. You actually want to give them piece of paper that people can rely on. I think it’s way too clever by half to say right up there in the front ‘you can’t rely on it’.”
Bettle argues that critics line up on both sides: some saying the rules and regulations are too hard, others that they are too soft. “What we’ve tried to do is get something that will be reasonably well accepted [and] which the majority of people will simply use as reference point. That’s all they’ll do. It can never be certificate of competence.”
The power to waive any of the selection criteria was put in on legal advice, says Bettle, and is designed simply to give the IOD’s accreditation board the ability to handle any unforeseen circumstances.
In an outline of submissions on the accreditation proposal in Boardroom earlier this year, it was also pointed out that accreditation may carry ‘moral hazard’ for the institute. “Accreditation lays the institute open to claim and /or reputational decline in the event of real or perceived inappropriate performance.”
An initial requirement for directors to have tertiary or other suitable qualification was dropped following this same round of consultation with IOD members who pointed out that this would preclude many individuals who were otherwise potentially significant contributors at board level. This makes sense from practical perspective. It also draws on lessons gleaned from experience in the United Kingdom, says Bettle.
“I don’t believe you can have an exam or anything else that says ‘this person is surefire winner for your firm as director’. There’s no academic exam that can give you that. Britain has clearly failed with its chartered directorships.
“… Why would we go for chartered director like the UK? The equivalent here would be five directors after five years. There are only 200 [chartered directors] in the UK. Two hundred. It’s failure by any measure.”
Is the director accreditation programme means of generating income for the IOD, as some critics have suggested? Not according to Bettle, who notes the programme will cost the institute “something like $60,000” in its first year and requires re-investment of funds from the non-profit-making incorporated institute to get it up and running. “It will at best break even but that will be after couple of years.”
However, Maier points out that, from member’s perspective, it effectively doubles fees. “I pay $310 year and to be accredited is going to cost me $250 plus $150 year each year.”
Maier also fears the newly launched IOD accreditation programme will drive out of the market the possibility of other commercially available certification systems. “That’s what happens. Debasement happens. So soft deal – the can of soup that’s not going to look like soup – tends to take over because many people really do think that this will be relied on.
“… I worry about the PR impacts of the programme. I worry about the lack of transparency.”
As an alternative, Maier proposes posting online an outline of each accredited director’s credentials. “We’re not in the mediaeval age where people need to gather information in, process it at great cost, pay people to do it and then put out list that says ‘these people have passed’. We live in technological age. … I don’t for the life of me see why you could not take all this information that’s been gathered – the references, the CVs, checked or not – post them and say to people ‘now, let me provide service to shareholders’.
“… I would welcome the opportunity to see on website under my own name CV and say, ‘I’ve got those directorships and here’s my statement about what they are, what I’ve learnt and why I have them’. … That’s the additional value that I think you’re inches away from.
“… I think people should have to post. It should be more visible: what people have done, how well it came out, what their assertions about their own conduct is. And the more of this good stuff that you have – the courses, the values, the continuing education – the more you can say ‘hey, Joe did it. Fred didn’t. Pete hasn’t done it in 10 years. Sam died last year’.”
Shale points out that posting information online could create false impression. “We have now lot of people who say ‘you’ve got 10 directorships – that’s too many’. And we know that in Australia there are points given to these things. Having it on piece of paper doesn’t mean anything. All people do is

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