The Director: Off with their heads!

Corporate New Zealand’s persistent and self-defeating failure to appoint women to the boards of our major companies continues unabated. Board chairmen, the NZX and the Institute of Directors could sort this sorry state of affairs if they cared to, reports Reg Birchfield.
Was Alasdair Thompson alone suddenly overcome by his misguided ‘wisdom’ during the television interviews? Did no one else in the organisation or at board level know about these Neanderthal-like views beforehand? Was the board unaware of his opinions and taken by surprise? Was it completely unexpected event that could only be dealt with after the fact? Was there never single indication from prior actions that suggested what convictions were held? Are we to believe that his throw-away comments were so unusual that no one else should be looked at to apportion responsibility?
The opinions stated were, it seemed, strongly-held beliefs, repeated under fire. As such they were likely often communicated in other fora and presumably, therefore, in line with what EMA member firms or their leaders were comfortable with. Otherwise, the members would have bailed in droves long time ago.
In times of greater stakeholder transparency and accountability, I would have expected the whole EMA board to resign, acknowledging their lack of oversight, directoral competence and knowledge of how the organisation’s CEO argued his views, in public or in private.
Instead, after several weeks of haggling and hiding behind the veil of employee privacy, Thompson is fired, an acting CEO appointed and the matter apparently closed. Amazing, how quickly and smoothly an organisation seems able to snap into new regime, and self-cleanse its failings.
Everything about this case demonstrates sub-standard governance. This is especially alarming in an organisation that advises other employers on how to conduct their business. Has this board not heard the call for greater director involvement when organisations or their leaders fail to live up to performance standards presumably already set by them?
By clinging to their board roles and sacrificing the CEO, the EMA’s directors signal that they were not aware of these damaging statements, were taken by surprise and thus could not be held personally responsible. Is this credible position?
Chairs and CEOs normally discuss business frequently, inside and outside regular board meetings. Surely the board knew what opinions the CEO held. This CEO clearly wasn’t one to hold back with his opinions. Therefore, how many times had staff, directors, clients and other stakeholders heard opinions curiously at odds with today’s mainstream business thinking?
Board meetings, where CEOs usually participate, provide many insights into the attitudes, beliefs and competencies of CEO. It is inconceivable that in this case board members were not aware of Thompson’s beliefs which were, he said in his interview, based on research findings.
Directors are responsible for all aspects of the organisations they govern and delegate operational duties to management. Delegation requires oversight and necessary direction. This board’s actions suggest that all was fine in the shop – until the fateful few minutes of the TV interview and bright camera lights revealed the previously unknown. It’s bit like the CEO of an airline reporting with surprised look that heavy losses were the result of “sudden” fuel price increases!
What directors should have known or more surely did know, cannot be surprise. It is reasonable, therefore, to expect that action follows immediately on recognition of problem. Failure to deal with issues doesn’t make them go away.
Directors should take proactive view and align the future aspirations of their business with its current activities. If there is mismatch, directors act on it. They don’t wait for reporters to broadcast their deficiencies and have the world gloat.
This is not just Thompson’s problem. He served more than decade in high-profile role and was, by all accounts, highly regarded. This is wider governance problem and should be seen as such.
Boards must take responsibility and, when they sight signs of underperformance they must act. Stakeholders rely on boards, not individual managers, to hold their organisation to high standards of performance.
The boardroom door is the one to which they go knocking when remedial action is needed. I can hear the post exposé phone calls among board members: “Bad boy, bad boy, what are we going to do with him?” Not, as they should, asking themselves: “How could we have failed so badly?”
This sad episode throws up another critical governance issue – succession planning. Apart from ‘suicide-by-media’, CEOs suddenly leave their post for host of other reasons. Whatever they may be, boards are responsible for operating an effective plan of succession for key staffers, especially operational leaders.
As part of their risk management strategy, boards should regularly review the organisation’s exposure to the departure of any important member of the management team. There are many models for the process, from grooming senior staffer, identifying competents outside with the ability to take over, or preparing several insiders to take on various parts of the suddenly vacated position. Each model shows that the board understands what roles are critical and that succession must be managed.
It might seem somewhat insensitive to openly discuss what happens when key person leaves before they do so but, “The King is Dead – Long Live the Queen” is well-practised exercise. Good leaders recognise the need for instant, smooth and well-understood succession that leaves the organisation fully competent to continue its operation. Smart managers prepare for their own elevation to better roles by putting successors in place. After all, no one ever got promoted wearing concrete boots that seemingly fixed them in place.
Throwing one senior staffer to the wolves of public outcry doesn’t change the footprint the individual has established in the organisation and into which replacement can easily slip. CEO represents the board and its long-term direction to the staff and all key stakeholders: The board is responsible for the actions of its CEO. The switch of one CEO does not properly attribute responsibility where it belongs.
Recognition of failure should lead board to step aside in favour of re-election and compete again for their leadership roles. The process will reveal just what the stakeholders think and give them chance to express their disappointment or satisfaction? Quit the job, clear the decks and allow membership to vote for those they believe in.
A transparent act such as this allows the salvaging of badly damaged reputation to begin. Members should decide who deserves to be re-elected.
The EMA directors might mean well, have the ideals of the organisation at heart and not think about their own self-interest. But, the sacrifice of one person does not look like an acknowledgement of accountability. The damage was not delivered simply by one man’s silly comments. It was exacerbated by directors moving back to business-as-usual without accepting responsibility for profound failure of oversight.
This is not an example any existing or aspiring directors should learn from.

Professor Jens Mueller is governance expert at Waikato Management School. He sits on the boards of several multinational firms and works with many New Zealand businesses to develop sustainable governance strategies. [email protected] www.muellerjens.com” target=”_blank”>Visited 4 times, 1 visit(s) today

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