You’ve been offered a position on a board and you’re wondering whether to take it. Before you decide, it’s important to do your due diligence and ask certain questions to help inform your decision.
In this Q and A, Executive Interview Coaching founder Richard Elstone chats to author, board director, and international expert on board governance Julie Garland McLellan.
She explains the kind of due diligence non-executive directors (NEDs) should do before accepting a board role and what to expect in those first few board meetings.
The advice I give to aspiring NEDs is to review two or three board packs before they accept a non-executive appointment. What do you think about that?
I think that’s absolutely essential. I like to see a year’s worth of minutes and at least three board packs.
That gives you a feel for how things arise and are dealt with, the quality of the papers and what needs to be added to the agenda. It’s so easy to conduct due diligence on what’s there, but to actually look at a year’s worth of agendas and see what’s missing, that is harder and it’s what you should do.
Firstly, things that have been neglected are a big warning sign and secondly, it’s a tremendous value-add that you can bring something to the board even before you start your first meeting.
Can you give an example of what you’d be looking for in the board pack?
If it’s a manufacturing organisation, you’d expect safety, supply chain, cost of labour, and modern slavery would probably be getting a big run at the moment. It’s a topic many boards are starting to get serious about.
You’d perhaps be expecting to look at advanced manufacturing, and at the competitiveness of Australia versus other manufacturing locations.
You’d be looking at delivery times, logistics. Certainly workplace health and safety – including psycho-social safety and workforce diversity statistics.
From a governance perspective, what should NEDs be looking at in the board papers?
Firstly it’s the quality of the papers. Are they written at a level of detail that’s appropriate for a board or are they management papers that have been repurposed?
Do the minutes capture the essence of the directors’ ideas?
I would also be looking at are “there any elephants in the room that people are carefully tiptoeing around”?.
You need to know that management can deliver information that suits your needs.
I believe that if the board papers are more than an inch thick, they are potentially trying to hide something. Thoughts?
For me when the papers blow out it’s often evidence that it’s cut and pasted from other places, the author is saying “quick, I need to throw some words down for the board” rather than saying, “What does the board need? Let’s provide that.”
The bigger the papers, the easier it is to miss something. If I put my keys on my desk, I can find them instantly. If I put them on my husband’s desk, probably not.
Say you’re a tech person and you are reading through information about finance and safety. How do you know whether you have the right information or not?
Directors have to realise they are accountable for the decisions of the board, even if the decisions are in areas that are not that particular director’s strong point.
It’s really important to go back to first business principles. Be clear if you don’t understand something. You’ll often find others feel the same way.
If there’s a culture of letting things slide, it’s easier for the new person to ask the question. Don’t wait or you, also, will become complicit in failing to address the issue.
Is too much operational information in the board papers a warning bell?
Absolutely. With a modern board portal, you should be able to provide papers that the board can read and have a reading library or background information database that the board members can access if they need to.
You’ll always find there are some directors who want more information than the others. Don’t let that tempt your management team into placing it all in the papers.
Say you did your due diligence and you didn’t like what you saw in terms of the board papers. What would be the best way to turn down the offer?
I would be inclined to have a conversation with the chair and explain your observations. Ask whether the board would be open to improving the quality of the papers.
If the answer is ‘no’ and you think you have a valid opinion, then I’d think carefully about whether the board is right for you.
I would turn it down and say, “we don’t seem to agree on what’s important and perhaps this isn’t the board for me.”
Say you accept the role. What can an incoming director expect in their first few board meetings and how should they behave?
I can assure you that when Real Madrid signed David Beckham, they didn’t expect him to go to his first few matches and just jog around and see how the other team members played. They wanted him to get out there and start kicking goals.
For a new director, it’s a matter of firstly observing. What do you see that surprises you? You need to make a note of that because within three meetings, you will have stopped being surprised and you’ll start to expect it.
Make a note of how the board operates. Quickly understand the dynamics. There’s a range of formality and procedure, and you need to meet the board where they are, even if your intention is to move them to somewhere you find more comfortable.
Respect them. Find out if they have opinions you don’t share. Try to find out about the data behind those opinions? What was the process they used to inform those decisions?
Lastly, ask your chair what he or she expects of you and how you are going? What would they like to see more or less of.
I advise NEDs to avoid ‘why’ questions. Would you agree with that?
Why questions can be quite confronting. If you’re asking why, you should soften the why.
How did we make that decision? When did we make that decision? Has anything changed since?
All directors need situational awareness. We rather than you shows that you are on their side.
Would a good chair ask a new director their opinion about the board meeting?
A good chair would.
A lot of boards have pre or post-board dinners. Do you think that’s important?
Yes. Informal time together as a board is very important. It’s great for that sort of purposeful gossip that directors do. It’s not board business, but it’s very valuable.
For a new director, it’s important to hear how the other directors speak. What are their preferences for giving and getting information? You’ll gain a lot of insight by watching the dynamics.
Benjamin Franklin wrote in the margin of the Declaration of Independence, “"We must all hang together, or, most assuredly, we shall all hang separately.” Boards are a lot like that. You want to understand your colleagues because you are jointly and severally liable.
What if after a few meetings an incoming director feels like they are on the wrong board? What can they do?
I would have a very clear direct conversation with the chair. Make sure that the chair understands what it is you find objectionable and what would be an acceptable course of action to put this right.
Sometimes you need the courage to walk away.
Need expert advice?
If you’re looking to land a board role, Executive Interview Coaching can help. The Non-Executive Ready program is designed to help aspiring and experienced non-executive directors position themselves competitively. We’ll provide advice around how to put together a resumé and then undertake the necessary interview preparation to maximise your chances of being appointed. Get in touch today.
If you’re looking to be more effective on your board, Julie’s Confidential Director Mentoring has helped emerging and established directors to make a full and valued contribution to their boards. If you would like to find out more, contact Julie.
Julie is one of very few women with board experience including chairing an ASX listed company. She is respected for her practical experience. A frequent speaker at conferences, Julie has featured in ABC News’ Nightly Business Report, The Business Programme, The Australian Financial Review, The Financial Times (Britain), Company Director Journal, Keeping Good Companies, and other quality publications.
She has developed and delivered director education for The Australian Institute of Company Directors, National Association of Corporate Directors (NACD USA), Governance Institute of Australia, College of Laws, University of Sydney, CPA Australia, Chartered Accountants ANZ, The Taiwan Corporate Governance Association, Oman Centre for Corporate Governance and Sustainability, and numerous commercial clients.
In addition to her work Julie has continued to research and study directorship. Julie is the author of six peer reviewed reference books for company directors.
As a mentor, Julie is experienced in helping boards and directors to address challenging situations, including regulatory intervention, solvency challenges, and staffing issues.