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Manager Director – What are the missing links?

May 27, 2019

Long Read

 

 

 

 

 

So, you’ve toiled away diligently throughout your career. You’ve achieved consistent successes and have a resume that you are proud can mix it with the best in your chosen field. What sets you apart? What is your next level career progression?

 

Many think a directorship role is the metaphorical icing on the cake for career growth. It could not be further from the truth. Some very important questions to ask yourself before you begin the journey include:

  1. Who have you managed?

  2. What is your risk threshold?

  3. What is your motivation?

These may appear condescending questions; however, directors are expected to have considerable knowledge AND experience in their chosen field. If we consider the CEO or Managing Director (MD) role as being the pinnacle of the organisational structure, consider this statement from Study.eu:

 

“Australian companies seem to be the most permeable for those without high academic accolades: 14% of company leaders have no university degree at all, and only 38% have a Masters or Doctorate degree”

 

Now, let’s contemplate what the rest of the world considers a ’benchmark’ for CEO qualifications. A Study.eu survey of Forbes Global 2000 companies into the backgrounds of 231 top company leaders found that Europe’s CEO’s had 76% Masters or Doctorate Qualifications – Australia has exactly half that amount…38%

Is this standard acceptable when we are expected to compete on a global stage? That only 38 in every 100 Australian CEO’s have pursued academic excellence in their chose field of expertise.

 

“Why should that matter?” you may ask? In 2016, I surveyed over 50 MD’s of Australian-based subsidiaries and found 86% had no formalised training before undertaking their directorial role. 71% had not undergone any director induction process

 

Australian company officers are exposed to some of the most personally onerous laws in the world and there is sound reasoning to reflect upon one survey participant’s comment:

 

On face value, being a 'Director' sounds worthwhile; however, in today's litigious environment, every executive should think carefully before assuming any additional liability, especially if they do not have the requisite span of control and authority.

 

We now arrive at a place where our leaders can be categorised as entering their directorial careers within an organisation as unprepared and unsupported. Would these leaders expect the same of those they lead? There may be loud rebukes from within boardrooms and corner offices; however, the near-daily headlines of lapses of corporate oversight endorse the statistics offered previously.

 

Consider the advice offered in the 2019 Final Report of the Royal Commission into Banking:

  • obey the law;

  • do not mislead or deceive;

  • act fairly;

  • provide services that are fit for purpose;

  • deliver services with reasonable care and skill; and

  • when acting for another, act in the best interests of that other.

The fact that this was written in a report directed at senior executives is astonishing. Some learnt these principles as cub scouts when they were seven years of age. It should be evident to most that these values would be instilled over years of accountable leadership experiences.

A robust compliance culture does not start and end with the CEO or MD. In the September 2018 Forbes magazine article “Creating A Culture Of Compliance": Why All Successful Businesses Must Do This And Where To Begin, makes clear the need to involve multiple levels of management in the governance & compliance process:

 

The C-suite needs to build a culture where ethics and compliance are treated as part of everyone’s job. This means compliance cannot be left solely to the legal and compliance departments. Its value must be communicated from the top down.

 

Two areas of operations provide continuing challenges to the MD’s I surveyed:

 

“For me, it’s properly understanding and presenting the balance sheet so I can represent the business profit and loss appropriately. Taxation laws require specialist advice.”

 

And:

 

“WHS is a legal and operational minefield. There are so many regulations and compliancy issues that it requires full-time vigilance for all businesses – any size and any industry.”   

 

In addressing these statements, how do we rise to meet our obligations and still ensure that we keep our head office happy? What is your risk threshold?

In 2015, renowned governance author, Bob Tricker, stated that “…a director has a conformity duty to ‘act(ing) as a safety valve, able to act in a crisis to release the pressure, prevent further damage, and save the situation”.

 

Consider his statement and that contained within the ISO31000 Risk Management guidelines:

 

“We live in an ever-changing world where we are forced to deal with uncertainty every day. But how an organization tackles that uncertainty can be a key predictor of its success.”

 

How do we instil this accountability and improve the quality of our leadership? In 2018, Egon Zehnder surveyed 402 CEO’s across 11 countries. It was found that only 28% of CEO’s who had risen through the ranks of their firms considered themselves “adequately prepared for the top job”. Who have you managed?

 

While you may have risen through the ranks in finance, sales, marketing, and HR, but are you confident that you have the skills—from day one—to be able to step in and ‘release the pressure and prevent further damage?’ It is flawed thinking to delegate responsibility only once you become a director.

 

Now ponder the concept of transparency. When asked if our Australian MD’s parent company ‘shares all appropriate strategic and financial information with me’, 43% believed that their parent company did not share transparent strategic and financial information. You could think it may be a challenge to present a balance sheet without full awareness as to how the figures were achieved.

 

We’ve determined now that most leaders enter directorships unprepared, unsupported and, compared to our European trading partners, mostly unqualified. What is your Motivation?

 

Once again, I will leave it to our surveyed MD’s to answer if they were aware of all the liabilities they face as a director:

 

“No but the journey is like peeling an onion: there were multiple layers to peel and every layer exposed introduces an additional tear.”

 

“It’s just not an initial priority. You start as a firefighter and you must choose the biggest fire to fight first and then put out the spot fires.”

Most alarmingly: “No; I expect my regional office is across this.”

 

To this last statement, ASIC has stated, “Persons who become officeholders without understanding their role and responsibilities risk regulatory action as ignorance is no defence.”

 

If you have read this far and are still motivated, you may well have the ’right stuff’ to become a director and there is a path forward. It is well-documented that half-heartedly attempting or ignoring compliance within the risk-laden Australian corporate governance environment is an ill-conceived strategy.

 

Undoubtedly, compliance and governance should be lauded, communicated proudly and never viewed as burdensome. However, it should also be transparent, accessible and feature as part of every company’s culture.

 

It is the ultimate responsibility of the board to ensure the best prepared and most capable assume the responsibility of directorship throughout their organisation. The most capable are those who can answer the three questions posed at the beginning without hesitating and with complete confidence. Accountability, however, must start and end with you.

 

About the Author

Brett Flower is the Managing Director, Ethical Leadership and Compliance Australia and will facilitating a workshop for novice and aspirational directors--a pathway to operational compliance. To learn more click here.

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