Being a company director can be demanding at the best of times
- Being a non-executive director involves knowing your place in the scheme of things
- Governance is important but it can’t rule a board and it can’t rule a company
By Tony Malkovic
Garry Hounsell FCA is one of Australia’s most highly regarded company directors.
So it might come as a bit of a surprise to learn that, at one stage in his extensive corporate career, he studied up on how to make explosives. Not to make a bang, but to make sure he didn’t fizzle in his first appointment as a non-executive director.
He’d been asked to join the board of Orica, the mining, explosives and chemicals giant, and Hounsell is a man who believes in doing his corporate homework.
“A lot of it is learning about the business, learning about the industry, learning about competitors, reading profusely about the industry and trying to understand it,” he says.
“I was never very good at science and chemistry at school so it was quite challenging for me to go in and try to understand how you make explosives and the chemical reactions and the science behind it.
These days, he’s one of Australia’s busiest non-executive directors, sitting on the boards of Qantas, the cleaning and catering firm Spotless, Treasury Wines, DuluxGroup, the gold and copper miner PanAust (where he’s also chair) and several private advisory bodies.
In fact, busy doesn’t quite describe his recent schedule.
Treasury Wines – which owns prestige Australian labels such as Penfolds – has been the subject of two multi-billion-dollar takeover bids. Coincidentally, PanAust has also been the subject of a recent takeover bid. And, of course, Qantas has had a run of headlines in recent times.
Hounsell obviously can’t comment on any of those deals and companies, but he was willing to share his thoughts on the role of company directors post-GFC.
Before his board career, Hounsell was a partner with Ernst & Young (now EY). Prior to that, he had an auditing background and was Australian CEO and country managing partner with Arthur Andersen.
When Arthur Andersen collapsed in the wake of the Enron scandal, Hounsell worked for two years to bed down an Australian merger with Ernst & Young.
“When I left Ernst & Young, I decided I needed to have a rest and take six months off and determine what I was going to do next with my career,” he says.
“I took the view, either I was going to become a CFO of a public company or I was going to become a non-executive director. As it turned out, Orica approached me within two months.”
The first thing is that you make sure you understand the delineation between management and being a non-executive director.
Part of his philosophy on being a non-executive director involves knowing your place in the scheme of things.
“The first thing is that you make sure you understand the delineation between management and being a non-executive director,” he says.
“It took me a little while to understand that. I always wanted to roll up my sleeves and almost get involved in management.
“Part of my approach is that you know your role as a non-executive and don’t get involved in management.
“My philosophy is to add value around the table. To me, it’s going that extra step, that I’m really well prepared on the company, its topics and its challenges so I’m able to make a really informed, value-added contribution to the discussion. That’s a major focus of mine.”
He believes there are several skills directors should have in their corporate quiver: getting on with fellow directors is important, as is listening – and knowing when to zip it.
“I have learned that if you’ve got nothing to add to what everyone else has said, you actually just don’t say anything. That’s a challenge for some directors who just repeat what other directors might have said before them.
Even knowing when to pause can be a handy skill.
“Sometimes your immediate reaction is to say something on a particular topic and if you’re not quite sure of what you’re going to say, I think hesitating and pausing is a good idea, just to make sure you’re on the right track,” Hounsell says.
Knowing when to mix it up is also important.
“You’ve got to sometimes fight for a chance to say something around the table because there’s lots of personalities and lots of egos who try to jump in.
“I think one of the other skills of a director is a very enquiring mind. For me, it’s asking a question, and if you don’t get a satisfactory answer then you keep pursuing the line of questioning. Sometimes, that drives management around the bend.”
He says governance is an important issue for directors but thinks post-GFC the pendulum has swung too much and changed the role and responsibilities of directors in a way that we’re still coming to terms with.
“Like everything, there was a complete overreaction to governance following the GFC,” he says, pointing out that most companies already do the right thing.
“I think governance is important but it can’t rule a board and it can’t rule a company.
“If you tie yourself up in governance, you’ll have a great company in terms of governance – but you’re going to miss a lot of opportunities. I think there’s a balance between governance and taking risks and doing the right operational things.”
But he says the pendulum appears to have stopped swinging and is almost at a sensible equilibrium.
So how does he see the role of a board in influencing a company’s culture and behaviour?
“The culture of a company is set by management. But I think those things are inbred in the company and inbred in CEOs and management so I think there’s not a lot that boards can do.
“I would not sit on the board of a company where I did not feel happy and comfortable with the behaviour of the company or culture. I just wouldn’t sit on it. It’s too risky,” he explains.
According to the Australian Institute of Company Directors, there are more than 2.3 million company directors in Australia, with most of their companies bound by the Corporations Act 2001.
“The role boards can have in culture, to me, is in the selection of the CEO.
“I think boards can be very helpful in the success of a company, I think that’s when boards can play a strong role.
“That is when you say ‘no’ to management on a particular matter that they’re putting up. You’ve got the guts to say ‘no, we’re not going to do that for this reason or that reason’.
“And you put in place a different view of the way the company should go forward in terms of strategy or growth or whatever it might be.”
Part of that approach is being with the right company in the first place.
If you’re thinking of becoming a company director, you should probably find a comfortable reading chair: the Act comes in five volumes and is several thousand pages long.
So what advice would Hounsell give to anyone contemplating a seat in the boardroom?
“One of the pieces of advice that I give to people who approach me is to try to see if they can move their careers at their accounting firms or their legal firms into management so they can start to develop some of those skills that boards are looking for. They’re looking for somebody who’s got a lot more to mention than just being an auditor or tax partner or whatever it might be. I think people might need to understand that.
“That’s certainly the case in the top 100 where my boards are.
“Lots of names come up, of chartered accountants or lawyers and, quite frankly, most of them are rejected very quickly because they’ve not had that more lateral experience.
“You will not get appointed to that board if you just have that finance skill, it’s just not going to happen.
“When you get down to smaller boards, I think it’s possibly a different story. I think they might be looking for some technical expertise.”
Tony Malkovic is an awrd-winning freelance journalist.
This article was first published in the April 2015 issue of Acuity magazine.