- Aspiring board members need to understand they are making a long-term commitment.
- Being a good board member takes work, but it is also stimulating.
- Board decisions must be in the best interests of the company and not personally benefit the directors.
By Nigel Bowen
It’s a rare chartered accountant who reaches middle age without fantasising about a well-remunerated, semi-retirement involving one or more board positions.
Some CAs don’t have to put in the usual legwork to land their first non-executive directorship; one day they just get an unsolicited tap on the shoulder from an appreciative client.
While such invitations are always gratifying, they should only ever be accepted after considerable due diligence and self-reflection.
It’s a rookie mistake to assume running a department, firm or company is all the preparation required to become an effective board member, says Luisa Pastrello, general manager, members and clients, at the Australian Institute of Company Directors (AICD).
“Many first-time directors find it difficult to let go of their manager mindset and transition to being hands-off strategy setters,” she says. “Plus, directors also need to know a lot about corporate governance.”
“Many first-time directors find it difficult to let go of their manager mindset and transition to being hands-off strategy setters.”
AICD, the Governance Institute of Australia and New Zealand’s Institute of Directors (IOD) all offer courses designed to provide the knowledge and skills neophyte directors need.
The first question would-be board members need to ask themselves is whether they will be able to add value to the board and whether being on the board will add value to their life.
“CAs will have accounting acumen, which is always in demand on boards,” says Julia Hoare FCA, a former PwC partner who is the IOD’s vice-president, and a director of a2 Milk, Auckland International Airport, Port of Tauranga, Watercare Services and Meridian Energy.
“But that acumen should be viewed as a necessary but not sufficient condition. You need a broad range of skills to be able to determine the strategic direction of a listed company.”
Robin Low FCA, another PwC alumni, is currently on the board of IT company Appen, cooking-box subscription Marley Spoon, IT and tech services provider CSG and Guide Dogs NSW/ACT (among others). She advises applying one more criterion before joining a board.
“You need to ask yourself what you’ll get, beyond a director’s salary, out of being on the board,” she says. “My advice is only to join a board if you believe doing so will enrich your life.”
“You need to ask yourself what you’ll get, beyond a director’s salary, out of being on the board.”
Being a director isn’t a ‘free lunch’
Both Hoare and Low warn against viewing a directorship as money for nothing – the role requires work.
“You have to spend a lot of time, much of it alone, reading board papers and staying up to date on industry developments,” warns Low.
“If you’re the chair of the audit and risk committee, which you probably will be, you’ll be busy during the reporting season.”
Hoare adds: “It’s not just a matter of skimming the board papers and turning up to a monthly meeting. You have to spend a lot of time digesting and reflecting on board papers to be able to effectively contribute at board meetings.
“Being on a board is no walk in the park at the best of times and events such as global pandemics, CEO changes and takeovers can really ramp up your workload.”
Aspiring board members also need to understand they are making a long-term commitment.
“You’re likely signing up for five to nine years,” Hoare cautions. “The old joke is that it’s hard to get on a board but even harder to get off.
“You can’t just walk away if you decide it’s all too much hard work. Well, you can, but doing so may damage both your reputation and the reputations of your fellow directors.”
“You can’t just walk away if you decide it’s all too much hard work.”
You’re judged by the company you keep
There’s a reason directors have a reputation for clubbiness; they have to take collective responsibility for decisions that can have grave consequences.
“Whenever I’m invited to join a board, I start by doing ‘desktop due diligence’,” says Low. “Some of that online research revolves around the financial soundness of the company, but most of it is about the directors, particularly the chairman.
“If I’m not confident the chairman is an impressive individual who can run the board through good times and bad, I don’t take things any further.”
“Boards and individuals who chair them differ widely and there’s no such thing as a perfect board or perfect chair,” Hoare says. “But you want to make sure that any board you are contemplating joining has directors you respect and who are conscientious and competent.
“Be aware that just as a company’s culture is largely determined by its CEO, a board’s culture will be shaped by its chair.”
What are the upsides to joining a board?
Hoare, Low and Pastrello emphasise that board roles aren’t for everyone and there’s no shame in deciding you lack the time, energy, expertise or inclination to become a director.
“It’s never a good idea to go on a board just because you think that’s what you’re meant to do at a certain stage of your career,” Hoare says.
But that noted, CAs usually find the pros of being a director outweigh the cons.
There’s surprisingly little data about director salaries or fees in Australia or New Zealand. But annual remuneration in the range of A$100,000-$300,000 in Australia and NZ$50,000-$150,000 in New Zealand seems to be common. Members of not-for-profit boards, however, receive substantially less or may contribute their services for free.
But directors rarely join boards solely or even primarily for a pay cheque.
“I could never go back to working the hours I used to in my old job, but I still want to work. I still want to be mentally stimulated. I still want to make a contribution,” Low explains.
“I could never go back to working the hours I used to in my old job, but I still want to work. I still want to be mentally stimulated. I still want to make a contribution.”
“At an age where most people are drifting into retirement, I’m interacting with lots of interesting people, helping set the direction of several companies and NFPs, and learning more than I ever have,” she says.
Hoare echoes Low’s remarks. “I get to spend time with a lot of amazing individuals,” she says. “I get to undertake a huge variety of tasks, play a part in addressing a wide range of issues and feel like I’m adding value.
“Being on a board involves shouldering some serious responsibilities, but it can also be phenomenally rewarding and fun.”
What brings directors unstuck?
Board directors have a responsibility to know what the company is doing, to act honestly, ensure financial records are up to date and accurate, and that the company can pay its debts. Board decisions must be in the best interests of the company and not personally benefit the directors. Get any of that wrong and you may be in for more than a slap on the wrist.
Breaching directors’ duties in Australia leaves you open to penalties up to A$1.05 million (or three times the benefit gained, whichever is greater), and up to 15 years in prison for serious criminal breaches. In New Zealand, individual directors can be fined NZ$7000 each if audited financial statements aren’t registered. And if you snub an order banning you from being a director, you could be fined up to NZ$200,000 and jailed for up to five years.
What things get directors in trouble?
- Allowing a company to trade while insolvent (although temporary ‘safe harbour’ measures were put in place during COVID-19 lockdowns so cash-strapped businesses could keep trading without directors being personally liable).
- Not disclosing a director’s personal interest in a third-party transaction.
- Not ensuring that financial records and reports are accurate. In 2011, ASIC prosecuted Centro property group when A$2 billion in current liabilities was wrongly classified as non-current in a financial report. Although the report had been audited, the judge found the directors had breached their duties by not checking the figures.
- Not taking notice of a company’s particular risks. Recently, board directors of banks and casinos have been found wanting when it comes to the risk of criminals using their organisations to launder money. Likewise, staff being systematically underpaid in convenience stores or restaurant groups should also have been on board members’ radar.