Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Kevin Hall, Managing Partner at Bluestone Leadership / AltoPartners Canada and AltoPartners Global Natural Resources practice leader

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here. To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - July 2019

This month our dilemma is based upon the true case of a government-owned company that discovered an unexpected complication arising from a diverse board. Not all dilemmas arise because something is wrong; we sometimes have to make unprecedented decisions when things go right!

Marnie chairs a large government-owned utility. Her board is great; each director has a unique skill-set that is relevant to the organisation’s needs. Like many government boards, Marnie’s board is younger than the norm and her directors are all full time employed. The board benefits from their current expertise and contacts. Management are particularly pleased to have access to their skills and insights.

At the last meeting one of the directors announced that she was pregnant. This is great and happy news. It is also totally unprecedented and not covered in the enabling legislation, or any literature about human resource management, which assumes people are employed, or company director practices, which do not appear to have considered the possibility of a pregnant director.

Marnie wants to do the right thing and is confident that the government will support her chosen course of action once she has developed it. Marnie’s aims are to provide certainty and security for the pregnant director whilst ensuring that the board continues to access the necessary skills and, importantly, maintains a quorum. Quorum is sometimes difficult as directors have travel commitments so losing a director for a year is going to be difficult to manage.

What can Marnie do?

Kevin’s Answer

There are many circumstances when Directors may need to take a leave of absence from a Board (e.g. maternity-also likely to increase with greater diversity on boards, illness, accident, and family or business circumstances). This is not an unusual occurrence and should not be addressed as such. Boards must be adaptable to these situations by being of an appropriate size; and having multiple Directors with the necessary skills and experience to govern and provide oversight. This also allows for healthy debate on issues between Directors with similar skill sets.

In Marnie’s situation she Chairs a small board (quorum challenge) of younger, experienced and fully-employed Directors (possible diversity challenge). The medium/long term objective should be to right-size the Board and address the possible lack of diversity. In the short-term Marnie may wish to consider:

1. Clearly identifying the skill gap(s) on the Board with the loss of the Director
2. Retaining independent professional advisors as appropriate
3. Reappointment by the Board of a previous well-respected Board Member until the next AGM* Continuity within the Board and knowledge of the organization is important. Pro tem appointments by Directors are often allowed with conditions
4. Appointment by the Board of an over-qualified individual (it’s not a development position) who can cover the skill / experience gaps in the Board by serving as a Director until the next AGM*
5. Communicate the challenges to the Government to seek a medium / long term solution.

• or beyond if appropriate and as approved by shareholders

Julie’s Answer

Marnie should ask the Minister to appoint an alternate director. She must arrange insurance, deed of access and indemnity, induction, etc. for the alternate and notify the insurer that the ‘normal director’ is on maternity leave.

Marnie will need a letter of appointment, declaration of conflicts, and consent to act. She should verify with the Minister’s office that the ‘on leave director’ just returns from leave with no need for reappointment and no change to tenure (i.e. if she was appointed a year ago for three years, takes a year of maternity leave she comes back to serve a year then stands for re-election as if she had served all the way through).

Provide both the ‘on leave’ and ‘alternate’ directors with letters of leave authorisation and appointment to make intentions clear.

The ‘on leave director’ is still a director but is excused duties because the alternate is doing them. Alternates act in their own right; independent of instruction from the ‘on leave director’ they stand in for. Alternate directors have the same rights, powers, duties and responsibilities as other directors. Specific roles, duties and responsibilities, plus the period of appointment of the alternate director may be specified in the letter of appointment. Appointing an alternate allows directors to fulfil their duties and responsibilities if they will be absent for one or more board meetings, Section 201K of the Corporations Act is a good reference. ASIC must be notified within 28 days of the appointment and its cessation.

Marnie should invite the alternate to attend as an observer for a meeting with the departing director at the start of the leave to help get them up to speed.