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

Contribution by Victor Arias, Managing Director Diversified Search working primarily in the Board of Directors practice. He is the leader of the firm’s Dallas-Fort Worth office and Co-Practice Leader of the Consumer and Retail practice.

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 - April 2020

Our April dilemma concerns a well-functioning board about to embark upon a complex succession-planning process.

Ustinya chairs a government board that is based in a large provincial town. The company was created by legislation just over two years ago and a skills based board comprised of local professionals was appointed. The whole board did a governance course and the directors have now settled into a good routine that - according to the recent performance review - is providing excellent governance.

The Deputy Secretary of the relevant government department has just called Ustinya to ask her to nominate half the board for continuance as directors and half for replacement. Ustinya is stumped. The performance review evaluated the board as a whole rather than ranking and rating individual directors. All directors are making a contribution although each offers different skills and perspectives. Ustinya understands that it would be poor governance for all directors to continue being appointed so that their tenures expire on the same date. She doesn’t want to upset the good function of her board by removing half the directors in a few months’ time. Nor does she want to risk the Department making a recommendation to remove and replace without input from the board.

How can Ustinya help to create an appropriate ‘stagger’ in board appointments, maintain a well-functioning board, and support the Government in implementing a robust and defensible process for renewing (or not) the directors’ appointments?

Victor’s Answer

Ustinya is definitely in a tough position but there are some guide posts for her to use in making recommendations to both the board and the government. The main guidepost is what are best practices for nonprofit/governmental boards. Included in these best practices is how to best field an efficient board. Given the intentions of the government, I would advise Ustinya to do the following:

Rely on the guidance of the existing of the current board with the leadership of the board chair. Many times the board members will arrive at the best solutions for the entity on their own.

• Remind the board members of these best practices. They are already utilizing one of these which is board self evaluation which is a useful exercise and causes current board members to evaluate their commitment to the entreprise and reflect on their ability to continue being effective or not.
• One of the other best practices for nonprofit boards is the utilization of staggered terms.
• Staggered terms helps build in continuity, helps with turnover, helps with rotating committee assignments and creates a respectful and efficient mechanism for the exit of passive or ineffective board members.

Finally, the board should naturally take up the topic of term limits. This process would also provide defendable actions for the government.

In summary, Ustinya may be placed in a tough situation but reliance on best practices and trusting in the responsible advice by its current board members is the best path to take.

Julie’s Answer

A new board where all directors are appointed for the same term will always falter when first reappointment is due.

Under normal circumstances a Board naturally develops ‘staggered’ appointments. This allows knowledge retention as skills are refreshed.

First Ustinya should look at the strategic plan. What skills does it require? What new risks are emerging? What skills do they call for? Which skills are needed at board level? Which can reside in management or consultants and contractors? A professional board advisor can help, as may her board colleagues and/or management team members.

Next Ustinya should work with the Department to better manage board refreshment and renewal than the proposed ‘half of you out the door’ approach. The desire for local appointments should be formalised, along with other aspects such as ethnic, gender, and community representation, and the desire to rotate directors across boards in the government’s portfolio. If all directors are adding value, and all necessary skills are available, then it may be appropriate to retain them, subject to government policy and the Minister’s approval.

A good first step would be to recommend that the current directors are reappointed for either one year, 18 months or two years. That creates an immediate stagger without disrupting the firm governance foundation this board has built.

It is not too much to ask that her board be given more than two years to establish the governance culture before composition changes. Ustinya must help the government to meet its commitments to refresh boards and create opportunities for new directors to gain experience.