Board life not all roses

By MARK STORY


Landing you're first directorship is hard. But once you've have one under your belt, don't be surprised when you're shoulder-tapped for others. Inadequate remuneration and severe penalties for negligence, including hefty fines and possible imprisonment - it's not exactly your dream job. But the push for better governance from boards following corporate collapses globally means directorships are no longer cushy perks for retired chief executives.

In fact, the higher table-stakes now governing board activity have peeled the gloss off the once revered role of company director.

Still fancy yourself among the boardroom elite? Well, you should then understand the corporate governance duties, responsibilities and associated the risks facing directors.

Professional independent director Joan Withers says the days are long gone when directors would peruse company papers half an hour before a meeting, later adjourning for three hours of wining and dining. Based on her experience on boards over eight years - including Fairfax, Auckland Airport, The Warehouse, Meridian Energy and Tourism Holdings - club sandwiches at a working lunch around the boardroom table is more the reality these days.

Q: What is the make-up of the average board?

A: Within the era of better calibre directors, the size of many boards has halved to about six or seven. While the number of women directors remains low - especially in the private sector - it has jumped from 9 per cent in 1997 to 13.8 per cent in 2003.

Q: So what is it directors actually do?

A: Probably their most important job, Withers says, is being part of the board team that hires (or fires) the CEO. As well as safeguarding the interests of shareholders - by setting company strategy - it's also the board's job to monitor company performance and ensure management carries it out professionally.

Much of what else directors do concerns risk management, ensuring that myriad compliances, including health and safety, accounting standards, company law and stock exchange reporting meet required standards.

Q: How can you ensure you are ready for a directorship when you are shoulder-tapped to join a company's board?

A: The Institute of Directors (IOD) runs regular courses for both existing and would-be directors, covering subjects like finance, audit committees and strategy. This year they're also running, throughout the country, nine five-day introductory seminars on directorships. There are no prerequisites. Wray Wilson, advisory services manager with the IOD, says that even at a cost of $4500 the institute has no trouble filling courses.

Q: How much time will a directorship take up?

A: It varies greatly depending on the organisation, but results of Institute of Directors surveys suggest directors spend two or three days a month on directorship work. From Withers' experience, for every day spent in the boardroom there is a day spent preparing for it. On average, another two days a month are spent on committees.


Q: As a director, how much will I get paid?

A: Pay stakes pale when compared with overseas counterparts, but directors fees are improving. Since 2000 fees have increased 3 per cent a year. Fees vary depending on the nature of the organisation. For example, non-executive directors of Telecom earn $125,000, while directors on the boards of Sky City, Air NZ and Infratil earn an average of $52,000 a year.

The average fee for listed-company directors is $35,000 to $40,000 a year.

The IOD survey findings suggest that the average fee for directors of unlisted companies is about $27,000.

Q: As a director, what are my personal liabilities?

A: Common law and statutory duties require directors to act in good faith and in the best interests of the company. Failure to meet these common-law fiduciary duties may result in penalties. For example, under the Companies Act 1993 directors could be fined up to $200,000 and can be banned for managing companies for as long as 10 years.

Wilson says directors should know that equally onerous penalties lurk within no fewer than 40 pieces of legislation. For example, the Resource Management Act imposes a maximum $200,000 fine, $10,000 for every day the offence continues and can also impose up to two years' imprisonment.

Q: How is the personal liability facing each director dealt with?

A: Having concluded that nobody would join a board if this were not provided, it's standard practice for organisations to provide their directors with liability insurance. Because of limited cover, most directors take out their own personal cover as well. Such cover excludes acts of criminal negligence, recklessness and dishonesty.

Q: So what is it I really need to know to be an effective director?

A: It is not uncommon for directors to be appointed for their specialist competencies, but the three essential qualities the Institute of Directors recommends directors bring to boards are business acumen, common sense and integrity. As well as having an intimate knowledge of the company's core business, Withers says it is essential that directors think strategically and are financially literate enough to understand the implications of mergers, takeovers or divestments.

It is equally important that directors' gel with board culture. That means questioning board proposals robustly without damaging personal relationships.

Q: How do you become a director?

A: While many people prefer to be asked, some executives actively seek directorships. There are are a few "professional independent directors" who, like Withers, make their living out of serving on several boards simultaneously.

Wilson says that getting board appointments these days is a combination of working your contacts and shoulder-tapping. You are more likely to be shoulder-tapped for a directorship if you make your interests known to the Institute of Directors and other professional search organisations.

It is not uncommon for CEOs to get their first directorship (as managing-directors) once the board is satisfied they can add value. But from his observations most directorships are a byproduct of your reputation at CEO or senior management level and your ability to leverage networks. Many get their first directorship through SOEs or government agencies after registering their interest and CVs with the Crown Company Monitoring Advisory Unit. "Getting on your first board is a bit of a Catch 22 because boards look for experience," Wilson says. "But the domino effect - once you are a director - means you will have greater appeal to other boards.

Withers says there's nothing brazen about putting your hand up for directorships as long as you're ready. As a retired CEO of Radio Network, she received her first directorship in 1997 after phoning the chairman of Ceramco, having heard he was considering appointing a woman to his board. Her appointment to The Warehouse board happened in similar fashion.

"When you're looking for your first directorship you have to be prepared to make calls and write letters and let people know you're available," Withers says. "But don't take on a directorship at any price. Pro bono directorships might be good experience but your association with bad boards could tarnish your reputation."

How to get a directorship


* Ensure your networks know you're available.

* Register your CV with Crown Company Monitoring Advisory Unit.

* Bone-up on your finance and strategy skills.

* Register with the Institute of Directors and professional search firms.

* Do pro bono work on not-for-profit organisations or boards of charities.

* Take the Institute of Directors' five-day course.

* When board vacancies occur, put your hand up.

* Develop relationships with existing directors.

* Let your reputation precede you.

* Act with honesty and integrity.