Governance Bites #14: governance and the board role, featuring Dennis Murray.

Dennis Murray is an experienced tech entrepreneur and director, with a background in the legal sector. He is Chief Executive Officer and Director of Dacreed. Earlier in his career, while consulting to Lexus Nexus, he wrote governance material for their clients. Prior to that, he managed a team writing law reference books for lawyers at CCH. 
Mark Banicevich asks Dennis about governance and the role of the board of directors. He also asks about delegations of power from the board of directors to the executive team, and they discuss technology that makes governance easier and more effective - such as BoardPro and Diligent.
#governance #governancebites

Transcript

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Hi. I'm Mark Banicevich. Welcome to "Governance Bites"! Today it's my pleasure to spend time with Dennis Murray. Hi, Dennis. Hello, hi. So, Dennis, like me, qualified as a lawyer, but never actually worked in that space. Instead, spent a lot of time for a company called CCH, writing documents for lawyers. Writing books, training books, and things, for lawyers. And then later, actually consulted, to a company called LexisNexis, where he wrote material around governance, and those sorts of areas, as well. And is now managing director of a company called Dacreed. So, very heavily in the governance space. So, thank you very much for your time, Dennis. Pleasure, thank you. So I want to start with a broad question. What is governance? Okay. Well, in the broadest sense, governance is the process of being responsible for managing the operations of an entity. So that entity could be a private sector company, it could be a government sector company, it could be a not-for-profit. Okay. And then, as you take on board this responsibility, I suppose, to run it, you have to make sure that you've got a defined purpose around what it is that you're trying to achieve for the organisation that you have governance responsibilities for. So having that as a collective purpose around, you know, where you want that organisation to go. And then sitting in beneath that, the role of the director as an individual, is also to be able to participate in that process. So there's two very distinct, different roles, for governance: one's a collective purpose, the other one's the individual responsibilities of the directors. Can you talk a little bit about that distinction between the collective purpose and the individual responsibilities? Yeah. I think, you know, boards need to understand where it is as an organisation. How they want to operate. What they want to achieve. So, therefore, their goals, probably, you know, the things like values, mission statement. So, values being, you know, what do you all share, in terms of how you want to go about this thing that you're all acting in concert to achieve. And then your mission statement, which would be, basically, what are we going to do, as a team, to get there. And then, when you come down to the individual, it's all about the individual understanding what their individual responsibilities are, as part of that team. Now some of that, it can be quite interesting, because you can have differing opinions, but then what you do, is that through open communication you work out where everybody sets within the board. Those board members having in the back of their mind,"My role is, as a director, to work in the best interests of the organisation that I'm acting in a governing role to." So, once you get that clear, and then your personal understanding about how that may work, may not always coincide with whoever else sits on the board. Right. Yeah. Right. So then, I think that a general rule, really, for individual directors, is to be true to themselves. Understanding their role, understanding their duties, and their responsibilities. And actually being brave enough to voice those to the team. And then having confidence in that team, that they will work through whatever differences may arise, and then they come to a resolution. And then that resolution needs to be captured. Right. And that's the value of having a disparate group of people, with different skills, and different backgrounds, on a board. Because they bring different perspectives. And then, having those different perspectives, they might come with their own biases, and so forth, and through that open and respectful discussion, you realise, maybe, where your gaps are, and what you've missed. And together, you come up with the best way forward for the business, or for the entity. Yeah. I'd say, generally, you come up with the, in most cases, you come up with the best resolution for the business. But it's also being open to understanding that, actually, where you need to get to is a consensus agreement. And so, therefore, the communication that you have. And then a board might also go,"Well, actually, that consensus was wrong." So you do need to pivot occasionally as a board, because the consensus agreement's taking you somewhere where you don't actually want to go. And be bold enough to step that back. So there's always a role for the individual director to say, even after a resolution,"Look, I think there's an issue here. We need to discuss this again. And we need to see whether or not we change that." But then also being respectful about what that consensus is. Yes. Yeah. Yes, right. And then that's how you get really, generally speaking, to very good outcomes. Okay. So what determines the governance framework for an organisation? What is it that, kind of, sets the rules? Oh, yeah, really interesting. Well, from a legal perspective, the organisation rules will be set by the jurisdiction in which that organisation - So, the local laws of the domicile of the organisation. Yeah. Wherever that may be. So, you know, in New Zealand, here, it'll be obviously New Zealand legislation. Wherever, it'll be whatever the jurisdiction of the country is. And you need to be familiar with those rules, because they do change from jurisdiction to jurisdiction. And they'll have different requirements. So understanding those rules will give you the confidence to, kind of, relax in your role. So once you understand it - Yes - then you do have that confidence. Then at another level altogether, just from a - I'm talking in very broad terms here - understanding the different roles of what makes up an organisation. So, for example, for a private company, like, you know, primarily the sort of companies that I've worked for, although I have worked in some state sector areas, but primarily it would be shareholders. Yes. So, the shareholders are the owners. Yes. And then they are a completely separate group to the directors. So the directors basically get their starting orders from the shareholders. They get elected onto the board, and then the directors have to act in the best interests of the company. Right. Now as to what might be in the best interests, sometimes can be impacted by the law. Right. And then you have another set. So you have the other set, which is the role of the executive. So it goes shareholders, elect the directors, the directors delegate powers. Delegating down to the executive. To the executive. Right. And there is another one. Another responsibility that is sometimes forgotten, And this is one that applies equally, I believe, to state sector or not-for-profits, as it does to private entities that are, you know, have a purpose of making a profit, and that is, the world at large. So there is, you can't really discharge your responsibilities unless you've always got it clear in your mind,"Actually, I have a greater duty here as well."I can't just stick narrowly to this thing." And I'd liken it to, you know, you're crossing a road, and you've got to look left, you've got to look right, you've got to look left again, and so on, just to make sure that it's safe. A director, to be safe, really needs to look both ways. They need to look to the interests of the companies, sorry, the company shareholders, and the company itself, and they also need to look to the public at large. Right. Are they actually going to cause great harm? Because no entity operates in a vacuum. No. It's all part of society, so there is an important role to play. Yeah. And I think different jurisdictions have legislated in that way, in that direction, to varying degrees, haven't they. Some have made that far more explicit than others. Yeah. And that's where some of the legal differences that you mentioned before can come about. So, I think fundamentally, the process of governance, the thing that you do as a director, and the way you do it, is really, fairly similar the world round, but, as you say, the jurisdictions have slight differences in their laws, about what your obligations are. And one good example of that would be, you know, in my industry certain entities have to have a license to operate. Yes. And that's a very legal requirement. And the directors have to be aware of that legal requirement, so that they can discharge those duties, as part of their obligations. Absolutely. Can we dig a little bit more into this concept of delegations, because, as you said before, the directors are responsible, and representing, really, the shareholders or the members for a not-for-profit organisation. And they are looking to act in the best interests of the entity as owned by the shareholders, or as collectively, kind of, owned by the members, if you can think of it that way, for a not-for-profit. So the directors have this ultimate responsibility, that everything is happening the right way. But they can't do it all themselves. No. So they delegate some of their, or a lot of the actual day-to-day operations, and a lot of the other work, to the CEO [Chief Executive Officer], the executive team. Can you explain a little bit about how that delegation process works? Yes. And how it's formalised? Yeah. So the delegation process will be done by resolution, so there will be a decision made by the directors, and there'll be limits on delegations. So for example, you might say to the CEO, well the CEO, you've got responsibility for all executive functions in this way. And the people underneath you reporting to you. But you cannot, I mean, for want of a better example, you know, you cannot enter into a commitment greater than five million dollars, or something like that. So it's a simple, you know, sort of, picture on it. If it's over that, then it's got to go back to the board. For approval, right. Yeah. The other one is to be very careful about setting your annual budget, because the annual budget is what is approved by the board, and that's what the executive team is supposed to work to. The executive, of course, will be very involved in setting that budget. Yes. And they will take it to the board often. And then the board will approve it. And then the delegations go down. Now where you then come to a variation from the budget. The agreed budget. Yeah. And if it's outside a delegated authority, you've got to go back to the board. Right. So, ultimately, the board has the ultimate responsibility, and everything that happens in the organisation has some form of delegation from the board of directors. And if it steps outside that delegation, it has to come back to the board for approval. It's ultimately that simple, right. And the sorts of documents you will have to determine those delegations, will include the job descriptions, and the contracts with those staff, like your CEO, and then you'll have a delegations framework, or a delegations policy, that says things like, this is your maximum limit of what you can sign off. And if it's outside the budget that's approved, then this is the sort of thing that has to come back to the board. Yeah. Right. And I think it's very important to have a good understanding of what those are, because, you know, I do know a number of cases where executives have not been aware of the limits on their authority. And, you know, in a jurisdiction like New Zealand, I can't really talk for any others, but in a jurisdiction like New Zealand, you can get into grave difficulties, legal difficulties, and you can, basically, you can end up in prison. Yes. if you don't act the right way. So your duties and responsibilities need to be taken very, very, carefully. The other thing, is that there is software out there that is very simple to run, that gives everybody in the chain a very clear understanding of what it is that they do. And not only can the directors feed into this type of software, but it can feed back. And then you can see in an instant, as a board, or as an individual director on a board, what's going on. So you have visibility. So I think that is very important. And probably just on that point, the other one that I'd say, would be to have a a way of managing governance that makes it just straightforward and stress-free. There are packs out there, that - or not not packs - there's platforms and solutions out there. I mean I know a couple, but. Yeah, name them. Oh, okay. Well, the one that we primarily use here is a company called BoardPro [boardpro.com], which is a very easy to use, intuitive, fast and efficient way of managing governance. So you'll get everything from, everything that you need to capture, and, you know, what the minutes are, what you are going to put on the agenda, who's provided the reports to actually drive the decision making for the board. So it can actually happen very succinctly, very quickly. And then it's all captured online. And then, whoever is feeding in, even during a board meeting, notes are taken, loaded up, and by the time you've finished your board [meeting] it's pretty much all there. The minutes and stuff are all there. Yeah. Right. You showed me that software earlier, And so you're ultimately building your agenda in BoardPro. We are looking for sponsors by the way. So feel free, BoardPro, to throw us some coin. Otherwise Diligent [diligent.com], a competitor, they can do the same. So you essentially build your agenda up in the software. You throw your board papers into the agenda items. And then you can very simply push a button and create your board pack. Yeah. Get that out to your directors a couple of weeks in advance, so they can read all of the information in advance, digest it, ask questions of the chair, and so forth. Get further information back. The chair can go to the CEO for clarification. They can then feed information back to the directors, so the directors can go to the board meeting armed and knowledgeable and in a position to make a good decision. And carry out their duties and responsibilities in a legal way. So that they're not exposing themselves to personal liability. Absolutely. Yeah. So in New Zealand, here, that's a very big thing. I imagine it's a big thing offshore. And I think if you follow that kind of practice, what it does is it takes the stress out, it makes the process really fast, but it also gives you visibility on where you're at at any one time. So you can go back to your board documents and you can see it very clearly. It's got the history and stuff is all there, as well. Yeah. Right. And then off to the side you can have your software, and I'll give a shout out to Dacreed, this is what we do. Decreed, by the way, is a tech platform, which is why Dennis is so strong in this technology area. Yeah. So what that does is it, basically it asks the question, in an International Standards Organisation [ISO] sort of way: do you know what your responsibilities are? If you don't know what your responsibilities are, hey, you better know them, because there's liability attached to not knowing them. And then once you get that, what the board wants to know is that it has a capable team that understands what is required. So in a large organisation like the [International] Taekwon-Do Federation, so that'll have a number of member associations, I... Yes. Right. Yes. And so then it would be the Federation setting, whatever, the rules or policies for the members. And then the Federation, to be confident that the members understood what is being asked of them - What their obligations are. - to be a part of that Federation. So that can be fed up very simply. And where there is a gap - so, you know, the ISO thing. There's identifying the gaps and then filling the gaps, and making sure that people actually get that knowledge. The beauty for the people running, say, a federation like the Taekwon-Do one, would be that you can see that in a glance. Yes. So this is all about making life easy. It builds it all back up and says these are the gaps in knowledge of your team. Yeah. I mean, as much as Dennis has said, you know, his understanding is around the New Zealand framework, the ISO, of course, is the International Standards Organisation. So this is a global framework for - Yes, .it is. - for how to run organisations, how to run companies. Yes, absolutely it is And organisations. Great. Yeah. Okay, cool. Thank you very much. So well, I know that you've found yourself, in the past, on a board that doesn't really understand its role. And as you've mentioned before, as a director, you have significant liability. So if you find yourself on a board of directors where the board as a collective doesn't really understand how it's supposed to do its job, you can find yourself in a lot of trouble. So how did you, or how could you, deal with that situation? Yeah. Well, I think that the number one requirement is open and honest communication. It is best, of course, to have that communication from a base of knowledge, understanding, you know, one, what the organisation is trying to achieve. So, hopefully, you've already agreed on that. And then the other one, is are you operating off a common set of values? So, values drive the way in which you make decisions. Not necessarily the decisions themselves. And then when you have... you will have... Well, no. I'm going to phrase that differently. One would hope that you would have, on a diverse board, different opinions about how to proceed. Because, then that's very healthy. Yes. And then the question is, how do you resolve those differences? And then, resolve them, in the technical sense, by capturing them. So what I always recommend is, that open honest communication, from a sense of confidence in what you know that you are required to do. In the sense of, in the definition, I should say, of a director, and a New Zealand company, the New Zealand director is required to act in the best interests of your company. Not of the shareholders. Not of themselves. Yes. So that's a very clear distinction. The other one is that, where you have the advisors to a board, you need to be very careful about how that is managed. So an Advisory Board is not a board. No. Consultants to a board, is not a board. The power lies with the board. What the Board needs to do, is that they need to be able to see the advice. Now, a board may not always take on advice, because they may have a difference of opinion to it. Then again, it's a matter of working through that in a way that is respectful of the legal advice, or whatever sort of advice you've received, and unpack it, and then see whether it aligns with where you want to go. Right. So I think if you get these sort of conflicts, open communication, confidence in what you're wanting to do, working together in concert with values to ultimately meet the purpose of the entity. Of the organisation. Yep. Yes, yes. We haven't talked about, and we won't get into in this conversation, that whole - setting the direction, and having a strategy, and moving forwards. And then, what we're talking about here is, making sure that we're aligning the opinions for how to deliver on that strategy. It is very important to have a strategy! Of course, absolutely! Or else you're not going to get anywhere. So, what's the, as a director - you've been a director on a number of companies over a number of years - what's the best advice you've been given? Not to concede your power. So, I think it is important. So you can be sitting on a, you can be sitting on a board, and there will be differing opinions. You may be in the minority. However, I think it is still healthy, and important, that somebody who is in the minority, to still voice their opinion, in the face of a majority. Now, then, as the board moves forward, and comes to a resolution, and maybe a resolution to, you know, that you don't agree with. Yes. Be respectful of the decision. Of the decision, right. Yeah. And then, when you work through things in that way, with respect, you know, you can have good outcomes. Also, I think that there is a case, you know, and again this comes back to the advice, you know, don't concede the power. So, if you have a continuing belief that you may, in fact, have an opinion that's worthy of note, you can raise it again. Yes. There is a limit on that, of course. But I would say that, you know, you get to a position where you have a healthy discourse. Yes. And then move forward. Yeah. Every opinion is important, because that one individual may have thought of something that no one else has thought of. It brings to mind the old film, "12 Angry Men", where you've got the one juror who keeps relaying this opinion, and eventually turns the tide of the entire decision of the jury. Try to bring in all the information that you need in order to make a decision that's(1) lawful and (2) in alignment with purpose. With the organisation's purpose. Yes. Yeah. Which comes back to what we were talking about before, about the importance of having board papers, and having the information well in advance, so that the directors can understand the issues, ask questions and things, before they're asked to make a decision on them. Absolutely. Well in advance, so they have time to digest it. Yeah. Right. I would generally say you need your board papers at least a week in advance. Right. And anything shorter than that, you don't really have a full opportunity to go through the issues. Absolutely. And as a not-for-profit possibly slightly longer, because the not-for-profits' [directors] will have day jobs, and things, that they'll work these things around. Well, yes, and also larger organisations, like a federation. Where they;re, yes. where the issues can be more complex. Yep. Yeah, absolutely. Well, a final question for you then. With your experience, your wealth of experience, what advice would you give to a new director? I would say understand your duties and responsibilities. because,

you know your mana [Maori: 21:59

authority, influence], your power, lies within you as an individual, and it's very, it's it just makes things very stressful to be operating from a from a perspective of ignorance. So, you know, understand the rules of the jurisdiction that you operate under, and then, you know, and so that's a technical thing. You kind of, just got to put in the hard yards on that. And then the other one would also be, to understand the history of the organisation that you're a director of, because there's a huge amount of, you know, wealth of value in that as well. Yes. And then, when you bring the two together, it's really understanding how they connect. One can't really operate without the other. So my advice would be, you know,(1) if you don't know the history of the organisation, become familiar with it.(2) If you don't know the rules of the jurisdiction, become familiar with those. And then, act out of your own power, in order to be as positive and effective as possible for the organization. Right. And I wonder whether we could add to that, understanding your role as a director. So, you know, understanding the laws and rules of the jurisdiction is part of it, but you also have to understand what your job is, as a director. Oh, yeah, definitely. And actually, one other thing I'd say, that hierarchy, that I was mentioning before, about really the directors who are appointed by the shareholders, they're really sitting at the top of the tree. And they're the ones who do delegate the responsibility. So, you know, just be respectful of your own power there. But don't concede it, in the sense of it flipping around. And this does happen in organisations from time to time. Where, you know, there might be a single really strong shareholder, or a single really strong executive. It might be, whoever. It could be CEO[Chief Executive Officer]. CEO often, because they're a certain sort of personality. But understand your power, and actually deliver on your responsibilities. Right. You can't hand over your obligations to another party. The CEO, for example, or the executive team, or the shareholders, or the members. You can't hand it over to a strong voice and neglect your job. Yeah. Do your job. Yeah. And nor should a director be seeking consensus. You know. You're not - you are looking for a resolution, but you're not necessarily looking for a decision by committee. Right. So there is a distinction between the two. And I think, if you know your mind, so I'd say to a young director starting out just be aware of these things, and how you want to act for the organisation. As you've suggested before, through that communication, that discussion, you end up with a resolution or a decision, that maybe by majority, not unanimous. Yeah. You may be in the minority, disagreeing with the decision. Well, that is the decision you have collectively made as a board. Yeah. Get on with it. And as you've said earlier, you may have to raise an issue again later if it arises. You may have to revisit a decision, - Yeah. - if information changes. But be part of the team. Be part of the team. And one thing would be that, where you're aware of potential harm, because of a breach by board, or by an individual, or a number of individual directors, against the jurisdiction, I think that would be one instance where you where you would raise it again. Because what you're doing is you're trying to protect your team. Your team being the board. Yes. Yeah. And ultimately, you're trying to get yourself out of prison. So if anything comes up that is a breach of your obligations, of course, you have to raise that. And you really have to step down on that. Yeah. And you probably, in some instances, would want to have your decision, your own opinion on that resolution, noted, if it's an exception. Particularly if you feel that it's going to breach local laws. Right. Yeah. Okay. Yeah. Well, thank you very much for your time, Dennis. That's been a great conversation. Oh, no, thank you. Yeah. Very interesting! I look forward to catching up with you again soon, and seeing you, next episode! Cool.