Governance Bites #7: governance and management, featuring Tony Dench.

Tony Dench is a director on a porfolio of for-profit and not-for-profit (or "for purpose") boards. He was an executive manager at one of NZ's major banks, before a role as Chief Executive Officer of a large financial advice aggregator. 
Mark Banicevich asks Tony about the relationship between the Chief Executive Officer and the Chair of the Board, management reporting, and how governance differs from management. He also asks about differences between for-profit and for-purpose governance, and international differences in governance.
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Transcript

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Hi. Welcome to "Governance Bites". I'm Mark Banicevich, and it's my pleasure today to have Tony Dench. Tony was a senior executive in one of New Zealand's major banks. Then he was the CEO of a major financial advice aggregator in New Zealand. and now he has a portfolio of board roles throughout New Zealand. So welcome, Tony! It's great to have a conversation with you! Thank you, Mark, it's good to be here. Awesome. My questions are actually around that kind of interaction between the CEO and the board. So my starting question for you is, how does the board or the chair interact with a CEO in a good relationship? How does that kind of work? It's a critical relationship. It's really, really important that that works really well. So CEO's job to run the business on a day-to-day basis, and get on with making sure that things happen. Chair role, very different. So chair role, kind of the big picture, and set the direction, set the strategy. But work closely with the CEO. So very much around a guardianship type of notion for the shareholders to make sure that the CEO, and the leadership team, and management

are getting the stuff done. So those two working together: 1:14

absolutely critical, core relationship. So how frequently is a CEO, or as a chair, because now you've done both sides of that, how frequently would you converse between CEO and chair, and what sort of things would you be discussing in your out-of-board conversations? Yeah, so out of the board cycle, I would separately catch up with the CEO once a week. And that might be virtual or it might be face-to-face. Face-to-face is always better. And an informal sense. So a check in. What's happening? What's going on? Is everything on track? How can I help? So that that makes a difference to the CEO. CEO feels supported and heard. But it also gives me, as the chair, a heads up on anything that might be rumbling, anything that might be coming down, ahead of the board meeting. So on a weekly basis a catch up. Often a little bit of a download. Often quite operational. But that's okay in that sense, because it keeps the operational stuff out of the formal board meetings. But that crucial relationship, got to be weekly. Right, so there's a really tight relationship between a good CEO and a good chair. Regularly discussing what's happening. The chair almost mentoring, in many ways, the CEO, and providing help and guidance where necessary. And keeping the operational stuff out of the board meetings. So the rest of the board kind of assembles for the board meetings reads the board packs, and doesn't have so much personal interaction with the CEO? That's kind of the chair's role? I think it is more of the chair's role, but every director should feel perfectly entitled to work the whole way through the organisation, you know, particularly director to the CEO. I think it's very important that a director feels that they can go and talk to the business rather than wait for the board meetings, and can be involved. So there's a freer sort of "noses in, but hands out". In other words, be nosy about the business, be involved and interested in the business, but don't try and get alongside management and do the job for them. So noses in hands out, I think, is a good way to think about it. Thank you. So the next follow-up question, I think, is around the structure of the board itself. Because there's a chair, you know, you're leading this team. How do you get involved in the selection of other board members? And what sort of skills you're looking for? And the use of the skills matrix? And so forth. Can you talk a bit about that process? Team is a great way to think about it, because it is a team. and different people will have different hard skills, but also soft skills. So the culture around the board table is really important. Having the right kind of skills around the table is great. So the finance, the legals, and potentially technical skills, if it's a particular sector. But all of those people coming together and forming a collective team makes the world of difference. So typically the shareholders will select the board, and they may they use a selection committee or a subcommittee, or even an external provider, to select the board members. The cultural fit of those people around the table is critical. Much more so than the skills they bring. The skills will be more available, and some of it really fits neatly at the table. And it's a balance. It's a balance between someone who will have maybe an alternative view. It's a diversity of thinking around the table. As well as someone who will get along with everyone else around the table. So disagreeing without being disagreeable. Right, right, yes. And over time there's a risk that the team becomes a little bit more aligned in their thinking, and you get a little bit more group think, so how does a good board avoid stagnation of thinking? I've seen some boards, and some of the boards I've been on, ask someone to take a deliberately contrarian stance, to generate a bit of discussion around the table, and see how things develop from there. But I think if you have the right people, and the right team dynamic, and if the chair creates the space in the room for people to disagree and be heard, then that will generate the right kind of discussion around the table, and make sure that there are enough voices heard. Some people are by nature expressive, and will jump into the conversation, and others will think and sit back, and it's a chair's job to draw some of that thinking out if someone's been quiet on the corner. To bring that conversation into the table, and make sure those are heard. Right, of course. How important then is the information given to the board? What depth of information do you need in your board pack, and the board reports, and so forth? And what kind of information do you expect? The timeliness, the variety of thinking in those board papers? What do you expect as a chair, and a board member? Such an art to putting a board pack together. It's got to have all of the information the board members need, without having all of the information that would make it operational. I have seen board packs that run to 120 pages, 150 pages. And a huge amount of work to get ready for a board meeting on that basis. To my mind, that's too much. If a CEO is doing a good job, should be bringing the salient issues to the board for consideration. The risks that go with that. The board, by its part in each meeting, should be drawing out the action points for that as well. And those informal meetings that a chair would have with the CEO - we'll bring some of those along as well. So that balance between having enough in a board pack to allow the board members to make the decisions, without kind of overloading, I think, is a difficult balance to strike. But a really, really important one. And it's the board members obligation to take the position seriously, and to prepare well for a board meeting. so if there is a chunky board pack, it's as it's as simple as making sure they're prepared. You kind of want as a board member, the information to be as concise as possible, but to give a balanced view of the situation and the recommendation of why it's been led to, so you can have a considered view. And also be comfortable that those that have prepared the information have considered all the variables as well. Again the chair has the role to make sure that the board members have read the papers. Very crucial. Right, okay. So to take a step back then, what exactly is the difference between governance and management? I think the management is the day-to-day piece. Management is getting stuff done. Management and leadership. And that can involve setting the budgets, and setting the goals, and working with the board on that piece. The board is very much the big picture. So setting the purpose. The shareholders will have set the company up for a particular reason, so establishing that purpose, and making sure there's a long-term strategy that's going to deliver that. That is firmly in the wheel house of the board. And then the strategy that's in place, delivering that strategy is in the wheel house of management. There will be crossover, inevitably. There always is. And that probably falls around the setting of annual budgets, and the goals, the short-term sprints. And they'll often be done in collaboration between the board and management. And there'll be crossover there. There may even be a bit of debate there when you're setting annual budgets. Yeah, right, of course, of course. In your experience, the setting of the strategy itself, is that something that the board does in isolation? Something that the management team kind of puts together a plan and suggests it to the board? Is it something that the board does together with management? What have you experienced in that space? My view, very much, is that strategy should be the domain of the board, albeit heavily informed by the people that are in the business and running it on a day-to-day basis. But strategy to my mindset sits very centrally with the board. And delivering that strategy for the stakeholders and for the shareholders. And what I've seen is maybe a little bit different to that. And very often it'll be the senior leadership team and the CEO that will propose a strategy to the board, that the board will think about and often approve or amend. My preference would be to see the board taking a much stronger role in setting strategy, setting the culture that'll deliver that strategy, and make sure that ultimately the returns, and the delivery of the purpose, is going to be there for the shareholders and the stakeholders. Okay, thank you. Now you are the chair of a good not-for-profit board - the ones that we do for our passion, as well as a number for profit boards. What is the difference between what a board of directors does in a not-for-profit, versus for profit? I like to think of, I like to call it, rather than "not-for-profit", I like to call it "for-purpose". And I think that's probably the best way to think about it. The not-for-profit sector is there for a purpose. They're there rather than to make money, and to make a return for the shareholders, they're there to deliver what they were set up to do. And that for-purpose, I think kind of derives how the board thinks. It drives the management leader, and ultimately it drives how they make all of their decisions. So every company is for a purpose, and just some of them are, the purpose is to make to make profit. So there's a balance. Again, a balance between, if something in a commercial organisation is being done that makes a good return, but perhaps isn't deeply aligned with the strategy and the purpose, they can probably do that for a short period of time. And the shareholder will be happy. In a for-purpose organisation, if the organisation starts to do things that drift away from its core central purpose, it's reason for being, I think then board and indeed shareholders and stakeholders will draw them back to that purpose very, very quickly. So there's a question of balance. Of course the for-purpose companies have to use their resources well, but I think often they can trade making sure they deliver purpose against an efficient use of the resources in the short term, so that they make sure they're doing what they're there to do. So "for-purpose", I think, works. Right. Does the discipline of governance change, or is it kind of the same thing applied in a different way? I think it's exactly the same. I think it's exactly the same. And of course there are legal obligations that sit there even in a for-purpose organisation. You've got to make sure that the financial rigor is there, and that the resources are looked after. So that fundamentally you don't run out of resources. So all of that sits within the legislative framework. There's really very little difference, except, I think, in a for-purpose company, that purpose sits front and centre. And in a commercial entity, perhaps the purpose sits a half step back. With profit they make the ultimate goal, the return for the shareholders. Okay. Now you're not from around here. So is your experience of governance overseas the same? Is the discipline of governance, is it the same across the world? Or is New Zealand kind of this outlier, where we do things a different way? I think globally the principles are well-established, and pretty much identical. And certainly in the western world. So I think what does happen though, is you will often see a slightly different culture. And it is the board's role to set the culture of the organisation, so you will see different cultural attitudes and cultural approaches around the world. But the fundamentals of governance, and management, and how a company is directed, really are the same the world over. It's a guardianship role. It's a stewardship role, to look after the assets in your business for the shareholders and the stakeholders, and make sure that strategy, that purpose, is delivered. Right. Okay. That makes a lot of sense. So the challenge for an international organisation would be, really you know, the discipline of governance will be the same, but the mix of cultures will be a very interesting challenge to manage. Well, Tony, thank you! Thank you very much for your time. I really appreciate it. It's been a great conversation. I'll look forward to catching up again soon. And thank you very much everyone. I'll see you next episode.