Governance Bites #69: board charters, with Angus Ogilvie

In this episode, I talk to Angus Ogilvie about board charters. I ask what they are, and their purpose. Angus outlines their contents. I ask about how an entity can write a board charter, who writes it, and how it is implemented. We discuss how they influence board meetings, and how they are used in director induction. We also discuss reviews and breaches. Angus also shares some advice for all directors. 
Angus Ogilvie is Deputy President and a Chartered Fellow of the Chartered Governance Institute of New Zealand. He is also a Fellow of CPA Australia (a Certified Practising Accountant), a full member of the International Fiscal Association, a Member of the Institute of Directors, and a Chartered Management Accountant (Chartered Institute of Management Accountants). With his company, Generate Accounting, he and his team provide strategic planning, accounting services, and tax advice to directors of growth-oriented companies and for-purpose organisations.
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites, #boardroom , #cgi, #charteredgovernanceinstitute, #cginz, #boardcharter

Transcript

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Well, Mark, pleasure to be with you. Angus Ogilvie is my name, as you know, and I’m an accountant in practice. I’m also Deputy Chair of the Chartered Governance Institute of New Zealand, so I have a real interest in governance and in the education of governance professionals. So, delighted to be with you here today. Thank you, Angus. The conversation we’d like to talk about this time is around board charters. Hi, I’m Mark Banicevich. Welcome to Governance Bites. As you just heard, today I have the opportunity to spend some more time with Angus Ogilvie. Angus, thank you again very much for your time. Pleasure. The topic du jour is on board charters, a very specific part of governance that, as you mentioned just before we got on camera, a lot of boards don’t have. So, let me start with the question: what is a board charter and what is its purpose? Well, it sounds like a pretty daunting sort of a document, a board charter, doesn’t it? Really, it’s a roadmap for a board member, and it’s vitally important, I believe, in terms of orientation of a new director or a member of a board. And what it does, really, is it lays out what the board’s roles and responsibilities are, what the board members’ roles and responsibilities are, and a whole lot of ancillary information around the administration of the board — how often they can expect to meet, subcommittees of the board, et cetera. So, it forms a very, very important part of the initiation of new board members. Right, okay. Thank you. You mentioned there some of the contents of the board charter. Can I ask you to broaden them? What does the board charter contain? Well, first of all, it should give a bit of an insight in terms of the organisation. That’s quite important. And the role of the board in that organisation — how board members are appointed, how long they serve, and whether they are in a position to be reappointed. So, a whole lot of administrative-type information, as well. I think it’s very important that a charter sets out the responsibilities of board members, so that that’s stated overtly, in a document, that people understand what they’re taking on by becoming a board member or director. And also some of that structure of that board, as well. So, if there are subcommittees. For instance, the Finance, Audit, and Risk Committee, Appointments Committee perhaps (which might be involved in selecting a new CEO [Chief Executive Officer] or a new director of the board) — any number of subcommittees that the board may have. So really, it’s both a document that informs about the organisation, informs about the role of the board, and is a roadmap for how the board operates. Right. How then does an entity — and we’ve talked over the course of our conversations, right from for-purpose organisations through to listed companies, small organisations through to large — how does an entity write its board charter, and who writes it? Well, that’s often a job that falls to a Chartered Secretary to do. But having said that, it’s certainly the board’s role to review the document and to approve it. So, that’s an opportunity to amend, to add detail, perhaps take detail out. But it's ultimately the board’s role to adopt the document. But typically, a chartered secretary would prepare a charter. But having said that, you don’t necessarily need a chartered secretary to do that, and there are many examples of charters that are freely available on the internet. Most professional boards will actually publish their charters, so it might give an observer real insight in terms of what they would include in theirs. Right, so you could very much, these days, start with a template, or an example, and then frame a board charter from a starting point, rather than writing from scratch. That’s right. So, a bit of judicious cyber-stalking, Mark! Right. Now, if a company or an entity of some other type first establishes its charter and adopts it, how does it go about implementing it? Well, of course, it’s adopted by the board, and it’s important that it’s a living document, so it’s referred back to all the time. It might actually be part of the monthly board pack that goes out to individuals so they can refer back to it. And it might also, I alluded to the fact that a charter might also include a roadmap, so there may be, for instance, a calendar-style approach to when various activities, when the board turns its mind to various activities. There might be, for instance, an annual focus on reviewing strategy (although I would argue that that should actually be an agenda item for every board meeting). But a specific focus on strategy. There may be certain times of the year when you review various policies — both board policies and organisational policies, et cetera. So that can be set out in the charter, too. So, that provides the roadmap. And of course, from there, the agenda for those meetings can be prepared. Right. So there's a lot of, it works well together with a work plan,- Correct. - in that space. Right. You mentioned that it may be available in the board pack for each meeting. How does the board charter influence board meetings? Well, the board meeting itself, I think, is informed by the charter in terms of what the responsibility is of the individual board members. It may help to ensure that the discussion is slightly more focused. You know, board meetings can go on for a long time, now. The days of an hour-long board meeting are long gone. They can even go over several days for large organisations. But it does help board members and the chair focus in on the core responsibilities of the director. And more importantly, perhaps, where the board stops and where the executive takes over, in terms of perhaps, implementation of policy, et cetera. So, I think it aids in focusing meetings. Right. And by setting boundaries for what the board are going to cover, and by setting expectations for directors, - Yes. - that would then create a board meeting that essentially is going to become more efficient, and more effective? Yes. Right. Absolutely. If a new director joins the board, how should their onboarding involve the charter? How should the charter be involved in that process? Well, I would hope that the chair, or failing that, the chartered secretary or secretary of the board, would spend time inducting that person, and the charter forms part of that induction. Actually, probably if you think of a number of documents that you might have in a board setting, they might all cascade from that charter. So, you start with a charter as the foundational document of the board, and then you might cover various board policies, which might be in a myriad of different areas such as compliance focus, it might be on remuneration, appointment of board members. All sorts of policies that a board may deal with. As well as then, organisational policies, as well. I think a thorough induction means, both providing a new board member with, I suppose, a pack of those documents. But also finding time to sit with them and explain the organisational layout, the culture of the organisation, of course, too. (Which may not be in the charter itself. That may actually be a separate document.) All vital for somebody coming on board. So, you would hope that your induction wouldn’t just be, “Here’s a bunch of papers, read this.” But involve a little bit of communication and things, as well. Talking them through what the content is, and so forth. Well actually, in my experience, having served on a number of boards in my career, sometimes even just getting access to those documents would be a massive improvement! It’s amazing how many organisations have no induction. Yes. So, you turn up, and your first experience is that initial board meeting and your board pack. Another focus of induction should also be to explain all the acronyms that get talked about at board meetings, so that people are very clear about what’s going on, and what’s meant by everything. Yeah, absolutely. How frequently should the board charter be reviewed and updated? I would have thought it’s an annual exercise. It doesn’t need to be updated annually, but it should be reviewed annually to make sure it’s fit for purpose. It may be that the board has decided to add another subcommittee of the board, for argument’s sake, that wasn’t in the charter when it was pulled together, so that may need an iteration of that document. But on other occasions, it may be a simple review, and it’s fit for purpose, no changes required. And is that a role that would be performed by the entire board, or the chair and the company secretary, or the chair? I think it would be done by the entire board. Yes. Right, okay. What I mean by that is, the board owns the charter. Yes. So it’s got to work for the board and have sufficient information in there so that directors are clear about their responsibilities, and what is expected of them in performing their duties. Okay. Do they tend to have enforcement and sanction content, as well? What happens if a director breaches the charter? Well, that would probably be the subject of a conversation at a board meeting, I would have thought. And that may very well be something the chair would handle outside of a board meeting, but that would be a most unusual situation. Right. Directors tend to be fairly professional people that will do their job. One would hope so. Right, okay. One final question for you, off the topic a little bit, actually. Given, as you just mentioned, your extensive experience on boards, generally, what advice would you give to all directors? All directors. One thing that I would say to directors is, if you don’t have a system of board review, in terms of understanding whether the board has met the requirements of the charter, whether the meeting was conducted in a satisfactory fashion, whether it actually had some decisions that could be acted upon, et cetera. I think that’s something that every board should have in as part of their sitting agenda. So that there is the opportunity to review the way that the board is run, and there should be some board-only time. So if you have- and that would typically be at the end of the meeting - so you would perhaps appoint a meeting reviewer for that board. Opportunity to discuss, you know, for you individually as a director, is this working? Is there another way of doing this? But also to reflect on the input of people who have perhaps presented to the board during the time. And also, if there’s a chief executive or something, or a senior executive, a reflection on their performance in their absence. So, I think it’s very important that boards get fulsome advice, and directors get fulsome advice. At the same time, they need to remove themselves from that for a period of reflection. Okay, thank you. And one of the things that I find particularly interesting about this topic of governance is that there is value for all organisations in having governance, and there are 605,000-odd enterprises in New Zealand. And as I mentioned before, a little under 3,000 of them have over 100 employees. You’d kind of hope that, at the larger end, you’d have competent directors, knowledgeable directors, experienced directors. But at the other end, with 74% of companies having no employees, there's probably a large number of entities that don’t really perform any governance at all. They might put their return into the Companies Office. And then you’ll get businesses with maybe 5 to 10 staff, that are in that, maybe they're growing trajectory, or maybe in a fairly static place, that probably, again, have very little in the way of governance in place. And I think there’s tremendous value in those organisations being nudged towards learning something about governance. And their businesses would be stronger for doing so. So, yes, an entity like the Chartered Governance Institute, where you can get an understanding of what governance is, and what’s involved in the process, and how that can benefit your organisation would be tremendously valuable. I think so. Yeah. I think you’re absolutely right. And you’re right, there are a large number of businesses who don’t have any governance principles in the way that they operate. But having said that, I always think that, you know, you look at these very large, successful organisations, well, they were once quite small. But if we can apply some of the lessons that those large organisations have as part of business as usual to smaller growth organisations, then that could often make that organisation grow faster. Absolutely. And to have some sort of independent advice by way of governance, I think, is essential. Whether that’s a formal board, or even an advisory board. Absolutely essential for growth organisations. Right. Well, Angus, thank you very much again for your time. It’s been a great conversation. I'll look forward to catching up with you again soon, hopefully. Excellent. And see you next episode. Lovely.