Governance Bites #94: chairs and board members, with Steven Moe

In this episode, Mark Banicevich talks with Steven Moe about chairs and boards. Mark asks Steven to outline the typical board member job description, and then how the role of the chair differs. They discuss the amount of extra work involved in being a chair, additional relationships, and whether additional liability exists. They discuss how the chair interacts with other board members, including inducting new board members, and what happens if the chair is suddenly unavailable. They discuss succession planning for the chair, and the role of the deputy chair. Steven also shares advice for new chairs.
Steven Moe is a Partner of commercial law at Parry Field Lawyers in Christchurch, and an experienced director. Steven qualified as a lawyer in New Zealand, and worked for more than a decade on corporate transactions worth billions of dollars while based in London, Tokyo and Sydney. He has written several legal books, including “Start-ups legal toolkit”, “Social Enterprises in New Zealand: and “Capital raising for founders”. Steven also facilitates governance law on the Company Director Course for the Institute of Directors (IoD). His Seeds Podcast, which he founded in 2017, has almost 400 episodes, interviewing interesting people about their lives. He also hosts the Board Matters podcast for the IoD, now in its third season. 
Steven Moe’s profile on LinkedIn (he is happy to connect with you): https://www.linkedin.com/in/steven-moe-0b3b008a/
Seeds podcast with 430+ interviews www.theseeds.nz
Board Matters podcast https://open.spotify.com/show/6aHNCIYEOwqoghkGlwKruU 
Parry Field Lawyers governance resources: https://www.parryfield.com/advisory/governance/governance-essentials/, including "Chairing AGMs", "How to chair a meeting well"
The board skills matrix: https://www.parryfield.com/board-skills-matrix/
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites, #boardroom, #director, #chair, #chairperson, #boardmember

Transcript

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Hey, kia ora. It's Steven Moe here, and I am a lawyer based down in Christchurch, but working all across the country with a particular focus on governance and helping people get legal structures right. Today, we're going to be thinking about board members and focusing on chairs. Hi, welcome to Governance Bites. My name is Mark Banicevich, and as you just heard, today I have the pleasure again of spending more time with Steven Moe. Steven, thank you very much for your time. I'm looking forward to this because this topic, it's dear to my heart. Okay. Yeah. Great. And I know you're, you're a very experienced director. Not only do you have the Board Matters podcast for The Institute of Directors, you've done the advanced directors course, you have your own podcast, of course, the Seeds Podcast, which has some amazing guests, so I highly recommend that one if you haven't already seen it. But, you know, so you're just so knowledgeable around this topic, so I really appreciate your time and the opportunity to catch up with you. So, thank you very much. No, that's no problem. And what you might not know is that I'm on a number of different boards, but I'm also the chair of some boards. Right. So, I've had, you know, this isn't just going to be theoretical. I've actually had the practical side of what is it like to be chair. Fantastic. So, chairs and board members, let's get into this. To begin with, what's included in the typical board member job description? Yeah, this is a great question. I think it depends on the organisation, but there are some basic things that you would definitely want your board members to have, and this sounds a bit generic, but I would want them to bring a level of curiosity to their position. In other words, they're not just going to take what the CEO [Chief Executive Officer] says as, "Well, that's the truth," like they're going to question. They're going to bring a sense of, "Tell me more. What do you mean by this?" So, that's one important characteristic I'd want to see from board members. I think it's good to have a diversity around the boardroom, and that could be beyond traditional sort of age, ethnicity, background, - Gender. - yeah, gender. Those are the ones that we talk about, but actually, sometimes you won't have a diverse board even though you've ticked those boxes because everybody actually thinks very similarly. So, it's about a diversity of thought, which is really important around the boardroom table. Yeah. And then I guess there needs to be a commitment to the organisation, because ultimately, whatever entity type, you need to be acting in the best interests of that organisation. Right. So, those would be some of the principles. I mean, there's a long list. I just actually developed a board skills matrix, which goes into different types of things that you might want to consider and has columns for each of the board members, so you can rate them, which I think is a helpful tool. People tell me they find it helpful, so I can share with you the link. [See episode description.] Oh, thank you. You know, people can download it and have a look. Yeah, it's a very useful tool. Of course, you also want your board members to be prepared to walk in the board meeting having read and digested the board pack and be ready to discuss it. Yeah. I've had, I think it was a conversation with Dr Peter Crow, who's amazing and talked about the old days of hearing the ripping of the board pack - Right. - when people sat down. These days, of course, all electronic, but the principle stands, right. Yeah. You want to make sure you've read the pack. I've heard of people who seal the papers similarly, you know, so that they can tell if they've been opened or not in the meeting. And these days with board software, as well, the software records whether or not you've been on it. True. And so, there's some good, good data available on those things, too. Yeah. But certainly, the job of a board member is to be prepared when you come in. Yeah. How is the role of the chair different from the role of board members? What are their additional duties? Well, this is a really fascinating area because it's not a different part of the Companies Act [1993]. So, there's duties of directors. So, if you care to look, section 131 to 137, that's the core duties of a director. But you don't get to 138 and go, "Additional duties of chair." Right. In fact, it's not mentioned at all. So, it's another one of these examples where governance has built up sort of a cultural way of operating, which is not actually in the legal flooring of who is a chair and what they are. So, there are no, strictly speaking, from a legal perspective, there is no additional duty if you're a chair. I think it's a really interesting question though, should there be an additional part of the Companies Act? Because we know that chairs are really important. They bring an important role. And the Companies Act is dated 1993, so there, this year actually, they're going to be revising it, or at least looking at it. That's right. So, I've been already starting to prepare some thoughts about what my submission would be about things to change. And this, I haven't decided yet, but this might be one of them. Is like, we think directors are important, chairs are important. Do we actually need to have a part in the Companies Act about the role of the chair? Well, there's actually probably something that could be learned there from the, in my day job, I work a lot with financial advice businesses, and the Financial Markets Conduct Act [2013] has requirements for directors of financial advice providers and for financial advisers themselves. And one of the things they have to do is comply with the code of conduct. And the code of conduct contains standards around maintaining competence, knowledge, and skill. Right. Now, you've got to have the skill to be a director. There's nothing expressly in those duties that you talked about that requires a director to maintain, or to continue to develop, their competence. Yes. And that's probably something that should be there too, right? Yeah. Well, another thing just riffing off of that that I'm going to definitely submit on is, there's 731,000 companies right now. Yes, that is a lot of companies. Yes it is. And I'm pretty sure that most of the directors, because these are SMEs [small and medium enterprises], - Yes. - you know, there's only 1% of 1% that are the Fonteras, the massive ones, the Sparks and all that. I think for memory, 70% of them have no employees. That would, that sounds about right. I don't know the exact number, but the point is, there are a vast quantity of our population who are directors of companies who've never had any training. And so, one of the things I would like to see is that when you're setting up the company, "Welcome to the club. You're fine. Please, we want more companies,"but you have to tick this little box that says that you watched this little video about what it is to be a director." Yes. And at least help people to understand,"What are my duties as a director?" Like, surely with technology, we can do this. Because right now, you and I, we could set up a company within 10 or 15 minutes. Yes. It's that simple. It's so easy, and I don't think we are giving people enough education about, "What does governance actually mean?" So, that's going to be one of the things I submit on. Anyone is welcome to join me because you see problems in governance, and often it's like, "This was my first board position." Yes. You know, there's this assumption, if you join a board, you'll download everything you need to know, like the matrix, you know, like, "I need to, how do I fly this helicopter?""How do I be a board member?""I'm now a director, therefore I know what my duties there and how to do my job." Yeah, Yeah. Yes. I mean, you're doing a great job of getting resources out on governance, so I applaud you. This is an amazing initiative. Thank you. But what about those 731,000 people who maybe aren't clicking? They're welcome to click, right. Yeah. But you know, they may not come across it. So, let's just elevate the discussion. Absolutely. One of my first bosses, a man named Kevin McCaffrey, who's a former host that I've had on, he's now a governance consultant and does, you know. He's great, yeah. He's up in Auckland, right. Yes. Yeah, I know him, yeah. Kevin's fantastic. And he was, one of the things first things he does with a room full of directors or potential directors is he says, "To whom do you owe your first, your primary duty of care?" Right. And most people in the room will not know. It's very uncommon for someone to say you owe your duty to the company. Yeah. You'll get the shareholders, the clients, - Sure. - all these various answers. Yeah. So, you're right. I think you should at least have read those seven duties before you can become a director. I think so, yeah. We'll see. I have lots of ideas, but not all of them get adopted for some reason. All I can do is put out the information, and then, you know. Yeah. Well, maybe we need a groundswell. Maybe we need to share those ideas broadly. Yeah. And get a conversation going. I'm writing an article, I'm writing an article right now that hopefully will be published in a journal, like an academic journal, about what I think needs to change for the Companies Act. I don't know if it'll be 2026, but. Yes. Yeah, yeah. Certainly. Another conversation that I have with was with Dr Denis Mowbray about professionalism and how, you know, people will say they're a professional director, but directors aren't actually a profession. There's no, you know, requirements around, for example, maintaining competence, knowledge, and skill, which should be a minimum requirement for a professional. Yeah, very true. So true. Yeah. But back to your original point, there is no specific part in the Companies Act about what a chair needs to do, but we have built up an understanding, which, happy to share. Please, so what, what are those additional duties? Sorry, we got sidetracked, but it's been a great conversation. No, I like it. So, I think quite often we focus on IQ [intelligence quotient] when it comes to this type of discussion. Like, there's some academic things about how you operate as a board chair, but what we deemphasise is the EQ [emotional quotient], and actually, the most essential part of being a really good chair is the emotional intelligence to be able to have a room full of people and be able to lay out, "What are we talking about?"How are we doing it?" Perhaps speaking last, you know, like listening to everybody, reading the room, the dynamics, you know, "Thank you, that's been a wonderful seven-minute exposition"of that particular topic. What do you think, Dennis? You know, like you haven't spoken yet."I want to make sure we hear your voice." So, there's a lot of EQ. So, that's the first thing. The other thing is that people forget that the chair is the liaison between the management and the governance. So, whether you like it or not, if something goes wrong in the company, guess who's getting the phone call. It's the chair of the board. So, that's that side, the management side. And how about if there's a director with an issue? Guess who gets the call. It's the chair. So, you're having to play this balancing role between supporting the CEO, supporting management, what's happening."Oh, there's this thing called COVID, what are we going to do?" You know, and also dealing with the other board members and making sure that everyone's on track. Yes. You know. So there's a lot more to it. And my, hopefully a takeaway from this would be, if you're on a board and you have a chair, get your phone out right now, text them and say, "Thank you." Because it ends up being a thankless task. Nobody remembers that there's a lot more involved. So, please tell your chairs how amazing they are and please let them know, because it very often you don't get anybody saying, "Thank you." As a board member, you'll often be turning up to a board meeting, maybe once a month, maybe once a quarter,- Yeah. - prepared, reading your board pack and doing your background reading. But the chair is also having weekly conversations or fortnightly conversations with the CEO, helping to prepare the agenda, working with the management team, a whole lot of work outside the board meeting that they do. Yeah. Rather than just sitting in that boardroom. That's right. So, really what we're talking about is relationships and the relationships that the chair needs to have. Yes. So, it's relationships with the other board members. It's also relationships with the CEO and potentially with other management, as well. So, it's a extra layer that you need to be thinking about. So, as a rough estimate, having, as someone who's done board roles and chair roles, approximately what's the ratio of time that a chair would spend versus a board member? More than you think. I would say like, because I'm the chair of a company called Community Finance, so we've raised more than $165 million for social housing in the last four years. Wow! We're the largest impact investing group of that kind. The only thing that's bigger is New Zealand Green Investment Finance, which is government backed. So, I talk with James, the CEO, very regularly, in a really positive, constructive way. We know if he calls and I'm on a call, I'll call him back, or, you know, vice versa. But it's definitely more time and effort thinking about things like,"We're going to have a strategy day. What should our focus be? We're going to, what's the agenda"for the next meeting? Should we get an external speaker in? Oh, there's an issue over here"with that person. The board composition, we probably need different representation from this group"that we're trying to serve." So, I don't have an exact number, but I can tell you that it's a big step up from being a board member to being the chair of a board. Yeah, I would, I would estimate that even when things are running smoothly, it's at least twice, possibly three times as much work as being a board member. Yes. And when something serious happens, it would explode, more than that. And elevate. Yeah. Yeah. I think that's probably fair. What relationships does the chair have that differ from the board member relationships? You talked about that a little bit earlier, but can you elaborate on those relationships? Yeah, I mean, I think it comes back to this governance level in terms of the other board members. And so, the key thing here is that I think the chair should be reaching out to the other board members in between meetings. So, it's not just a case of,"We have our next board meeting in a month's time." They should be, yeah, they should be, if they can, you know, "What do you think of this upcoming issue?" Or you having those conversations. So, the relationship is an under-focused part of governance. Yes. I think we get into kind of a Western mindset in some ways of, "Show me the financials. Show me the figures." But actually, to have a really good board, you need to have solid relationships, and that can only come with time, ideally in person rather than [Microsoft] Teams and Zoom, you know, having, "We're going to have our meeting at 10:00. Let's get together for an hour before,"and we'll just have breakfast." Or whatever, you know. Yeah. "We'll have lunch," or "We'll have dinner," or "We'll go and do something. We'll go visit the site and have an outing unrelated to the board meeting." So, you're going to get to know people better. So, that's the governance side. And then the management side, like, "How are you? You know, CEO, how are you actually doing?" Like just, "Let's have a discussion." Yes."Are you managing? Are you coping?" Like, "There's a lot on your plate. Is there anything I can do to help you? Can we get you coaching?"Can we, you know, work with you? So, make sure that you're operating at the highest level." Yeah. And then often, as well, in the media, front person is either the chair or the CEO as well, right? So, there's that element of it as well. That's true. The stakeholder management, too. Yep, yep. Who does the media want to talk to? It's probably going to be the CEO or the chair. Yeah. So you, I think you probably answered this a little bit when you talked before about the lack of difference in the Companies Act, but I think it's worthwhile asking specifically, does the role of the chair carry any additional liability? Well, not strictly speaking, because there isn't an extra section that says,"Oh, by the way, chair, you are responsible," you know, "You have double the liability," or something. From a practical perspective, I think a judge would, would probably look at it and go,"You were the chair. You should have known ABC," or something like that. But let's make it really real. Mainzeal [Property and Construction Limited] has been in the news for a decade or more. So, Jenny Shipley, ex-prime minister, was held liable alongside other directors, but she was the chair, but she was not held liable for more than the other directors. So, I think they were about $6 million [$6.6m] or so each that, so there was $36 million [$39.8m plus interest] accredited of the about $110, $120 million in the bankruptcy [$110m to unsecured creditors],$36 million towards the directors, and $18 million of it was actually for Richard Yan. - Yes. - who was the shareholder representative director. So, he did have additional liability. Yes. But the other three directors did not have between them, I think it was $6 million [each]. So, Jenny Shipley, as the chair, didn't owe$7 million or $8 million or something. No. So, I think that's probably the answer. But having said that, I'm pretty sure the judge would look at it and go,"Well, you know, you were trading recklessly. You were the chair. You got lots of information," and maybe that would become part of the factors. So, it's possible that other members of the board may be able to bring out evidence that they didn't know or shouldn't have known or ought not to have known. But the chair is less likely to have those kind of defences available, because they're so seriously involved. I think that's a good way to summarise it. Yeah, I think, you know, if you're the chair, where ultimately, where does the buck stop? It's got to be, the chair is meant to know what's going on. The other thing just to finish that little story is in Mainzeal, Sir Paul Collins was also a director. Guess how much liability he had. Zero. He was not held liable. And the reason that the judge said was that he joined the board relatively late, and he continued to raise issues with how the company was being run. So, the judge actually said, you know, of all the directors, you, so Richard Yan, you're liable for $18 million, those three directors for $6 million each, this director, you are not liable. So, that's really interesting. That's actually probably the most positive news story from that case because the directors were liable, but not that one who asked good questions, who raised concerns, who made his views known, and it was recorded in the minutes. So, there's lots of dynamics there, but it's worth thinking about. That's a really important point to raise because if you are approached to become a director of a company that is in trouble, if that person had been found liable, then directors would be saying,"No, I don't want a bar of that. It's too far gone." Yep. Whereas to have the defence that,"I have been asking the questions," the key thing that that person would want to do is ensure everything is noted well in the minutes, so that it can work in their favour if it's there. So in some ways, I always think it's, you know, Mainzeal isn't a really salutary case about liability, but there's also this bright light of a director who asked good questions, - Yes. - documented the results, and was held not to be liable. Yeah, that's really interesting. You mentioned before about the chair's role in having conversations with each board member between board meetings and making sure the relationships are strong. Is there anything else you'd like to say about the chair's role in board relationships in particular, or additionally, what about inducting new board members? I'm really enjoying this conversation because you're getting right to the heart of matters. So, this is one that I have personally, because on a board that I'm on, there's a new person joining, and we're going through this right now, like, how do we induct? Well, how do we tell them about the context? How do we provide them with information about the company's constitution? Here's our policies, board charters, AML [anti-money laundering], all of the things that you need to know. In a way that isn't, "Here's 3,000 pages of reading." That's it. Yeah, exactly. And also the accounts, you know, like, "Let's look at last year's accounts. Here's where we're at. Here's what's happening."Here's the competitors. Here's the risk." So, I think this, to answer your question, I think the board does have, the chair of the board does have a responsibility to educate new people or at least ensure that they know what they're getting into. Because too often, people, you know, people join the board and it's like, "Oh, and by the way, George over here has joined. Good to see you, George. Thanks for joining."All right, agenda item number one." And it's like, yeah, but you didn't, you haven't empowered them to be positive contributors. Yeah, I've been there, unfortunately. Yeah, yeah. Yes. Well, you and me both. I think we've both seen it. So, - Yeah. - my plea to anybody watching is think about your induction packs. Think about how you train people as they join. How do you, maybe you have a buddy system, or something? Like, there's another board member who's been there for four years, and you know, you can ask questions. There's lots of strategies, but at least proactively think about it. Yes, yeah. I like what you were saying about talking through the financials rather than just giving them the financials, because you can then say,"These are the issues we were grappling with at the time. This is why we're having trouble with that budget," and so forth. Yeah, that's right. Pull those issues out. And it removes the assumption that they know about the entity without having been told. Because let's be honest, not everyone is an accountant. I'm not an accountant. I don't want to be an accountant. I like it if somebody says, "Look, here's the financials."This happened here, so that's why it's recorded as a liability. And this over here, the asset, well, that is this."And then here's the profit, and here's how we arrived there." You know, like, it's not for you if you know the business, it's like,"Yeah, it's obvious. It's just the numbers." But don't make the assumption that someone new is just going to pick it up. The other thing that can, is worthwhile talking through, when you're talking about the financials, is what the key levers are in the industry. You know, liquidity is different in different industries. The, you know, the finance level is very different in different industries. Yeah. The capitalisation. So, you know, talking them through what those standard levels are, what the levers are that can be pulled to play with revenue and reduce costs and so forth. Yep. So, yeah, there's a lot of important information that can be brought through in that introduction. Exactly. And the new board member might have 10 years of experience on a retail board, you know, like selling stuff to the public. Yes. But they've just joined a board which is about social housing or, you know, something completely different. And it's like, all that knowledge is good and helpful and we need it, but let me help you translate it into this new context. Environment. Which ultimately is more interesting for the directors, because then they get diverse ranges of things they're learning about, and also able to bring what they know, like the retail person can then bring that knowledge to the public housing sector and go, - Yes. -"Oh, this is interesting, because when I was in retail, you know, we did it this way." And, "Oh, let's learn from that. Let's do it differently here." Yeah, very much. Yeah. With so much riding on the chair, what happens if the chair is suddenly unavailable? Well, my philosophy here is that boards shouldn't just have a chair. They should have a deputy chair. The reason is, for that reason actually, that inevitably there's going to be a sickness, there's going to be a wedding, you know, like there's going to be a planned holiday that the chair just, they're not there. So, my philosophy would be, have a deputy chair who can step into their shoes. And here's the best part of this, succession planning. Don't just have a chair who's there for the next two decades. If you are thinking as a board together, if you had a deputy chair, hopefully that person will one day step into the chair's shoes, and then there'll be a new deputy, and then at some point, they will step in. So, it's not having to have the whole burden yourself that way, as well. So, how much is that deputy chair involved in the regular CEO meetings, the outside of board meeting catch-ups with the other directors, all those other activities that the chair does? That's a great question. I guess it's going to depend on the context, the size of the organisation, and like how often these things are happening. But I would say, if you're wanting to train someone up, because let's be honest, one of the primary functions of a board member should be that you're finding someone to succeed you. Like, you're doing a disservice to an organisation if you will be there forever, because none of us will be here forever. So, if you have that mindset of, "I want to train this person"so that they can step into my shoes, allowing me to serve another organisation,"because I've been able to move on," you know, like, I think that would be the most positive. So, I guess involve them as much as is reasonable. I don't think that they need to join every call with the CEO. Like, I think there's still a role for the chair chair to play, rather than saying, you know, because everyone's busy, and trying to get three people together is harder than two. It's also something that the chair role being so much bigger than a board director role, you wouldn't throw them in all at once, would you? You just kind of bring them, say, "Okay, let's introduce you to this part of my role." Yep. And then when they get the head around that,"Let's introduce you to the next part of my role." So, you can do it in a stepped fashion. Yeah, that might be a way. And, and you might have, like I actually encourage having terms. So, this is a four- year term, or three-year term, or whatever. Absolutely. And that way you could over, you know, the first year we're going to concentrate on this aspect, and the second year on this aspect, and then by the third year or the fourth year, it's natural. Yes. You know, like,"Of course they're the chair. They know everything they need to know." It's serving the organisation if you can do that. I know this is difficult, but that would be ideal. Absolutely. So what advice would you give to a new chair? To a new chair? Well, I would be doing as much training as possible, and getting as many resources as possible about chairing the board. There's actually quite a lot out there. Like, I've written a guide which is called, "Chairing the AGM," and I've written another one on chairing the board[see episode description]. So there are resources that we can give you the links. Yeah, that'd be great. And, you know, people can access this information. I would be, if you're the new chair I would be talking to the previous chair, if there wasn't some sort of a formal induction. I'd be wanting to know, you know, what are the things that you wish that you'd known. But quite a lot of it will be relevant whatever the sector, whatever the industry. The EQ side. Soft skills of listening, you know, soft skills of delegating. These are things that would be applicable no matter what. Yes. Well, Steven, thank you again very much for your time. It's great to draw some of that extensive knowledge from your head. Put it out there in the ether. So, I really appreciate your time. I look forward to catching up again soon. And see you next episode. Sounds great, thank you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back, and please like, subscribe, and share the videos and podcasts.