Governance Bites #99: future directors, with Heather Roy

In this episode, Mark Banicevich talks to Heather Roy about future directors. Heather defines the topic, outlines the purpose of future director programmes, and shares her experience with future directors. They discuss the target audience for future directors, recruitment, training and mentoring. Mark asks about their legal position (particularly around liability), and transitioning future directors into formal board roles. Heather also shares advice for new directors. 
Heather Roy is a professional director and business consultant through her company Torquepoint Ltd (https://torquepoint.co.nz/). Her current board roles include independent chair of Financial Advice NZ and the Security and Reliability Council (an advisory body to the Electricity Authority), and a director of Port Marlborough. Former chair or director roles include the Utilities Disputes, Marlborough Chamber of Commerce, Advertising Standards Authority, Foxplan and Medicines New Zealand. Heather is a former NZ Minister of Consumer Affairs, Associate Minister of Defence and Associate Minister of Education, and she has been an Officer in the NZ Army Reserves, a physiotherapist and a medical researcher. 
#governance, #leadership, #corporategovernance, #boardcraft, #director, #decisionmaking, #makingadifference, #ceo, #governancebites, #futuredirectors

Transcript

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Hi, my name is Heather Roy. I am a professional director, and I'm delighted to be asked to participate in Governance Bites today to discuss future directors. At the moment, I am involved in directorships with Port Marlborough. I'm the independent chair of Financial Advice New Zealand, and independent chair of an advisory council providing advice to the Electricity Authority, the Security and Reliability Council, and to even things out a little bit, I am the principal and director of a boutique consulting company called Torquepoint. Hi, I'm Mark Banicevich. Welcome to Governance Bites. As you just heard, today, a pleasure again to spend time with Heather Roy. Heather, thank you very much for your time. I believe you're the first former Minister of Parliament that I've interviewed. Oh, really? Cool.. That's pretty cool. There are a few milestones that I'm ticking off along the way. So, this is a really good one. But it's relevant to all of my roles at the moment. I was Minister of Consumer Affairs, Associate Minister of Defence and Associate Education Minister. And you were in Parliament for close to nine years? Yes. Three terms? Yes. I had three terms in Parliament, that's right. And then your director career kind of started at the end of your parliamentary career, is that right? It did, yeah. Is that how it worked? People underestimate, actually, the governance involved in being a Minister. So I sort of, sometimes I think, oh, my governance career started quite a long way before 2012, but all of those experiences come together and you bring all of that stuff to the board table. Yeah. Well, one of the things that I discovered through some reading, a board that I was on, we used Robert's Rules to run the board. Robert's Rules were established based on the rules of British Parliament, yes, that's right. So it makes sense that it's the way that committees run. Yeah, although it was an American who put them together based on British parliament, you know, I guess he had something to do after the Civil War, right? Yes, yeah. Anyway, the topic of future directors, could you start by defining the topic for us? What do you mean by future directors? Future directors are people who have governance potential and ambition to become directors, so fairly self-explanatory, but a lot of boards, I don't think, take advantage of the benefits that come when you have a future director sitting around your board table. The Institute of Directors in New Zealand has a future director programme, which is a sort of a formalised programme where they ask people who are interested in governance issues to put their names forward and then they match them with a board who has agreed to have a future director. I've not been involved in the programme at all, but I have had the benefit of having some chosen future directors sitting around some of my board tables. Okay. What is the purpose of these programmes? The purpose of the programmes is to expose people who do have some potential and ambition to governance processes. So people, these, the future directors, sit around the board table as an appointed director would. They have all the advantages of being a director, so they get all of the papers, they participate in the discussions. What they don't do is vote, so they're not part of the decision-making process of the board, and they cannot help form a quorum. So there, that's where the gap between them and the board exists. One area that I'm hoping to have a future conversation about and haven't managed two years is that I've deemed directors. Is there a risk that future directors could be deemed directors? I don't think so, as long as the way that you engage with your future director is handled properly. So you know that part about not voting, and not being part of any decision-making process and not being allowed to fill a quorum must be met rigidly, because if you participate in those, then you could be a deemed director. Right. So are you noting those things in the minutes to ensure that's the case? Absolutely. And when you engage the future director, there should be real clarity around those things. The other thing is that the future director is a 12-month period of time that you join a board for, so you're a temporary participant in the discussions that are going on. Okay, right. Now, you've had some experience with this, as you said. What, can you describe your experience? Yeah, I'm overwhelmingly positive, I would have to say, and our future directors, the ones that I've been involved with, have evolved in quite a different way to the description I use for the IoD [Institute of Directors] programme. So when we've recruited, I always ask my subcommittee participants to choose four or five names of people that they think should be on a long list, and I ask them also to choose a wild card. So the wild card might be somebody who looks really good and has got some interesting credentials, interesting skills and experience, but isn't quite the right fit or the type of person that you thought you were looking for. We add those to the mix, and that's where the future directors that I've been involved with have come from. So they're a bit, you know, they're a bit outside the box, but they're usually younger, and they certainly have a passion for governance that, applying for roles, but usually haven't attracted any yet. And so I do think that every board should feel an obligation to participate in the professional development of directors, encourage new people into the mix, otherwise you just get the same old people applying for the same old jobs. And so if boards take that obligation seriously, future directors are a great way to be able to participate in developing our profession. Yeah, right. Now, if you've got a board between seven and nine, how many future directors would you have around the table? Oh, you definitely only have one at a time, I think. Right. And look, most of my boards, I actually think that's getting to quite a large board. If you've got a board of five, one extra person has the added value of actually bringing different ideas, different thoughts, different experience to the board table. Right. Which in my experience has always been beneficial. Right. I should actually have my questions over there behind you, so I'm not looking away from you all the time. I think the other thing I started to say is mentoring is an important part of having a future director as well, so they should always be provided, in my view, with an experienced mentor who helps them develop as the year-long process goes on, too. And I know the IoD programme, they allocate an experienced mentor to each future director. How would that mentoring relationship work? How frequently would they meet? What would they? Yeah, it depends. It depends how often your board meets. I think that a quarterly session over the period of that 12 months is probably about right. But if you've got somebody who's very experienced and very keen to learn, you might meet with them a little more often. Okay, and if you're saying quarterly, is that a board that's meeting quarterly or a board that's meeting monthly? That would be a board that's meeting every six weeks. Every six weeks, right. So every second meeting you'd then have a one-on-one with your mentor. You would have a session. Right. And that would be a couple of hours over a coffee kind of thing? Yeah, yeah, pretty informal, and just really, once you've had them sitting around your board table for a wee while, you start identifying gaps or things that they're really strong, and those are a good basis place for discussions. Right. Now, in your experience, you say they've worked well. Why have future directors worked well on your boards? Yeah, I think partly because we've chosen to have them, and they're people that we think will add value and diversity to the discussions that we're having, and we haven't picked a bad one yet, I suppose. Having said that, not everybody who we've chosen as future directors have gone on to pursue a governance career. So it's an opportunity for them to decide if governance really is for them, and some people, yes, it has been, and they've gone on to be very successful directors. Others have decided, actually, quite enjoyed that experience, but I'm not sure that that's for me. I think my interests and the contributions that I want to make to organisations probably lie elsewhere. Right. Which is a great thing to discover in itself, isn't it. It is, yeah. Much better than being appointed for three years to an organisation and hating it or not making it a productive contribution. Absolutely. Now, you've mentioned before that they tend to be younger than other directors on the board. What, who should the target audience be for future directors, and what sort of skills and experience are you looking for? Yeah, we've sort of happened across the ones that we have appointed as future directors, so they've been part of the mix, and we've appointed somebody, not them, but we've gone to them and said, would you be interested in joining this board as a future director for a year? And so the skills and experience part is hard to answer, but they've got some relevance, but not the completeness that we've been looking for in an appointed director. I think we talked about having the right customer base previously, I think it was in one of our other discussions, and sometimes, you've not got every, when you do a skills matrix, you've not got every base covered from your appointed directors, and sometimes your future director can actually help fill that sort of a gap. Right. They're there for a year, and they, that will show you whether you need to start thinking about having an appointed director who has that sort of skill set, too. Okay. So it's a win-win. It's definitely an advantage for the person who's appointed as a future director, but I think boards should also be considering that this person is going to significantly enhance the discussions that you have. Right. So commonly your future directors, you're not going out to appoint or to recruit a future director, you're going out to recruit a director. You get applicants, you choose the one that is most ideal, and somebody else in the mix there, we'll go, "That person would be a good future director." Yes. In doing so, the composite set of skills that you seek, hopefully your appointed person will have that set of skills. The future director will have potentially some of the skills, but not all of them, and that's your opportunity to develop them. That's right. And that's been my experience, and that's the way we've appointed them. I can see a situation though where you might identify a gap and think,"Hmm, maybe trying a future director will help us make a decision about"whether we might need an extra board member, we might need"somebody with that sort of skill set." So I can foresee situations, too, where a future directorship could be approached in that way. Right. Yes. So in that situation, you would be targeting, recruiting in particular, for a future director with a particular skill set that you're seeking to find out, and test and learn. That's right. Right, right. And as you say, generally for a 12-month appointment, so they're in 12 months of meetings, they're involved in discussions, they're not involved in voting, but they're bringing their skill and expertise to the table. They're being mentored through that 12 months, so you're upskilling them. That's right. There is one point that needs to be considered though, if you are appointing a future director, and that's, it should not be considered as a trial, or a trial period or a trial run. Right. You are there helping develop somebody who's new to governance, and it's primarily, although the board will get an advantage from having them there, it is primarily to help develop somebody into the governance profession. Right. So at the end of that 12-month period, there's no expectation that they'll become a full board member. It's more along the lines of. In fact, they shouldn't. Okay. So what you're doing is helping develop them so that they can then, they've got some experience under their belt, they can put that future directorship on their CV [curriculum vitae], but they should be looking for roles - Other roles. - with other boards. Right. Okay. And is there a reason that you say they shouldn't then? Yes, because if you think at the end of this time, if they're any good, we'll take them on as a full board member, that's not fulfilling the intent of future directorships. If that's what you're trying to do, you should be appointing a full-time director to the role who does have the voting rights, can make decisions and fulfils that quorum requirement that the board has as well. Right. Okay. Now, you've talked, we've talked about mentoring. Do you, is there other work that you do in developing those directors? For example, do you find some formal training for them, or is there other work that you do in that space? Yeah, there may be. I think the mentoring is the best starting point. It might be that they decide for themselves they need to undertake training, and you can perhaps guide them in that direction. There's quite a lot available. You know, - The IoD course. - Governance New Zealand[Chartered Governance Institute of New Zealand] do it, IoD. Governance New Zealand. Sport New Zealand's got a governace programme. Yes, that's right. So there's lots of things out there. I think if you're taking somebody on as a future director, you're not responsible for professionally developing them in a formal sense, which is why you would start with the mentoring. Right. But for their own benefit, they might decide that with some guidance that they want to take on some formal training. Okay, so it would be less common for a board to take on a future director and say, come on our board, we'll mentor you and we'll put you through the IoD course. Yes. The Institute of Directors course. You tend to say, if you want more training, The Institute of Directors course is here, here's the link. I think our boards aren't particularly good at professionally directing their or developing their full-time directors. So it would be unusual actually - Let alone their future directors. - to do that with a future director. But having said that, during the mentoring process, it's certainly a discussion that you should be having with them and guiding them towards training that might benefit them and help them to get more substantial roles in the future. Actually, on a slight tangent then, related to that, do you tend to expect a company to have budget aside for its board to have training, or is that something that the directors themselves should be taking care of themselves? Mostly in New Zealand, directors take care of that themselves and foot the bill. I think that boards should feel an obligation to make a contribution towards the professional development of their directors, particularly those who require some training to be able to step up. Yes. But it's hard, particularly for small organisations that don't have much in the way of funding to do business as usual, hard to put money aside. Bigger organisations find it easier to do, but they also manage to attract and pay for more experienced directors, so it's a bit of a catch 22, but in an ideal world, I'd love to think that every board puts some funding aside for director development. Yeah, absolutely. I wonder whether our fringe benefit tax settings are right either, because. I think that sometimes doesn't help. Yeah, yeah. You know, as an entity, you tend to put your, give your directors the money and hope that they'd spend it on that, because they get better financial outcomes from that. Reward, yeah. The better and greater reward than if you put them on a course and give them money because the tax rate's so high. They are, yeah. But for most, they feel the responsibility for training for themselves and do it. Yeah. And I take it, as well, we mentioned before that you'd structure it so that they're not a deemed director and they, of course, the future directors wouldn't be listed as directors on the Companies Register, either. No, they're not. No, that's right. So it's more of an informal position in that way. It is, yeah. How do you assist then in transitioning those future directors into a more formal governance career? You said they don't migrate into a board role with this company, they go out and, do your thing. So do you get involved in helping that transition? Sometimes I think the mentors can provide advice. When I'm doing the mentoring, I'll often have a discussion with the future directors about industry areas where they feel comfortable or they've got some experience. Yes. And helping them explore that. Sometimes it's actually quite refreshing to be able to think, this is an industry area I think I might be interested in, and I'll come to that with a fresh set of eyes, because you always need those around the board table. So it's definitely a discussion that I personally have with the future directors that I've been involved with. Sometimes they just need a bit of assistance with scrutinising role descriptions to make sure that they're a good fit, writing a good CV and a good cover letter or putting a little video together to be able to get themselves interviews. Yeah, planning for the interview itself. Yeah, that's right. And yeah, I can imagine a mentor would be very helpful with running a mock interview, for example. Yes, that's right, that's right. Yes, I've done a few of those. Yeah. Okay, okay. I've got one final question for you, I believe. What advice would you give to a new director? To a new director as opposed to a future director? Yes. Yeah, to a new director, I would say, don't be afraid to ask questions. So when you're comfortable sitting around the board table, start asking questions. That's what you're there for. Look, listen, and then question when you don't know something because you can't make wise decisions, and you shouldn't be making any decision if you haven't got all the information you need to be able to make it. Right. That's a. Ask the tough questions. Yeah. And that's a really nice way of structuring it. Say you've got to have the right information to make the decision. That's why you ask those questions. That's right. Would your advice be different to a future director? No, I think they often don't have the same confidence that more experienced directors have, so they're often very quiet to start with, and so part of the mentoring process that I've experienced when I'm helping them is to get them to a position where they feel they can contribute and ask questions. Right. Okay. Heather, again, thank you so much for your time. You're welcome. It's great to have conversations with such an experienced director, so I really appreciate it. I'll look forward to catching up again soon. I think we'll have the conference next month. That's right. And I'll see you next episode. 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.