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Board Chairs: A rising tide of expectations. AHISA Chairs of Governing Bodies Conference Brisbane 9 March 2006 Elizabeth Jameson: Board Matters Pty Ltd e.jameson@boardmatters.com.au. Session at a glance?. Chair of the Board or the School: Who ‘leads’ the School? What is expected of Chairs:
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Board Chairs:A rising tide of expectations AHISA Chairs of Governing Bodies Conference Brisbane 9 March 2006 Elizabeth Jameson: Board Matters Pty Ltd e.jameson@boardmatters.com.au
Session at a glance? • Chair of the Board or the School: Who ‘leads’ the School? • What is expected of Chairs: Legally? Practically? • Implications for School Chairs
Chair of the Board or the School: Who leads the School? • Question: what is the core role of the Board? • Question: what is the core role of the Principal? • Question: what is the core role of the Chair? • Question: who is the “Leader” of the school?
Core Role of the Board? …The key role of the board is to ensure corporate management is continually striving to achieve above-average performance taking account of risk… F.G. Hilmer Strictly Boardroom: Improving Governance to Enhance Company Performance, 1998
Chair of the Board or the School: Who leads the School? Consider: • Board and Principal (CEO) form a leadership team, with leadership of school life in the hands of the Principal, within policy & delegated limits decided by the Board • Chair/CEO is the vital link between two parts of the leadership team
Chair of the Board or the School: Who leads the School? • Proposition: Legal authority, responsibility and potential liability ultimately rests with the Board (and Chair), irrespective of legal structure, but this ought NOT solely define the working relationship between Board, Chair and Principal if you want to deliver the best outcomes for the school and its community
First let’s ‘reminisce’…back to ‘91 • Finding Mr Eise (chair of National Safety Council of Victoria) personally liable for $96.7M relating to the organisation’s insolvency, the court said: There is nothing in the Code to suggest that the standard to be expected of a part-time non executive director of a company not-for-profit is different from the standard expected of any other director of a profit- making company.
The Authority/Fiduciary Chain Members/ Shareholders Board Management and Staff
What is expected in 2006? • Common features HIH and NSCV: • Dominant CEO • Weak board unable to counter this dominance • Weak leadership of the board • Result: emphasis on need for strong leadership from the Chair, e.g. in: • ASX Corporate Governance Council Best Practice Guidelines, 2003 • Australian Standard AS8000 (Good Governance)
A ‘rising tide’ since early 2000’s: The role of the chair is not clearly articulated in Australian law but is left largely to the constitution and practices of each corporation. However…commentary and case law make it clear that the chair’s role and responsibilities are different from and often greater than those of the other directors. Owen, J, HIH Royal Commission Report, 2003, Vol 1, p108
A ‘rising tide’ since early 2000’s: • Owen, J refers as far back as 1960’s, but particularly Cadbury Report, UK, 1992: Chairmen are primarily responsible for the working of the board…for ensuring all relevant issues are on the agenda, and…that all directors…are enabled and encouraged to play their full part in its activities
A ‘rising tide’ since early 2000’s: • Owen, J adds: • ‘mentoring’ role with CEO • Steering hand on board proceedings • Taking a lead in board perf. reviews • Role adds not ‘dictatorial power’ but: ‘additional rights and duties and additional opportunities’ which may affect the content of the role and warrant the imposition of higher standards and duties in order to ensure board effectiveness and prevent the exploitation of those additional opportunities
And then there was the clincher… • ASIC v Rich [2003] NSWSC 85 • Collapse of One-Tel • Jodee Rich and other ‘executive directors’ sued by ASIC for breach of directors’ duties relating to insolvency of One-Tel • Mr Greaves, the Chair of the Board, and of the Audit Committee only ‘non-executive director’ sued • Mr Greaves sought to be released from claim as the only ‘NED’
And then there was the clincher… • Fundamentally revolved around duty of care and diligence • Corporations Act recognises that this duty measured by standards expected of directors of similar ‘corporations’ and holding the same office and responsibilities as the director in question
And then there was the clincher… • Court accepted: • Chair had special responsibilities beyond other NEDs (esp. leading monitoring and flow of information) • This was a function of being Board Chairman AND Finance & Audit Committee Chair AND having high qualifications, experience & expertise relative to other NEDS • Result: higher standard of care and diligence resulted
The wash-up of ASIC v Rich? • It may be limited to facts (e.g. listed companies only), may be overturned, modified or…adopted! • It recognises ‘expert evidence’ of experienced directors to confirm additional role • It raises the spectre of higher duty of care for chairs and for those with special role as a result of their particular skills
Implications for School Chairs • Q: Does the application of this expectation vary if you are a CLG, incorporated association, part of a Church etc? A: Possibly – but do you want to be the one to test it in court? • Treat ASIC v Rich as high water mark in this rising tide and strive to fulfil higher duties
Implications for School Chairs • This means leading role in: • Working closely with the Principal – building strong leadership team • Ensuring information flows to Board • Representing the Board (as authorised: remember greater responsibility ≠ greater power!) • Leading continuous improvement of board performance against accepted community standards (e.g. risk management, board performance reviews etc)
Implications for School Chairs • Proposition: Legal authority, responsibility and potential liability ultimately rests with the Board (and Chair), irrespective of legal structure, but this ought NOT solely define the working relationship between Board, Chair and Principal if you want to deliver the best outcomes for the school and its community
Implications for School Chairs • Take-home questions: • Does our Board’s Role Statement / Charter reflect Chair’s special role? • Do we/I reflect on my effectiveness in fulfilling this role? • Do I actively seek to ensure board members are engaged in the role? • Do we undertake Board evaluations in order to continuously improve for the School’s benefit?
