Does your PBI Indigenous Corporation need an Independent Director?

Does your PBI Indigenous Corporation need an Independent Director?

It has been argued that having independent Directors on the Board of your Indigenous corporation can be a great advantage. I've argued this myself in a previous article. Independent Directors provide your Board, and hence your corporation, with a wider view of the world that it operates in. No Indigenous corporation operates merely within the world of Government funding - most now have some interaction with Future Acts proponents, local commercial interests, social ventures and investment projects.

However, what are the disadvantages, if any? And if there are any disadvantages, how do you still make it work for you?

Firstly you need to understand the role of independent Directors to see if you really need them.

From a legal standpoint, they have all the legal duties and obligations that your Indigenous Directors have. They must act with with care and diligence, they must act in good faith in the best interests of the corporation, they must not misuse their position or information they receive, they must disclose any conflicts of interest, and they must ensure the company does not trade while insolvent.

However their role may include helping the Board improve its governance performance overall. They can bring their experience from being on other Boards about best practice. Their role may also include providing the specialist expertise that is otherwise lacking on your Board. This might include financial "savvy", commercial experience, or legal expertise. While you think that these specialist skills can be bought in through appointing consultants, don't discount the fact of having Board members who don't have an axe to grind. Their experience is given to you as part of their Board role and not in a separate consultancy contract. They are truly "independent" and should be giving advice in the interest of the company on which they have legal obligations to fulfil.

This can give you a tremendous advantage when you are dealing with proposals from proponents who want to do business with you, or in planning, or when you are considering legal agreements. Just the fact that in their "other lives" they have dealt with the same or similar decisions and situations before should give you tremendous advantages and comfort.

The other part of their role is that they are not part of any internal divisions or internal politics. For the most part they should be playing with a straight bat when they offer their opinion. While, depending on which side of an internal division you are on, this may not sound like a good thing, believe me it is! There is nothing like hearing it straight.

The other factor to consider when you are thinking if an independent Director would be of value to your corporation is to consider what kind of people generally apply for independent Directorships.

Sure, there may be cowboys with a vested interest, but you can weed these out quickly.

In my opinion, most of the people who apply to be an independent Director of an Indigenous corporation are made up of three groups:

  • Professional Directors who are probably members of the Australian Institute of Company Directors, who sit on a number of Boards, and whether fully employed or not, take a lot of professional pride in being a good non-executive or independent Director;
  • Retired or semi-retired professionals and business people (including consultants) who want a bit of interest in their spare time and want to give something back to their society. These may or may not include philanthropists and
  • Employed professionals and experts who really want to help Indigenous people and make a difference.

All three of these groups can be a great help to your organisation, through the experience and professionalism they can bring, as well as the right motivation.

However you need to be aware that there may well be a clash of cultures that may lead to inappropriate ends. By this I mean that some of these people may not be used to Indigenous corporations and the way that some decisions and relationships are made. They are used to companies with more capacity, capability and resources, so things get done faster and decisions are made more quickly. They may join your corporation and, with no ill will, start to get frustrated at the pace of change. It is only a small step from "I have brought my experience to help you" to "I have brought my experience, you don't know how to use it, so I'll just hurry you up my way."

I stress, this is through no ill will but simply a clash of cultures as to how decisions are made and implemented, but the situation could turn into a paternalistic attitude unless it is recognised and mitigated.

I have also seen situations, through no ill will, where the independent Director, convinced that his or her experience suggests a Board decision is bad for the company, and then gradually creates administrative roadblocks to operations by implying governance is at risk, or moving from helping to set policy to helping to define "best practice" that is inappropriate. How might this manifest? The Director might raise troublesome questions at Board meetings which the others don't know how to answer and therefore make it seem like there is a governance breakdown. The Director may have a significant hand in budget-setting. The Director may withhold or delay the authorisation of expenditure for transactions he or she doesn't agree with.

The other Board members may be intimidated by this "experience" so that the weight of the independent Director's opinion becomes a roadblock. The one who talks a lot and loudly and forces their opinion over and over again "shames" the Indigenous Directors into silence.

None of this is insurmountable. Once you realise what could happen, you can create strategies to take advantage of all that an independent Director would bring, and mitigate all the risk.

For example, you can create Board Charters about how decisions are made (including secret voting) and other Memoranda of Understanding. You can establish fixed terms so that independent Directors can be replaced after proper review and assessment. You should define roles and responsibilities and discuss the types of people and personalities you would like before the recruitment starts. You would also want to manage conflict openly, so consider Board Charters where independent dispute resolution consultants are used in the case of personality and other conflicts.

However the best way to manage the risk is to start right in the first place.

During recruitment, make sure you are clear about the role. Brief the candidates very truthfully about the challenges you face, in terms of resources and capability and see that they understand. During interviews make sure they understand about any cultural issues such as internal divisions. In other words make sure there is a cultural match and watch their reaction to these issues. Ask them how they might deal with the frustration of slow responses. You don;t want people who will impose their own views on you, but at the same time you don't want any "yes" men.

You want to assess whether they can dance on the dance floor while also simultaneously observing themselves from the balcony - in other words whether they are externally aware of their actions and opinions. You want the voice of experience, not the voice of God.

At the end of the day, with all the external influences that Indigenous corporations have to contend with, having an independent Director on the Board can be a very useful advantage. What you have to do is to consider how that independent voice will affect you, and how you will get on.

We at OTS Management have helped improve the governance of many Indigenous corporations in the north-west over the last 30 years, including some of the leading PBC's in Western Australia. If you would like to discuss our governance improvement programs, get over to our website at www.otsmanagement.com.au and click on the Contact Us tab to send us a message or contact us. Get a no obligation discussion of your needs.

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