Company Directors course — reflections
I’ve just completed the Company Directors course; the 8kg of reading, the 5-day intensive and the various assessment tasks. The Australian Institute of Company Directors have vouchsafed that i have the basic skills and understanding to be a Company Director, and i get fancy letters after my name. But what do i think of it? I’ll briefly cover the mechanics and then get into reflections.
Before I began
The last five years, i’ve come to recognise I work best by understanding whole systems. The Board of every organisation is a part of that system, and I only knew it from the outside. To be better as an Executive, I needed to understand it from the inside: its purpose, rules, methods, cultures. I’d seen so many issues where groups were saying ‘The Board should have…’. So my curiosity was, should they? Also, to be honest, I needed a challenge and i knew this was hard.
8kg of notes
Two fat binders appeared in a box with a polite letter that basically said “read and absorb these before the course.” Spoiler 1: i didn’t. Spoiler 2: neither did anyone else.
These form a body of knowledge that really doesn’t make any sense to a newbie. The closest analogue i can think of is a score of music. If you understand, it’s legible. If you don’t, it’s just squiggles. So, everyone starts the classroom component pretty nervous, and with a heavy bag.
Classroom
I’d never have got through the course online. While my confidence had been sapped by the difficulty of the notes, i was buoyed by a talented, cheerful and similarly nervous cohort. We had private, public and NFP sector executives, founders, owners and som existing Board members.
And immediately it began falling into place. Discursive facilitators (expert Board practitioners with humility and openness), case studies and group exercises made the material come alive.
Assessments
There’s a quiz, an exam and an assignment. The assignment case study takes an hour to read before you even think about the questions. It’s meaty and difficult. We set up a cohort with weekly working sessions over vc, and that kept me focused. Anyway; it’s like any assignment or exam, you put your head down and do the work.
What’s hard — and important — about the assignments is that they aren’t just tests on knowledge. They assess knowledge in practice. They give a complex scenario and ask something like “What questions would you ask the CEO?” or “How would you assess if the business is solvent?”. So you need to know the stuff but knowing is not enough to pass.
Overall experience
As a learning experience, it’s really good. It’s appropriately daunting, and the beginnings of mastery evolves slowly as you tackle the scenarios. The trainers/facilitators are strong, and take different approaches to their teaching, which is helpful and energising. Most of all, the segue from ‘learn a body of knowledge’ to ‘apply your knowledge in practice’ works very well through the assessments. That they are all open-book means the skills is in the wholistic understanding and knowing what and where to look up, rather than simply rote repetition. This is excellent course design, and produces ‘practitioners’ rather than ‘knowers’.
Board Directorship being a practice through time, not a body of knowledge, was my largest takeaway.
Reflections on Directorship and the course
How Boards work is beautiful and misunderstood
The ingredients of Board practice (strategy, legal, risk, culture, reporting, finance, and framing executive action ) are an interlocking system that self-sustains and reinforces. And it forms the box within which the executives do. As a system it’s like Iambic pentameter, the periodic table, the circle of fifths, a building contract: just the standardised wrapper in which things can happen.
The iambic pentameter isn’t the poem. And the poet hasn’t just thrown words at the wall, they execute their craft within a system. The body that commissions works in iambic pentameter is not the poet. The Board is the composer, not the player; the elements not the compounds; the physics of sound, not the music; the building contract isn’t the house.
The work of the Board is in setting and evolving those intertwined structures as the company and the world change, and recruiting and overseeing the CEO . It’s elegant, crystalline and perfect in its conception. It’s also rigid and inflexible. All of these are by design.
It’s actually pretty effective
democracy is the worst form of government — except for all the others that have been tried.
For all that i’m about to suggest weaknesses in what’s taught and assessed as best practice, i believe the fundamental framework is really good. Compared to control by the divine right of kings, or the solo genius/maverick, it’s effective. Investors want them, founders quickly create them as their company grows, governments want them to occur and see them as the vehicle for enacting influence.
Key principles such as…
- setting out your values and using them to assess yourself
- declaring conflicts of interest (with penalties for not doing so)
- acting in the interests of the company (not the owners)
- being liable for breaches in health and safety
- setting a strategy and risk framework that enable executives to execute
- separation of powers between board and executive
- the need to use independent expert advice, and that this does not reduce your personal accountability as a Director
- personal liability for accurate financial statements
…are really good to have in place, and if they were not, we would have to invent ways of doing them. I can’t imagine what they might be. The rate of failures of Boards, compared to the number of Boards, is really low.
What ‘Fiduciary’ means
This is perhaps the most important misunderstanding about Boards that i have come across. Nearly everyone without exposure believes Boards must act in the interests of shareholders. This is not true. Boards must act in the best interest of the company. This may mean the shareholders interests take precedence on an issue. But it is literally mandated, and we discussed at length, that shareholders do not have a casting vote or a veto; if the long-term interests of the company demand it, then shareholder concerns must be set aside.
This is incredibly profound, and strikes me as the single most useful thing about a Board as distinct from Founder or a CEO, whose interests do not always align with the long-term needs of the organisation.
It’s a social system in practice
Boards are a collection of maybe 5–15 individuals. For all the knowledge and best practice guidelines, in the end it is a social system. It is not enough to be correct, you have to be correct with allies and support. Part of the curriculum is how to persuade other directors of your point of view; generally through appeals to best practice and the legal duties. But this is worth nothing if you aren’t fundamentally someone the other directors will want to have a coffee with. This amplifies existing social norms, and can reinforce both good and bad practice.
Boards and Board practice aren’t subject to enough critique
The general critique of Board in public discourse is only when they fail; when a Board didn’t pick up executives engaging in fraud, for example. But Boards set the frame for everything that every company does. Your local hospital, your bus system, the company that makes your fridge, the university, the AICD itself ;). All of them operate within a context set, monitored and changed by the Board.
I spent twenty years working in museums and the arts. The role of the critic in the arts is well understood as a practice that makes the system stronger. A lack of critics lets mediocrity thrive. Publishers don’t only look at sales figures; they look at critical responses to an author.
We need, as a society, to stop treating boards as something discussed on the finance pages of the newspapers and the AICD magazine. And Boards need to be more welcoming of outsider critique. (I am aware i’m building a frame around the critiques i’m about to make. This is Board praxis, i do learn!)
The expectations elevate head over heart
The entire framework of the course and thus Directorship practice is based on rational thinking. It’s highly systematised; even culture is distilled through a highly rational lens. I quite like this, but all Directors need to be aware of what it loses. First of all, the practice of directorship doesn’t give enough credence to feelings. Sometimes decisions might ‘feel’ wrong, and in this framework that would be dismissed if it can’t be rationally articulated. Evidence shows that poor decision-making arises from discounting feelings. And people will do it. So it should be acknowledged and brought into the frame.
Secondly, this shapes membership of a Board and also the pool of people who are, or consider becoming, Board professionals. Many people make excellent decisions through feelings and hunches. Many have built successful careers out of trusting their instincts; as one example, arts leaders i have worked with astonish me with the quality and rightness of their decision-making despite very little ‘rational’ underpinning.
This rationality stems partly from a culture of compliance and justification. I understand that ‘it felt right’ doesn’t hold much water in a court or in the media. But this is the defensive mindset and it should be challenged. Feeling as a component of decison-making and board practice would make both stronger.
The course is part of a process of social norming
I don’t suggest it’s been explicitly designed this way, but this course is also a social norming exercise. While the notes do describe the value of difference, the course is also creating a set of people whose approaches are aligned with some unstated values. For example, solvency is placed pretty much at the top of the concerns of the Board. Innovation is not.
This is not necessarily bad — after all, ‘the arts’ and ‘academia’ and ‘activism’ inculcate and monitor adherence to a set of values. But i suggest there needs to be greater awareness that the processes and culture around qualifying and practicing as a Director create a societal subset of individuals that do not represent all points of view and ways of thinking and feeling.
As a society, we have decided that an annual Financial Statement is required. They must be prepared by auditors, be signed off by the Board, and are published. Thought experiment – why is this the only subject treated like this? What would companies become if there were similarly mandated ‘well-being statements’? An ‘Ethical statements’?
Unbalanced knowledge levels eg Finance vs Decision-making
I understand why the requirement for Finance knowledge is so high. Those who have worked in the CFO role have a natural advantage in the course. But what surprised me — and is revealing about contemporary management/exec skill development in Australia — is that so much other course material felt comparatively basic.
My financial knowledge, which to be honest is good but not fabulous, is based on what i learnt through practice in my 40s in senior exec positions. But other stuff, for example divergent thinking, decision-making and risk monitoring and control, was covered at a level i was working at in my early 30s.
I think this says less about the AICD and more about how management training in early to mid career doesn’t sufficiently expose people to the breadth of understanding necessary at senior level; or else the AICD would not need to begin at the basics. It also speaks to the legacy of ‘command and control through the budget process’ styles of management, which do not reflect contemporary practice. The Millenials and X-ers rising through the system will be far ahead of the AICD expectations for culture and working practices. Which is good, because AI will be taking care of the finances…!
(side-note, pretty soon an AI will be able to spot insolvency from the general ledger, so some of the course will become redundant!)
Insufficient attention to ethics in the Boardroom
Ethics is given 9 pages out of 1,131, inside the chapter ‘Board effectiveness’. I don’t think that’s enough. Finance gets its own section, of 221 pages.
Many areas of ethical consideration are framed around stakeholder perception. The general framing is “what would stakeholder group X think of course of action Y? Consider this in your decision.” The issues here are that it offshores personal reflection and ethical action and reduces concerns to just one of many. I’d suggest that Rio Tinto’s horrific destruction of Juukan Gorge stems from this; a culture in which consideration of First Peoples’ perspectives is somehow ‘balanced’ against other views rather than being viewed ethically as the prime go / no-go consideration.
During class discussions, we talked about ‘social license’. This concept was new to some in the room. It shouldn’t be; I think this should be covered explicitly in the notes as a key method of thinking.
There are some very basic ethical practices that can be built into best practice. As a minimum, ‘how will the least powerful be impacted?’ and ‘whose voice is not in the room?’ should be part of the best practice guidelines.
I note that AICD runs specific courses on ethics with The Ethics Centre, called “Ethics in the Boardroom”. I think this is excellent and it’s now on my to do list. I simply think a little more emphasis should be placed on these matters earlier in the training cycle.
Inclusivity
Diversity is in the course, and is explicitly described as a good thing. The notes call out that many people will acknowledge the need and then still not do it; and they supply academic research backing up the value of diversity. But I still don’t think the documentation stands up in 2023.
First Peoples are conspicuously absent, as is sexuality. Gender is focused on, but through a narrow male/female lens. The documentation states the benefits of groups containing women, but doesn’t explicitly call out the ways that men can dominate; an essential part of an effective Board is going to be men recognising their impact on productive discussions.
Much of the documentation on other issues emphasises personal responsibility — Directors must personally ensure they understand and approve the Financial Statements. I would argue every Director has a similar personal responsibility to behave inclusively, to actively seek out and counter their own biases, and so on; this should be described as such. This is essential to act well in contemporary leadership.
There are significant cost barriers to younger people, first Nations people and more from engaging in the course. I welcome what the AICD are doing with scholarships and so on. But to miss these groups out of a list on diversity is problematic, and is a simple fix.
Climate Emergency
The treatment of the Climate Emergency in the course is indicative of the struggles of Australia (particularly corporate Australia) to engage with climate issues constructively. It’s not covered much, and when it is, it is through very particular lenses, summed up in at one point as:
The impact of climate change on organisations is a developing area of stakeholder expectation, government policy, legal opinion and regulator attention.
It is also framed as two risks: Activist action to replace Board members and policy change by governments and regulators
It is undoubtedly true that The climate change movement represents huge opportunities for some organisations and a fundamental threat to others but it’s rather missing the existential nature of the crisis. When supermarkets can’t guarantee produce on their shelves, I’d suggest the framing should be closer to how the AICD treats insolvency risk — as something that can literally destroy your organisation over a 3–5 year timescale.
Innovation and creativity
This is notably absent from role and purpose of Boards. It’s really noticeable that the more future-focused section of the course — strategy — is yoked together with risk in a chapter/day called ‘Strategy and Risk’. So while the strategy discussions cover such things as generating options and horizon scanning, this is back-to-back with subjects such as audit monitoring and control.
The role of Directors in encouraging innovation and granting license to creativity is not really covered. And, worse, there’s little recognition of the role that internal monitoring and control has on innovation. The mere existence of controls is inhibiting to creativity, and this tension isn’t explored.
I’d suggest one of the reasons innovation happens in the margins (the start ups, artists, academic hothouses) is precisely because they are so loosely governed. What could it mean for Boards to allow an ungoverned space within their organisation? To put it another way, Boards could increase the risk tolerance for failures, and make the consequences for a ‘failure’ a reward for trying, not a punishment for waste. This might produce more long term value. This is inextricably linked with the next issue…
Unsuited to volatility, uncertainty, complexity & ambiguity?
The VUCA environment we are in right now, which is only going to accelerate, demands adaptation at the speed of months and years. But Board cycles are defined by a longer timescale. All through the course, the curriculum (analysis of trends through financial statements, annual review of risk registers and so on) all emphasise and shape Board activity as having a very specific timeframe; within the year would be rapid.
Arguably working in timescale under a year is what Executive is for. And a body with focus on long-term is undoubtedly useful. But in an environment where change dictates unforeseen strategic pivots in a matter of months, can the methodology and practice of Directorship cope? How could it accelerate?
One way is to broaden and expand the tolerance of risk, and allow greater freedom to Executives. This would require a less rigid and punitive view of director diligence from regulators; is that possible? And would that bring back other risks that this regulating culture has weeded out?
Another way is to consider practices from the professional practice of Strategic Foresight. A great piece by Matt Finch explores this more.
I don’t know the answer/s. But it’s one i wish we as a society could engage with a little more. The AICD magazine and courses are based on incrementally improving practice; what would a more radical questioning look like? (It may well exist and i am simply not aware, of course)
Advice
What advice would I give someone about the course?
- Do it. If you’re inclined and are able to, do it. Never mind Board career, you’ll be a better manager or executive for it.
- If you are a senior manager in an organisation with a training budget, this course can absolutely be justified. I will be a far better consultant and executive, let alone a board member, with these knowledge and skills.
- Know your preferred way of learning. I’m very wholistic, i need the big picture. It didn’t make sense until it all made sense, and i wish i had been more honest and kind with myself for the first 80% while it was falling into place.
- The course requires a level of financial literacy. Get this first, perhaps through the always-on-offer LinkedIn primers. If you don’t know the difference between Profit and Loss, Balance Sheet and Cashflow, you are going to find this really hard. Some of the CPA-qualified Chief Financial Officers were learning new things about finance on the course. This was the toughest thing for me.
- The cohort is truly your most valuable assett coming out of the course. I wouldn’t have passed without the study group; both in keeping momentum and in what we all learnt from each other.
- Treat the course as the basis for applied knowledge. Constantly ask yourself ‘what would i do with this knowledge?’ A lot of the assignments is based not around recall of information but about its application. they follow a format of “you are the Chair… here’s a scenario…what action must you take in order to…?
- Notice the synthesis of concepts from the beginning. Risk feeds back to Finance feeds back to Values feeds back to Committees…
- The course notes are an invaluable reference source. Annotate them. You will need them for the assignment and in the exam you’ll need to find things in them quickly. I know Board Directors, ten+ years from qualification, using them as reference sources.
- You need time. I could not have juggled the demands of the course and assessment with a full-time job and family. If you have the full-time job, I would recommend doing some sort of negotiated study-day-per-week for five weeks rather than a week intensive. but that links to…
Last caveats
Everything above is based on the course and personal observations. My couple of years on a volunteer Board and ten years presenting and reporting to Boards is insufficient grounding for me to say i really understand. So i expect as i learn more through practice, i’ll discover some of the above to be incorrect or naive. But that in itself will be interesting and i am happy to be a visible advocate for continuous learning :)
