Casey plays by the old rules.
For these board games, forget old rules
By Terry McCrann
April 17, 2004
THE turmoil at two of our four biggest companies has its specific causes. But it also points to serious issues about boards, directors, chairmen and CEOs germane to all companies.
At Telstra, chairman Bob Mansfield has effectively been sacked by his fellow directors, essentially for supporting his CEO, Ziggy Switkowski. But the board does not apparently want to sack Switkowski, at least not yet, even though he is the root cause of the problem.
At National Australia Bank, seven non-executive directors led by chairman Graham Kraehe want to sack the eighth non-executive director, essentially for not being a "team player".
The only thing that can be said with absolute certainty about both the specific issues and the broader issues spanning the two situations is that new NAB CEO John Stewart has done exactly the right thing in not joining the board's demand for Walter to be sacked.
Right, on every level. The personal - why buy into a fight when you don't have to? And the functional - it's his job to run the bank and report to the board. And the good governance - it's entirely inappropriate for a CEO to seek to "choose" non-executive directors.
But is it right for the other directors to seek to "choose" one of their own? Of course they - and most particularly the chairman - always choose a new director in the first instance.
Always? What if a renegade is elected to a board by some fluke, but is very specifically not invited by the incumbents? Do the other directors have the right to seek to have that person sacked at the first best opportunity, or are they obliged to work with them?
My general response is the latter. Unless any director behaves illegally or compromises their directorial responsibilities, I argue it would be improper for the board to seek to have that director sacked, just because - to use the NAB words - there are "irreconcilable differences" with the other (all? a majority of?) directors. It doesn't matter whether that meant the other directors had lost confidence in him or her, felt they were not contributing, were disruptive, or whatever.
The general principle, surely, is that if shareholders elect a director, that person - and indeed, the shareholders themselves - has the right to serve out their three-year term. And to not be "chosen" to stop being a director ahead of that.
At the end of the term, it becomes a very different matter. Then the board can legitimately withdraw its support, as with Solomon Lew at Coles Myer, in the normal re-election time frame.
But - there are always buts - what if the board is factionalised? If that's the wish of shareholders, so be it. If an individual director believes they cannot properly discharge their duties, they can - they have to - resign.
And clearly, none of this denies the rights of a shareholder or shareholder group - which might or might not include one or more directors - to seek to change the board between regular rotations.
It might seem like the sort of fine distinction which NAB dissident Cathy Walter is accused of obsesssing over, but the key point is the difference between a shareholder, even a director shareholder, seeking to sack a director, and other directors as directors seeking to do so.
I don't want to stray too far from the general to the particular of the NAB brawl, except to note that the gang of seven sought to sack Walter even though she had not obviously stepped over any crucial line.
Their statement said they "agreed" that she had made unfounded attacks on the integrity of the PWC report; she failed to co-operate with the investigation; and she failed to give satisfactory assurances that she would only act within the board.
Those are demands that are on the face of it outrageous. They are tantamount to demanding Walter agree to breach her core directorial responsibility. No director could sensibly or legally give such commitments. No group of directors could sensibly demand them.
Every director of every company has to go where their interpretation of the proper discharge of their directorial responsibility directs them.
If that means attacking the report, so be it; if that means not co-operating, so be it; if that means reserving the right to go outside the board, ditto again.
I get very uncomfortable when I read one commentator writing that even if she were right and the rest were wrong, she should go. No, she must do what her interpretation of her legal responsibility obliges her to do.
Even if - and this is the really challenging one - she is wrong and all the others are right. And even then they have no right to seek to sack her, in my judgment, unless and until she behaves improperly or illegally - something that, given her meticulous focus on process, is doubtful.
A sentence like "the non-executive directors are unanimous in their view that without the trust and respect of her fellow directors, Mrs Walter can no longer function effectively as a board director of the National" is not only obviously factually incorrect - they are obviously not "unanimous" - but somewhere between pompous and pointless.
It is also a statement of their own failure. The concept and practice of our representative shareholder democracy does not recognise those as prerequisites for remaining a director. The position at Telstra is similar but intriguingly different. One director has lost the confidence of his fellow directors, but it's the chairman. And he chose to resign.
Setting aside the complications of government control and the special - legal - characteristics that flow from that (discussed in these columns a few weeks back), the simple and undeniable point is: fine.
But crucially, that was Mansfield's choice. And if he'd been formally sacked as chairman, again he could have chosen to remain a director.
But how could he? Surely board unity comes first? Well, no, actually. And this is the over-arching lesson of it all. Individual directors discharging their legal responsibilities, as they see fit, comes first.
It's more than a touch piquant to see people demanding a return to practices and principles of the clubbish world of some time before 1990, when both business and legal reality is now very different.
You want a return to unified boards? Better hitch a ride back to the past in that magic DeLorean. The great irony of Walter being accused of being consumed by process is that she is actually the first lesson of the substantive future all boards and individual directors are going to have to adjust to.
The Australian
This report appears on NEWS.com.au.
For these board games, forget old rules
By Terry McCrann
April 17, 2004
THE turmoil at two of our four biggest companies has its specific causes. But it also points to serious issues about boards, directors, chairmen and CEOs germane to all companies.
At Telstra, chairman Bob Mansfield has effectively been sacked by his fellow directors, essentially for supporting his CEO, Ziggy Switkowski. But the board does not apparently want to sack Switkowski, at least not yet, even though he is the root cause of the problem.
At National Australia Bank, seven non-executive directors led by chairman Graham Kraehe want to sack the eighth non-executive director, essentially for not being a "team player".
The only thing that can be said with absolute certainty about both the specific issues and the broader issues spanning the two situations is that new NAB CEO John Stewart has done exactly the right thing in not joining the board's demand for Walter to be sacked.
Right, on every level. The personal - why buy into a fight when you don't have to? And the functional - it's his job to run the bank and report to the board. And the good governance - it's entirely inappropriate for a CEO to seek to "choose" non-executive directors.
But is it right for the other directors to seek to "choose" one of their own? Of course they - and most particularly the chairman - always choose a new director in the first instance.
Always? What if a renegade is elected to a board by some fluke, but is very specifically not invited by the incumbents? Do the other directors have the right to seek to have that person sacked at the first best opportunity, or are they obliged to work with them?
My general response is the latter. Unless any director behaves illegally or compromises their directorial responsibilities, I argue it would be improper for the board to seek to have that director sacked, just because - to use the NAB words - there are "irreconcilable differences" with the other (all? a majority of?) directors. It doesn't matter whether that meant the other directors had lost confidence in him or her, felt they were not contributing, were disruptive, or whatever.
The general principle, surely, is that if shareholders elect a director, that person - and indeed, the shareholders themselves - has the right to serve out their three-year term. And to not be "chosen" to stop being a director ahead of that.
At the end of the term, it becomes a very different matter. Then the board can legitimately withdraw its support, as with Solomon Lew at Coles Myer, in the normal re-election time frame.
But - there are always buts - what if the board is factionalised? If that's the wish of shareholders, so be it. If an individual director believes they cannot properly discharge their duties, they can - they have to - resign.
And clearly, none of this denies the rights of a shareholder or shareholder group - which might or might not include one or more directors - to seek to change the board between regular rotations.
It might seem like the sort of fine distinction which NAB dissident Cathy Walter is accused of obsesssing over, but the key point is the difference between a shareholder, even a director shareholder, seeking to sack a director, and other directors as directors seeking to do so.
I don't want to stray too far from the general to the particular of the NAB brawl, except to note that the gang of seven sought to sack Walter even though she had not obviously stepped over any crucial line.
Their statement said they "agreed" that she had made unfounded attacks on the integrity of the PWC report; she failed to co-operate with the investigation; and she failed to give satisfactory assurances that she would only act within the board.
Those are demands that are on the face of it outrageous. They are tantamount to demanding Walter agree to breach her core directorial responsibility. No director could sensibly or legally give such commitments. No group of directors could sensibly demand them.
Every director of every company has to go where their interpretation of the proper discharge of their directorial responsibility directs them.
If that means attacking the report, so be it; if that means not co-operating, so be it; if that means reserving the right to go outside the board, ditto again.
I get very uncomfortable when I read one commentator writing that even if she were right and the rest were wrong, she should go. No, she must do what her interpretation of her legal responsibility obliges her to do.
Even if - and this is the really challenging one - she is wrong and all the others are right. And even then they have no right to seek to sack her, in my judgment, unless and until she behaves improperly or illegally - something that, given her meticulous focus on process, is doubtful.
A sentence like "the non-executive directors are unanimous in their view that without the trust and respect of her fellow directors, Mrs Walter can no longer function effectively as a board director of the National" is not only obviously factually incorrect - they are obviously not "unanimous" - but somewhere between pompous and pointless.
It is also a statement of their own failure. The concept and practice of our representative shareholder democracy does not recognise those as prerequisites for remaining a director. The position at Telstra is similar but intriguingly different. One director has lost the confidence of his fellow directors, but it's the chairman. And he chose to resign.
Setting aside the complications of government control and the special - legal - characteristics that flow from that (discussed in these columns a few weeks back), the simple and undeniable point is: fine.
But crucially, that was Mansfield's choice. And if he'd been formally sacked as chairman, again he could have chosen to remain a director.
But how could he? Surely board unity comes first? Well, no, actually. And this is the over-arching lesson of it all. Individual directors discharging their legal responsibilities, as they see fit, comes first.
It's more than a touch piquant to see people demanding a return to practices and principles of the clubbish world of some time before 1990, when both business and legal reality is now very different.
You want a return to unified boards? Better hitch a ride back to the past in that magic DeLorean. The great irony of Walter being accused of being consumed by process is that she is actually the first lesson of the substantive future all boards and individual directors are going to have to adjust to.
The Australian
This report appears on NEWS.com.au.
