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Liam Butler interviews Ron Scott – Author of ‘The New Director’

Ron Scott JP Chief Executive Stellaris ‘your centre for governance education and business training’

Ron is a trustee of the Tauranga Energy Consumers Trust (TECT) and Deputy Chair of the Bay of Plenty District Health Board. He chairs the Community and Public Health Advisory Committee and the Disability Services Advisory Committee and sits on the Audit and Risk Management Committee. Ron is Chair of SILC Charitable Trust, a charity which supports over 150 people with disabilities.  Ron has 20 years experience in the education sector. He is a former member of the University of Waikato Council and managed two tertiary organisations prior to establishing Stellaris Ltd.

Question One

Ron, you state that Nurses do not necessarily make good directors.  For health professionals who want to become a good Director, how can they know if they will be any good at it?

Ron Scott:

The point I was making is that being a good director is a skill that has to be learned and is a different skill from being at the workface. Whether someone is a nurse in a DHB, an electrician in a family business, a parent in a school or an academic in a university there is a skill in looking at the organisation from the perspective of a board member. The most obvious ones include understanding the accounts of the organisation and knowing how to plan strategically across many departments quite apart from the legal responsibilities. Of course a Nurse can obviously become a great director but it’s not the nursing training that provides the skill but rather the governance training. Too many directors go in to it for the wrong reason.

The first chapter of The New Director lists the 8 reasons people have for wanting to be a director which are bad reasons. One which is pertinent to your nurse example is about how some people want to join the board because they want to represent (their colleagues, the patients, etc) on the board. Directors are not there to be representatives. They are there to make decisions. If you want to make a representation then write to the Chair of the board -don’t join the board. As long as that point of view is heard. The reason is that if your motivation is around things that matter to a narrow group of people you feel you represent then you will be bored to death with most of the deliberations!

Question Two.

The ability to read and critique the financial reports of the company is part of every directors role. How can external stakeholders best raise any concerns if they think someone on a board doesn’t fully comprehend the financials they are governing?

Ron Scott:

Board members should see a  much more detailed set of accounts than an external stakeholder will see and for that reason it is possible that the motivation behind board decisions are not always obvious. If you mean by "stakeholder" a person who might be a shareholder then they can raise issues at the Annual General Meeting or, if it is more urgent, write directly to the Chair. In most cases the Chair will respond in as much depth as they are allowed given insider trading rules etc.

Many stakeholders are not shareholders. For example I am deputy chair of the Bay of Plenty DHB. We have 3500 staff and a community of potential clients stretching from Waihi to East Cape. We encourage the public to attend our monthly board meetings to understand what is happening. But our monthly management  accounts are not available to the public in full so we see things the public does not.

The accounts are a measure of success. When the accounts are showing signs of failure stakeholders are right to ask questions. Signs might be a weak balance sheet, poor cashflow, apparent over expenditure in some areas, unusual contractual relationships etc. Always read the notes to the accounts. Sometimes odd looking entries are perfectly explained. Sometimes more questions are raised.

My little rule of thumb is that any problem, no matter how complex, should be able to be explained in simple language by the experts. If they cannot explain things simply then it’s a red flag that they might be obfuscating to hide their own concern -or worse!

In a public entity one would hope that auditors pick up on incompetence of board members but sometimes a whistleblower shouldn’t wait until the end of year accounts are produced. However you would want to be sure of your position as a false or misleading accusation might cost you more than you would like and perhaps damage the organisation too.

Question Three.

What tips do you have for prospective board members in the health sector given that you warn that a Director can be fined up to $200 000 for any breaches under the Companies Act.

Ron Scott: 

Research, read, prepare, ask questions. Obviously get a copy of The New Director.

The judge said of Sir Douglas Graham "I am satisfied that the accused genuinely believed in the accuracy and adequacy of the documents". He was still found guilty. Ignorance is no excuse. Graham was sentenced to six months home detention. He should have checked.

Gloria Davis lost her husband when the Easy Rider sank. She claimed she was a director in name only to look good on the company documents. This is so common – for spouses to be a "sleeping partner" in the business. There is no such thing. Even though her husband really ran the show Davis "should have known", as a director, what the health and safety rules were. She and her company were fined over $200 000 and Davis has to do 300 hours community work.

Imagine how much more likely a life and death situation is in a health entity.

If you cannot afford the time or if you don’t like reading the papers and really understanding the issues, and if you don’t want to be continually learning and keeping up to date then being a  director is not for you. I have a whole chapter in the book on responsibilities and liabilities. Governing is not a retirement job. It is serious and has serious consequences. The Companies Act relates to companies in New Zealand but there are a host of responsibilities under the Public Health and Disability Act, taxation legislation, Health and Safety in Employment Act and, one I came across just this week:   the Crimes of Torture Act (which relates to some mental health facilities).

Question Four.

How do you think DHB Boards can be better governed?

Ron Scott: 

The DHB structure is that seven people are elected from the community and then the Minister of Health appoints five more. The purpose of the appointments is to ensure that the board has a balance of skills. Often voters elect a raft of health professionals. This is helpful to us amateurs to understand some of the issues in the workplace but a board also needs other skills and experience: legal, financial, economics, project management, property management, Human Resources etc. In a District like my own, which is widespread, it helps to have a geographic spread of board members.

My view is that 12 is a very large board and half as many could do the job as effectively. The key is to have a board who are not there to grandstand but will actively seek information to make good decisions. In my book I have a table comparing the size of boards in various entities. Fonterra has  a huge board of 13 directors while one of New Zealand’s largest employers, Spotless Group has just over half that many at 7 directors.

It’s easy to be good directors in a well performing DHB as the public are able to receive the services they come to expect. In a DHB which has a very tight budget it does not take long for things to become very noticeable. I remember seeing our accounts in the first year and realising that a $600 million revenue organisation had come in with just a $20000 surplus. That is sliver thin. One complicated surgical case could eliminate that! We’ve managed to increase it to over half a million now but we have to be careful not to eliminate future progress by reducing investment.

But good governance is more than the budget. There are employees to support  -they spend at least a third of their waking hours at the DHB and do an immensely important job. We have got to let them know we appreciate that.

We have to try and predict the future trends. We can’t use past behaviour as a predictor. People are living longer now but they are also much healthier for longer so just because a population is aging does mean there are increased health demands.

It’s exciting seeing how technology can help people remain in their communities for longer -not just for older people but also those who live in remote areas.

As governors we have to ask the organisation to lift its head from the details on a regular basis and check we are on track for our vision of a healthy thriving community. Sometime I see the opposite effect and directors end up focussing on the minutiae. That’s a sign things are going pear shaped. The number one task a director has that I mention in The New Director is Planning and Dreaming. If you don’t dream then how can your dreams come true?

 

The New Director

The New Director: Powerful yet simple strategies for becoming a company director in New Zealand $34.50 incl. GST.

www.stellaris.co.nz

 

"As Minister of State Owned Enterprises I appointed over one hundred directors. If Ron Scott’s book had been available I would have made it compulsory reading but not just for new directors.  The New Director is essential reading for all directors."

Hon Richard Prebble CBE

Former Minister of State Owned Enterprises

 

In this book you will discover

How to get selected to the Board of your choice

The 7 qualities that top companies look for

The 4 key skills required on any Board

How to write a CV that is guaranteed to get you noticed

How to weed out companies that spell DANGER for your career

How to fast track your understanding of business numbers

How to choose a market niche that matches your CV

Corporate Governance in New Zealand has been in the news in recent months.

 

In The New Director Ron Scott introduces newcomers to corporate governance to basic concepts. Key chapters for established directors include the discussions on legal and accounting concepts. Ron Scott urges against thinking of a governance role as a sinecure for retirement. It is a profession and requires a professional outlook.

 

A bit more about Ron Scott…

 

Ron has commercial industrial management and governance experience so backs up his academic skills with real world expertise.  Ron is the coordinator of the Stellaris Certificate in Governance qualification.  In addition to working in some of New Zealand’s largest companies as a business, sales and management consultant and trainer, Ron is skilled in Adult Education including workplace assessment and learning techniques. Ron is a registered assessor with ESITO and is contracted to do moderation for NZQA.

We have a copy of  ‘The New Director’ to give away in our prize draw.

 CLICK HERE to enter

Competition closes July 25th

Open to NZ residents only

 

About Liam Butler