Directors change, but satisfaction remains

ONE of my favourite stories about board life "in the old days" was that of a seating plan.

ONE of my favourite stories about board life "in the old days" was the seating plan.

Twenty or so years ago a strict seating plan applied in the board room of one of our largest companies.

By all accounts, it was a strangely shaped board table and the most recently appointed director was always placed at the maximum distance from the chairman. A change of seating was only possible by dint of retirement of a director and appointment of a new one.

In this game of disciplined musical chairs, directors were never allowed to remove their jackets (no women directors at that stage), even if the temperature soared above 40 degrees.

So how has the life of a company director changed? Most professional company directors who have been in the game for some time would attest to the fact that the life of a company director has altered in many ways.

Of course, the core function of acting in the best interests of the shareholders remains the central concern of all company directors.

However, both the day-to-day business of being a company director, as well as the overall weight and balance of functions, have irrevocably altered over the past decade or so.

The changes have been both good and bad. The new technology has made instant communication between management and board members much easier.

Routine tasks, such as reviewing monthly operational reports and financial statements, can be performed away from meetings and by exception. Company board meetings, in many instances, now occur fewer times per year than was once the case.

And the new technology has made it much more feasible to have overseas-based company directors, who can participate in board meetings through teleconferencing, although timezones can make this arrangement slightly tricky.

The size of company boards has also tended to contract over time. A board that may have had 12 or 13 directors in the past now has eight or nine. Of itself, this change is not too dramatic and arguably for the better, although the smaller number of directors does increase the burden of committee work, particularly if some directors live overseas. The number of board committees has tended to expand over time, and the charters which form the basis of their activities have also been extended.

In some cases, all directors are expected to attend committee meetings even if they are not members of the committee.

So while there are now fewer formal full board meetings, the overall time demanded of most directors has risen significantly over the past decade or so.

But when asked about the greater time directors need to fulfil their duties, many would deflect the question to emphasise the changing nature and balance of those duties, including the greater regulatory burden on directors.

Whereas board meetings in the past would have been dominated by discussion of company performance and strategic options, there is now a need to ensure that the compliance requirements as set down by the corporate regulators and the ASX are met.

Many company directors will also recall the additional time and attention required when international accounting standards were mandated and the financial statements of the company had to be completely reformulated.

Keeping track of what number CLERP (Corporate Law Economic Reform Program) we have got to and what the different versions have involved has also occupied the minds of directors. And for those directors of companies in the financial services sector, there have been even more regulatory changes.

I suspect most directors have taken these changes in their stride, endorsing the proposition that good corporate governance and good company performance go hand-in-hand. But many do resent the enforced rebalancing of their efforts, towards compliance and away from dealing with matters more closely connected with adding value for the shareholders.

At the end of the day, directors essentially trade on the basis of their good name and reputation. When directors see their colleagues and friends caught up in litigation arising from a mistake they may have made in fulfilling their board duties, it is a reminder that a lapse of judgment can have dire consequences.

Sometimes, the criticisms levelled at individual directors by the business press and others are both naive and unfair. If a company looks as though it is heading towards the rocks, it is of course very tempting for a director to bail out, at the earliest possible opportunity.

But often the best and most ethical directors are the ones that hang around to try to rescue the situation, or where this is not possible, to achieve the best possible outcome for the stakeholders. Those directors are often punished for this behaviour.

The changing risk-reward balance of being a company director has undoubtedly affected the willingness of some people to take on board positions, particularly those who have made a lot of money in their corporate careers. The lure of the private equity world is often strong for these people, who would otherwise make fine directors of listed companies.

Another recent and significant change that many directors would nominate is the emergence of the proxy advisers. These advisers have become a much more powerful force, as they effectively act as agents for large institutional shareholders.

The complications are considerable. The board is acting as the agent of the shareholders but some shareholders have agents themselves. Some of these shareholders -- the superannuation funds, for instance -- will vote at AGMs strictly according to the advice given to them by the proxy advisers.

Their influence now extends beyond whether or not certain directors should be re-elected, to include the acceptance or otherwise of remuneration reports and advice on takeovers.

Again, I suspect that most directors have come to grips with the changed environment, notwithstanding some frustration that the shareholders themselves do not make the decisions as to how to vote at AGMs and in other matters.

No doubt, the life of a company director will continue to change and evolve over time. There are many willing and able candidates, so the heightened risks may put some individuals off, but there are lots of others happy to give it a go.

And it can be a very worthwhile and satisfying experience. But just when you think you have things under control, a letter arrives or there is a raid on the shareholder register. It is a case of "game on" and then the life of company director can become truly high-octane.

In the third of a five-part series, academic and company director Judith Sloan examines how the life of a company director changed in the past decade

TOMORROW: The role of committees in board life

Judith Sloan is an economist and company director. In 1994, she was appointed to the board of Santos and has sat on a number of company boards since then. She currently sits on the board of Westfield Group. She has also sat on a number of government boards, including the Australian Broadcasting Corporation. She has been a member of the Productivity Commission and the Australian Fair Pay Commission.