We were delighted to welcome Julie Garland McLennan, Boardroom Expert, to speak about governance for companies. Having served on 18 boards across three continents, Julie has helped boards and directors to lead successful organisations for over 22 years.
Julie has written and facilitated director education for leading governance institutions, including the Australian Institute of Company Directors, The Governance Institute of Australia, and The National Association of Corporate Directors (USA). She is also the author of six books for directors and is publisher of The Director’s Dilemma newsletter.
In this webinar, Julie outlined standard governance concepts to position yourself, your board and your company for success. These concepts have been categorised into five different steps.
The first step is to get access to directors with specific skills that are relevant at each stage of your company’s growth. “Never assume everyone knows how to be a director,” Julie warns.
An ideal director will have experience on the board of a similar stage company in the same sector, industry or technology. For example, during your company’s growth period, you’d have directors who have been on the board of a startup.
Other characteristics of an ideal director include: the ability to solve one of the problems your company faces; the ability to build trust with customers, investors, or regulators; the ability to understand your capital structures and sources; an understanding of the role of the board and directors.
The second step is to manage the tension between shareholder representation and director contribution. “Startups regularly conflate this difference, which is a really bad mistake.”
Shareholders buy shares in your company because they have insight into your promised plan, which they expect will bring them returns. “They want regular information to ensure that is indeed what is happening.”
On the other hand, directors are liable for what the company does - they act on the best interests of the company and represent the shareholders. Additionally, they reserve the right to any company information they reasonably need in order to make the board’s decisions.
However, in the scenario where a director is also a shareholder, they must keep their own interests separate from the best interests of the company, as this can have legal implications.
Step three is to develop appropriate advisory boards, panels, and governance to meet the company’s needs. Julie encourages implementing other governance structures to compliment your board, outlining that “corporate governance standards are guidelines, rather than a prescription.”
For example, a shareholder council will be established if your shareholders want even more representation or detailed information. This structure enables shareholders to interact in-depth with management, without making board decisions.
Advisory boards are appropriate when you require more technical advice, rather than careful monitoring of performance - which is typical in a shareholder-dominated board. Advisory boards are still liable for what the company does.
Finally, a panel of advisors is useful if you prefer approaching each individual director for their particular skills. This differs from a board, where directors come together to contribute their skills and insights to the decisions being made.
The fourth step is to prepare for listing and the ‘ASX Standard’ governance. Julie recommends preparing for your IPO (Initial Public Offering) one year in advance, to ensure your company is ready financially.
She also encourages drafting your prospectus early and doing adequate research to choose the right market and the right time to go to market. Making incorrect decisions risks positioning your company as an unattractive investment.
In terms of the ASX, it encourages the majority of directors to be independent because they don’t have any significant shareholding that could influence their judgement. It’s common for your company to have more non-independent directors before it becomes listed.
The final step is to set expectations regarding director tenure, remuneration, and behaviours. Ensure you outline these from the onset, particularly about director tenure. This will enable directors to outline their career goals and motivations for wanting to join your company’s board. In turn, you can align these with your company’s interests, and inform the director when you expect to move them on and off your board.
You can watch the full discussion on our YouTube channel here.
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