Compare the increasing statutory demands and personal liabilities now placed directly on directors against the acknowledged role of the board as a whole - that is, to govern and oversee an organisation. Directors must guide the organisation to grow and flourish and do so with stringent care. Our five keys to stronger board leadership will help directors cut through the thorny complexity of demands to reach sustainable high performance for the organisation.

The primary purpose of the board is to govern the organisation. This involves developing broad strategies, policies, objectives, and key performance targets and appointing and empowering the CEO. Put simply, a board’s role is to focus on the ‘big picture’, yet directors can be found liable for specific breaches of certain statutes, as we saw in the recent Hayne Commission into Financial Services.

It’s not surprising that many directors increasingly feel like moving targets who must guard against incoming fire from many directions. The depth and breadth of legislation that directly impacts directors have grown significantly over the last decade, with more change on the horizon. The potential of personal liability facing directors is on the rise. Directors can be held personally liable for breach of a range of duties, including directors' duties under the Corporations Act and many specific statutory duties under legislation such as taxation and workplace health and safety laws.

How can a board fulfil its obligations of strategic and cultural oversight whilst ensuring each individual director fulfils his or her personal duties? How can a board adequately empower management to deal with the operational detail whilst ensuring each director is adequately informed and aware? What structural and cultural qualities will support an adequate balance between directors’ knowledge of risk management issues without bogging the board down in operational detail? 

The answers to these complex questions lie ultimately in the strength of leadership demonstrated by the board and individual directors. Boards must establish appropriate structural corporate governance and a suitable corporate culture.

We offer five keys to stronger board leadership.

1. Clarity of roles and responsibilities, matched by adequate accountability

Directors must be clear not only on their own roles and responsibilities but also on the roles and responsibilities of others.

Choosing the appropriate CEO is a pivotal starting point. The CEO needs a clear role description and division of responsibilities with the board, along with adequate reporting and accountability. The board must then ensure adequate clarity and resourcing of all key roles. Personnel should be empowered to do their jobs well. Skilled personnel with clear role descriptions and strong accountability will ultimately play a crucial role in supporting and protecting the board and the organisation.

Directors cannot and should not micro-manage the business. Therefore, it is crucial that they have confidence in the skill and dedication of their executive team. Responsible personnel must report effectively to ensure the board feels comfortable about complying with statutory requirements.  

Board committees can also significantly support a board's knowledge and operations. The committee's role and appropriate delegations and authorities must be clear and consistent with the organisation's strategic operation. For example, the board needs to be clear and consistent about how issues with significant risk or strategic impact are dealt with in practice.

Further, the skills base and composition of the board must support the strong leadership required from the board.

2. A strong compliance framework and compliance culture

The cultural tone of an organisation is set at the top. The culture is formed when ‘what we value around here’ is expressed in the behaviour of leaders.  It’s crucial that the board establish and demonstrate a strong compliance culture. This must be supported by an adequate compliance framework that is prioritised by the board.

If directors ‘allow’ an offence to take place by tolerating a poor compliance culture, the organisation may be found guilty of an offence in some instances. Further, the strength of an organisation’s compliance framework may be relevant to the applicable penalty determined by a court for a breach of a statutory duty.

The board must ensure that it receives adequate reporting in order to enable the directors to monitor and oversee the compliance framework and culture. The training of directors is important to ensure that directors have an adequate understanding of relevant laws in order to enable them to make adequate inquiries of management. Directors must take the lead in ensuring that risk management, the compliance framework and the compliance culture remain adequate in practice. Leadership by the board must be true, both in practice and in theory, to the organisational culture the board wishes to cultivate.

3. Proactive and respectful leadership

Directors should be proactive in meeting their duties by actively monitoring compliance and due diligence programs, asking questions, being informed, and holding executives accountable. To develop these skills and perform their role constructively, directors may need training and coaching.

Being consistent in the manner of oversight is an important element of the satisfaction of directors’ duties as well as supporting harmonious and respectful relations between the board and management. Respect is a crucial element of the leadership style required of the board to ensure the maintenance of productive working relations as well as demonstrating the appropriate organisational culture to all staff.

4. Strong communication

Honest, open, and transparent communication is a strong element of good corporate governance. This depends, in part, on the board's overall skillset. Directors’ leadership and communication skills are highly relevant to ensuring that management is empowered to perform its role well and that the flow of information is meaningful and complete.

Directors must know when and how to ask questions. Respectful enquiry strengthens accountability and transparency. It’s vital that the board has its own subculture in which thoughtful questioning is seen as a valuable contribution.

The board must support the development of its own and the organisation’s strong communication skills.

5. Regular review and reflection

Organisations, the law, and relationships are not static. For these reasons, directors must continue to question, reflect, and develop their skill base and ability to react to their organisation's changing demands.

Directors need to continue to:

• 'pulse check' the compliance culture;
• question whether the compliance framework is adequate in practice;
• monitor issues arising within the organisation with a view to continuously improving systems and processes; and
• Supervise executives to ensure that the right people are performing in the correct roles and to board expectations.

While the stakes continue to grow in terms of the potential for director liability, the need for clear strategic vision and a performance focus continues to drive leading boards. The best directors are able to balance these competing demands by demonstrating strong leadership in compliance, strategy and performance.  Directors should set, monitor and oversee compliance frameworks and cultures that support and protect the organisation and its directors.  Directors must also promote the strategic direction and performance of the organisation.

Clarity, focus, commitment and communication are excellent attributes for directors as they lead in an environment of change and increasing risks. Our five keys to stronger board leadership will help directors cut through the thorny complexity of demands to reach sustainable high performance for the organisation.