1. 16 October 2008 What keeps you Awake at Night? A master-class for directors of GTOs

2. Topics Defining governance A ‘proper’ focus for the board Frameworks, principles and guidelines What directors worry about (really) Building better governance

3. Directors’ Role Management run the company the board see it is run properly Manages the company to achieve the plan endorsed by the board Implement the plans and report to the CEO Board CEO Senior management Staff Middle management Shareholders Ensure the company meets the shareholders’ needs Own the Company

4. Defining Governance The framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations It encompasses the mechanisms by which companies, and those in control, are held to account If management is about running a company, governance is about seeing it is run properly

5. Defining Governance In groups discuss the difference between governance and management Then discuss the difference between directors and managers Feedback your observations to the whole group

6. Board v. Management focus Compliance Operations Financial Strategic Directors’ focus Management focus

7. Governance Environment Stakeholders SuppliersClients Staff Operations

8. The role of the board © Robert I. Tricker, International Corporate Governance: Text Readings and Cases Future orientated Past and present orientated Policy making Monitoring and supervising Internal role Approve and work with and through the CEO Strategy formulationProvide accountability External role Performance rolesCompliance roles

9. Where does your board spend its time? Consider the Tricker model – what proportion of your board’s agenda is spent in each quadrant? Where would you rather your board spent their time? Feedback observations to the group

10. Using roles and focus You can use the ‘roles’ diagram or the Tricker model to govern information given to the board Ensure information is presented in context Keep information at the ‘right’ level

11. Governance Information © Robert I. Tricker, International Corporate Governance: Text Readings and Cases Future orientated Past and present orientated Culture Policies Procedures Controls Monitoring / Reports Compliance framework Internal role Board Charter Delegations of Authority Performance reviews Statements of intent Annual report AGM External role Performance rolesCompliance roles

12. Information Hierarchy ‘cascade’ - appropriate detail at each level Strategic plan: L ong term direction — what our organisation is going to do and how Operations plans: How each function/operation will implement its Business plan. eg production plans, training plans, recruitment plans Business plans: How to implement our Strategic Plan. eg forecasts, financial plans, marketing plans and HR plans Board CEO Senior management Staff Middle management Shareholders Statement of Intent: What shareholders and stakeholders need to know about our plans FUTURE / PERFORMANCE INFORMATION

13. Using frameworks What guidelines, principles or frameworks do your boards use?

14. ASX Recommendations 1.Lay solid foundations for management and oversight 2.Structure the board to add value 3.Promote ethical and responsible decision- making 4.Safeguard integrity in financial reporting 5.Make timely and balanced disclosure 6.Respect the rights of shareholders 7.Recognise and manage risk 8.Remunerate fairly and responsibly

15. Bob Garratt’s fundamentals A director’s primary loyalty is to the company as a separate legal entity Respecting the board’s collegiality and collective responsibility The chairman is the ‘boss of the board’ and the CEO is the ‘boss of the daily operations of the company’ The board must develop effective annual selection, induction, evaluation, development and renewal processes to keep itself healthy and sufficiently diverse The board must ensure its connectedness to the rest of the organisation to test quickly the effectiveness of its policies and strategies, and have the flexibility to learn from them

16. Measuring performance Who measures their board’s performance against: –The charter –The constitution –ASX principles –OECD guidelines –Other standards? Feedback to group

17. What boards worry about Financial Government Resources Reputation Strategy Leadership Competitors Mergers Issue 0 10 20 30 40 50 60 70 No of mentions

18. Issues by sector 0% 5% 10% 15% 20% 25% 30% 35% 40% Government Resources Strategy Reputation Leadership Financial Competitors Mergers Percentage of respondents Government Commercial Not for profit

19. Government - Detail Issues Raised: Regulation Change of government Policy, legislative or regulatory change Change in funding or support Trend 0% 5% 10% 15% 20% 25% 30% 35% 200420052006 Percentage of respondents citing issue

20. Quick quote “Tax and regulation strangle a lot of perfectly good businesses. It's time to cut back on both of them. Regulation too is another cost: but how can we regulate the regulators?” The Adam Smith Institute

21. Resources - Detail Issues raised: Loss of staff Loss of IP with staff Shortage Unavailability Poor utilisation Trend 0% 5% 10% 15% 20% 200420052006 Percentage of respondents citing issue

22. Quick quote “The stone age did not end because they ran out of stones.” Bjorn Lomborg

23. Strategy - Detail Issues raised Implementation Lack of decision- making Lack of leadership Poor communication of strategy Trend 0% 5% 10% 15% 20% 25% 200420052006

24. Reputation - Detail Issues raised Donors Government Customers Investors Markets Banks Trend 0% 4% 8% 12% 16% 200420052006

25. Quick quote “… our principal concern at that time was to stop American wheat growers from getting our markets. We thought Mr Flugge would fight hard for the Australian wheat industry."

26. Leadership - Detail Issues raised Poor leadership Cultural change Board failure Management don’t support strategy Trend 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 200420052006

27. Financial - Detail Issues raised Cash flow Performance Availability of capital Trend 0% 5% 10% 15% 20% 25% 30% 200420052006

28. Issues by director experience 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Financial Government Resources Reputation Leadership Strategy Competitors Mergers Novice Experienced More experienced

29. What didn’t they say? No mention of: Ethics or morality Sustainability, Environment or CSR Fraud Terrorism or acts of war Diversity/group-think Tax (or equivalent regime) Lack of people willing to be directors

30. Talking about the issues Who encourages open ended discussions with their board about the issues that the GTO faces? Who starts those discussions? What are the results of those discussions?

31. Building better boards Skill based recruitment Induction Education and training Paid boards Performance reviews Succession planning

32. Celebrating governance Don’t forget to be grateful for the board you have Even if you are building a better one!

33. More information? Information on: Directors Boards Roles and duties Ethics Strategy Risk Government funding and reporting

34. julie@mclellan.com.au www.mclellan.com.au PO BOX 97 Killara, NSW 2071 M: +61 4 11 262 470 T: +61 2 9499 8700 F: +61 2 9499 8711