Duty Calls

Strong due diligence is vital before joining government boards, but so is leaving politics at the boardroom door, writes Tony Featherstone.

Dennis Mutton FAICD, a former public service executive, has chaired or been a non-executive director of more than two dozen government boards during a stellar governance career.

Mutton has led boards through changes of government, ministerial turnover, politically influenced director appointments, and everything else that can diminish public sector directorship. But he has loved the experience and believes government boards have much to offer directors.

He is a member of the premier’s Science and Industry Council and chairs the SA Dairy Industry Fund, Pork CRC, the Australasia Pork Research Institute and the Geographic Indications Committee of Wine Australia. In addition, he sits on private sector and not-for-profit boards. Mutton’s chairmanship of BioSA, a high-performing business accelerator owned by the South Australian Government, is a highlight.

“BioSA sits at this nexus between early-growth tech companies seeking capital and advice and government policy that helps foster a community of start-up ventures,” he says. “The board has helped deliver real outcomes to help early-stage companies in SA. It’s been a terrific experience chairing BioSA over the past seven years.”

Mixed reviews

Not every director feels the same about government boards. The first phase of the Federal Government’s smaller government reform agenda axed 40 government boards and the second phase was expected to cut another 36 this financial year. State and territory governments are also expected to cut government boards in the next 12 months.

The abrupt axing of some government boards and a volatile political arena means greater due diligence is needed before joining them. The propensity for governments to change after a term in office, and ministerial merry-go-rounds at times, can make it harder for government boards to do their job and increases reputational risk for directors.

But for all the challenges, government boards remain an important source of directorship and an opportunity to learn about public policy and build government networks – two in-demand skills on commercial boards.

Mutton, the former chief executive officer (CEO) of the Department of Primary Industries and Resources South Australia, says due diligence for a government board is broadly similar to that for a public, private or not-for-profit enterprise. “The big difference is board process and content. You must understand the government board’s role and purpose.”

The starting point for directors, he says, is assessing their suitability for government boards. “Business executives used to commercial boards that have ultimate decision-making power can struggle. Government boards typically report to a responsible minister or even the premier or prime minister. Department heads can be on the board and there can be ministerial advisers in the background. You don’t have the same scope for decision-making as on commercial boards.”

Mutton says directors must be capable of pushing politics aside. “You have to understand policy direction, but boards must be capable of governing the organisation regardless of who is in power. If you strongly disagree with a particular public policy, you will find it difficult to make decisions objectively.”

As with any due-diligence process, directors must assess the reputation of the board and its directors. “The big difference is the minister typically makes the board appointments,” Mutton says. “You may have little say in who else sits on the board. Sometimes the chair can influence board composition, but I have chaired government boards where I have had no say on who joined.”

Connecting the dots

Understanding the alignment between the government board and the director’s skill-set is another consideration. Mutton says: “Know what the government board is about, whether it is something you have a passion for, and if you add real value. That’s no different to any board. If you don’t believe the board will have influence and genuinely make a difference, and that the responsible minister is not open to frank and fearless advice, think carefully about whether you should join it.”

Peter Achterstraat AM FAICD, adjunct professor at the University of Sydney’s graduate school of government and president of the Australian Institute of Company Directors’ (AICD’s) NSW Council, says directors should understand differences within government boards and adjust their due diligence. The board of a government-owned corporation, for example, can have a different mandate to a board established to deliver an infrastructure project, an audit and risk committee, departmental advisory board, or arts board with a strong fund-raising component.

For an audit and risk committee of the board of a state-owned corporation, directors should look at previous auditor-general reports on the agency. “There is a wealth of information that will help a director frame questions as part of the due-diligence process,” Achterstraat says. “With infrastructure, directors should ask: why does the government want a board to deliver the project and is the project adequately funded?”

Achterstraat says reputational risk is an important consideration. “If a departmental officer calls and asks if you want to join a government board and gives you 24 hours to decide, ask why. If it’s a proper board, there should be a proper process for director interviews and appointments.”

Phil Butler GAICD, state manager of the AICD ACT division, says understanding the board’s role is a key component of public- sector board due diligence. “Your first question should be around clarity of purpose – getting that proper understanding of the organisation’s objectives and what is really expected of the board. You should read the board charter, and other base documents, to understand why the board was established.”

Butler adds: “Before accepting the appointment, ask about the relationship between the organisation’s CEO and chairman, and the relationship with the minister.  You need to get an understanding of the organisation’s strategic plan, the role of the board, and the value placed on the board’s independent advice.”