presenter con livissianis managing director exemplar performance advantagepresentation cpa australia...
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PresenterPresenterCon LivissianisManaging DirectorExemplar Performance Advantage
PresentationPresentationCPA AustraliaFour Seasons Hotel30 August 2005
Which Board??“What Questions??”
Which Board? What Questions?
AddressAddress
1. What is the purpose - why am I interested in being a director?
2. Case Study Wesfarmers - The Total Shareholder Return Principle
3. Case Studies – corporate disasters, missing information
4. 10 Questions you should ask before joining a board
5. What are the essential skills to be a director?
6. Director job description and CV
7. World’s first Directors’ Skills Index
8. 10 sample questions of Director Skills Test
Your Purpose
THE PURPOSETHE PURPOSETo provide a
satisfactory Return toShareholders…
…be a socially aware andresponsible corporate citizen!!
Case Study - Wesfarmers
WesfarmersWesfarmers Target: 15% return on equity
18% return on capital
Consistent performance in the 9 years to 30 June 2005
Top 12 in ASX 100
Case Study - Wesfarmers
Corporate ObjectiveCorporate Objective“The Rules” ROC 18% - encouraged to expand business
18% ROC 10% - must demonstrate in corporate plan how you propose to get to 18% over the next 3-5 years
10% ROC – must demonstrate how you will get to 10% within the next year or two and to 18% - or suffer “the ultimate capital reduction”
Total Shareholder Return
Share price
Price Earnings Ratio P/E
Dividend yield %
Dividend ¢ per share NTA
Dividends times
covered
EPS – Earnings ¢ per share
UncontrollableControllable
ROE Economic and political influence
The Pressures
TodayTodayShareholders
StakeholdersRegulators
Board of Directors
CEO
Management
“The Corporate Disasters”
1.1. Case Studies - Corporate DisastersCase Studies - Corporate Disasters
AustraliaHIH
One Tel
Pan Pharmaceutical
OverseasEnron
WorldCom
Parmalat
Tyco
HollingerQuestions:Why did they collapse?What is the common denominator?
“The Corporate Disasters”
1.1. Case Studies - Corporate DisastersCase Studies - Corporate Disasters
Answer:
ACCURATE & TIMELY INFORMATION
i.e. true and reliable information was suppressed
“The Corporate Disasters”
1.1. Case Studies - Corporate DisastersCase Studies - Corporate Disasters
Other Influences:
Dominant CEO
Disregard for corporate governance, especially the issue of Independence – “the conflict of interest”
“The Hidden Information”
2.2. Case Studies – Hiding InformationCase Studies – Hiding Information
1. James Hardie Asbestos Compensation claims Corporate Social Responsibility (CSR)
2. NAB Currency options (APRA and the whistleblower)
3. FAI Re-insurance (boosting profits). Warren Buffett /
Berkshire Hathaway executive subsequently dismissed
4. Sons of Gwalia Gold options (puts recorded as income but calls not
recorded at all) - problem was known in 1999 with an exposure of $74 million, today it could be $1.0 billion!!
Why be a director?
Why would you want to be a director?Why would you want to be a director?
Negatives Regulation
Rely on skills of other directors
High risk
Personally liable for debts
Jail and other penalties
Negative media attention
Time and remuneration
Positives Remuneration
Glamour
Career
Ego, high profile
Recognition
Expertise
Self satisfaction
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard1. Is the board dominated by executive (dependent) directors?
2. Has the company performed consistently well in the past 3 years?
3. Has EPS and DPS fluctuated dramatically in the past 3 years?
4. Does the board and the CEO have performance targets for the next 3 years?
5. Are directors subject to regular individual performance reviews?
6. Does the company have an executive and board succession plan?
7. Does the board consist of directors with greater than 5 year’s tenure?
8. Has the external audit partner been the partner in charge for greater than 5 years?
9. Does the company have audit, risk and remuneration committees?
10.Have the executive and director packages been reviewed in the past 12 months?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
1. Is the board dominated by executive (dependent) directors?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
2. Has the company performed consistently well in the past 3 years?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
3. Has EPS and DPS fluctuated dramatically in the past 3 years?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
4. Does the board and the CEO have performance targets for the next 3 years?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
5. Are directors subject to regular individual performance reviews?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
6. Does the company have an executive and board succession plan?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
7. Does the board consist of directors with greater than 5 year’s tenure? Is there a conflict of interest?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
8. Has the external audit partner been the partner in charge for greater than 5 years?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
9. Does the company have audit, risk and remuneration committees?
Questions to Ask
The 10 Questions to Ask – Before Joining a The 10 Questions to Ask – Before Joining a BoardBoard
10. Have the executive and director packages been reviewed in the past 12 months?
Financial Literacy Benchmark!!
Financial Literacy Financial Literacy SkillsSkills
500 Directors
25 questions
10 correct answers
40% average score
70% should be considered a pass
Chicago Graduate School of Business
Directors’ Skills Index
What are the Skills That Are Essential To All What are the Skills That Are Essential To All Directors? Directors?
Essential SkillsA. Financial literacy
B. Specific skills based on experience
Essential KnowledgeC. Corporate governance
D. Risk management & internal controls
E. Duties & responsibilities
Other SkillsF.Interpersonal skills
G.Acumen
H.Natural ability
I.Application based on experience & gut feel
Directors’ Skills Index
Essential SkillsEssential Skills
Financial Literacy Understanding the workings of Statements of
Performance/Position/Cash flow KPIs such as GP margins, DSOs, stock turns Trend analysis, history of the business, ability to challenge
budgets
Specific Skills Based On Experience Industry knowledge Professional ability Product knowledge Technical know-how
Directors’ Skills Index
Essential KnowledgeEssential Knowledge
Corporate Governance Laws and standards specific to each country – not your money ,
doing it on behalf of stakeholders
Risk Management & Internal Controls Succession planning Internal controls What is the level of risk when you are not hedged
Duties & Responsibilities Directors can be personally liable for debts – cannot claim you
did not know Detailed set of legal obligations
Directors’ Skills Index
Other SkillsOther Skills
Interpersonal Skills Communicate with all levels of staff within the business Ability to listen and contribute at board level Ability to question and challenge senior executives
Business Acumen Cannot be taught – it comes down to experience
Natural Ability Cannot be taught – is it in your genes??
Application Based on Experience & Gut Feel Being able to monitor the situation and apply practical skills
when required
Your Job Description
Director Job Director Job DescriptionDescription Review the strategy and approve budgets
Monitor business performance Identify and manage major risks Ensure accurate financial reporting Evaluate CEO performance Approve executive compensation Oversee management succession planning Approve large investments and dividends
……...………..squeezed into a few weeks a year!!
Your CV?
Director CVDirector CV Employment history – senior management, other
boards, responsibilities
Experience – industry, management, profession
Qualifications
Remuneration
DO I HAVE THE SKILLS, IS THIS MEASURABLE??
CULTURE – DO I FIT??
Your Target Market
Director AppointmentDirector AppointmentNew Director – Nomination Committee
1. Awareness – profile building, CV including skills
2. NFP
3. Consultant/advisor to a board committee
Directors’ Skills Index
The Worlds First On-Line Skills Test Designed The Worlds First On-Line Skills Test Designed Specifically For Directors Specifically For Directors
Test an individual director or the whole board
Test can be taken in the privacy of the director’s own home
Test takes 2.5 hours with short breaks
Results emailed to the client within 60 seconds rated over 30 sections
Directors’ Skills Index
Test DetailsTest Details
Multiple choice over 3 modules
1. Numerical ability
2. Written communication and literacy skills
3. Core competency skills including financial literacy
Directors’ Skills Index
Directors’ Skills TestDirectors’ Skills Test Numeracy
Comprehension & spelling
Corporate Governance
Risk management
Internal controls
Accounting principles
Statement of Performance
Statement of Position
Cash Flow Statement
KPIs
Ratio analysis
Performance evaluation
Sample ReportSample Report1. NUMERACY SKILLS Addition, subtraction,
multiplication & division Combination Algebra Logic
Total Score
2. COMPREHENSION & SPELLING SKILLS
Word association Comprehension Spelling
Total Score
3. CORE COMPETENCY SKILLS Corporate Governance Risk Management & Internal Controls Duties & Responsibilities P&L Reporting Balance Sheet Reporting Cash Flow Reporting Ratio Analysis KPI’s Payroll Accounts Payable Accounts Receivable
Total Score
Directors' Skills Index
Directors’ Skills Index
Why Test The Board?Why Test The Board? To reduce the overall risks for the company and
fellow directors from poor decisions made as a result of inadequate knowledge of corporate governance, risk management, internal controls and financial reporting
An independent, objective assessment of skills
To identify the training needs of individual board
members
To identify the skill gaps of the board in general
Performance Advantage Program
Why Directors Should Undertake The Why Directors Should Undertake The Program?Program? Unique, intensive 2 day training program for
individual directors or small groups
Developed specifically to increase skills in areas identified in the Directors’ Skills Index
Focus on financial, corporate governance and risk management skills
Presented by Exemplar’s Managing Director, Con Livissianis
Performance Advantage Program
Sample Questions AttachmentSample Questions Attachment
Q1 Numeracy a b c d
Q2 Communications a b c d
Q3 to Q10 Core Competencies a b c d
Send in your answers via email to [email protected]
We will respond within 24 hours to advise you of the correct answers.The winning entry will be the first questionnaire returned to Exemplar withall questions answered correctly.
(Competition expires on 13th September 2005)