Updated: Feb 15
Does the term “professional director” mean anything, or carry any weight? Is it earned or measured and who should be able to use the title and how do we know those using the title actually deserve it?
I recently posted an NBR story highlighting comments by Mr Tony Carter, about part-time directors, he was quoted as saying: “The professional directors who treat this as essentially a full-time job, which is what I do, they’re the ones that put the work in, they know how much they can do.”
I commented that “Unlike most other professions, engineers, accountants, etc., there is no professional disciplinary process. Through which directors can be held accountable for their actions, or lack thereof. The disinfectant called 'accountability' is missing, yet badly needed.”
I did not give the article much thought until I read a recent story about Aurora Energy and the fine ($5m) it received for failing to maintain its network in a robust and capable state, so it could service its community.
The background: Aurora is a lines company that owns and operates the infrastructure (poles, lines, etc.), distributing power to approximately 90,000 homes, businesses, etc., across the Dunedin, Central Otago and Queenstown Lakes districts. Aurora is a subsidiary of the Dunedin City Holdings.
Aurora was found to have poorly maintained its infrastructure over a 6+ year period (2012-18) to the extent it caused significant power outages that affected the communities it served. The commerce commission warned Aurora alongside providing recommendations. Which were ignored.
The connection between Aurora and Mr Carters comments? Simple, the premise of Mr Carter's comments were that part-time directors are a danger to all, saying: “The days when people were directors and sort of turned up for lunch are well and truly behind us. You need professional people who take their roles very seriously.”
In Aurora’s case, the current directors self-describe as “Professional Directors.” The directors during the 2012-15 period would, I suggest, have also self-described as “professional directors.” My supposition is based on their full-time roles, qualifications and that combined the 4 directors named in the 2015 annual report held 38 chair and or directorship roles. One director held 4 Chair and 15 directorship roles (concurrently).
Calling yourself a “professional director” doesn’t just rely on experience and knowledge, it requires the director to apply their tacit and explicit knowledge, combined with care and due diligence to the role’s execution. Being a “professional” also means you must commit to a process of continual professional development and be willing to be held accountable for your actions. With possibly serious repercussions when your actions cause harm. In Aurora’s case, the application of knowledge, care and due diligence were apparently absent. Just as the accountability of those directors responsible for the failure is also absent.
Aurora is obviously not the only case of systemic governance failure. The 2008 financial crisis, Mainzeal, Fletchers, CBL, Fonterra, ANZ, and many others, suggest the statements of Mr Carter as they relate to those who self-identify as professional directors were seriously misaligned with reality. The directors of these and many other organisations would have, and still do, describe themselves as “professional directors.”
Which leads to the nub of my question. Should the designation “professional director” have requirements that certify the users right to be called by this title. Or can anyone self-describe as being a “professional director.”
Why does it matter?
It matters because, when a director self-identifies as being a “professional director.” The title carries with it a presumption of higher learning, skills, knowledge, care and due diligence. Importantly, in the eyes of stakeholders, the title “professional director,” carries a weight of expectations, including that the person is more highly qualified for the role than someone who identifies as a “director.” There is also the presumption that the person using the title, “professional director” undertakes programmes of “continuous professional development” (CPD), just as engineers, teachers, accountants, etc., are required to do.
Unfortunately, using the word “professional” before the title director, vitiates the true meaning of “professional.” Because there are no professional standards by which self-named “professional directors” can be held accountable, other than the courts. Which is what I alluded to in my post when saying: “The disinfectant called 'accountability' is missing, yet badly needed.”
In the case of Aurora, there are multiple directors who deserve to be held accountable for the poor governance oversight and decisions that lead to the network failure and subsequent fine. Who will hold them accountable? There is no one.
How then can stakeholders have confidence that a director is qualified and suitable to use the term “professional director?” A starting point is utilising the criteria applied to other professions, which have three core elements, qualification, ongoing learning (CPD) and accountability.
The first part identifies a “professional” role as one requiring a bachelor's, master's degree or Ph.D., e.g. teacher, engineer, lawyer, etc. This is supported by the need for the professional to undertake specialised and ongoing CPD. Finally, both elements are supported and managed through a professional body. Whose responsibilities include a determination that the applicant has the required tacit and explicit knowledge to use the term “professional,” the development and provision of a curriculum that provides the necessary levels of CPD. Finally, they hold the “professional” accountable through various processes and procedures. Culminating in the body’s determination on the “professionals” right to hold a practicing certificate.
However, for companies and or organisations’, a director’s experience, rather than qualifications, are more highly prized. Making the reliance on academic qualifications less than optimal. Therefore, to determine if a director could be classified as professional. A fourth and equally important element must be considered that of experience. The difficulty is how to measure a director’s experience, which includes the application of their tacit and explicit knowledge and execution of their duty of care and due diligence.
This could be achieved by utilising two methods. First, review their directorships, then discuss the director’s performance with a mix of board members and exec from various entities in which they have had or still have directorships. The second part is to use the bi-annual individual directors performance review as a basis for uncensored/confidential commentary on the directors actual performance. This presumes firms undertake these.
The combined effect of using a director's past education, their ongoing measurable commitment to CPD, use of their performance reviews and experience, and their willingness to be held individually accountable. Would offer a solid platform on which determination of a directors right to use the term “professionally director” could be judged and controlled.
Using the descriptor “professional director” should not be left to an individual to decide if they are qualified to use the descriptor or not. Just as we expect other professions, lawyers, engineers, teachers, etc., to be accountable to a higher standard, so it should be for directors. There are too many directors using the descriptor “professional director,” who by any measure, have no right to do so. This is an issue that should be of great interest and concern to any director who values their own reputation and that of the profession of which they are a member.
Dr Denis Mowbray is a Fellow of the Chartered Governance Institute (ICSA) and Governance NZ. Denis is a governance specialist working in the corporate and not-for-profit sectors. Specialising in behavioural governance and its influence and impact on organisational performance.