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 admin@exemplarpa.com.au

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)