At the Australian Institute of Company Directors Annual Governance Summit recently, much of the discussion centred around the fallout from the Hayne Royal Commission and what that meant for directors.
However, some sessions were forward focussed and in particular, the presentation by Australia’s Chief Scientist Dr Alan Finkel AO raised the issue of the advantage of human directors over robot directors. He cited the example of Deep Knowledge Ventures, a Hong Kong based venture capital firm that appointed an algorithm to its board of directors in 2014 to effectively veto decisions on the basis that the algorithm could crunch through the various criteria far more quickly and with more certainty than humans.
However, algorithms and robots, as Dr Finkel said, do not have a sense of smell and the ability to “smell a rat” is an important aspect of being a director. That is, the ability to discover when all is not right even when reports are to the contrary. Dr Finkel spoke about engineering thinking as a way of approaching the director task. Engineering thinking involves coming to a decision that optimises for multiple parameters rather than reaching a compromise. The phrase ‘optimise for multiple parameters’ is one that could be used in business more broadly.
Dr Finkel also spoke about the role of the board as the custodian of vision and culture for an organisation and spoke about the way culture could be advanced. He made the point that it is an active requirement and not a passive one and made the analogy about the way organisations approach safety concerns in that they drill, drill and drill again. They document procedures and they have a culture of constant improvement for safety. They have a culture where there is no penalty for prioritising safety and there are incentives for avoiding risky behaviours.
In the context of culture the challenge is to embed this and potentially replace the words safety in the above paragraph with the concept of integrity and the problems of the Hayne Royal Commission would hopefully not repeat themselves.
Dr Finkel’s presentation covered a number of other areas but importantly spoke about the ability of the board to work within the bandwidth of humans i.e. to ensure directors are not on too many boards. He also noted the role of the chair to ensure that directors are not overloaded with information.
He made a very valid point that while digital distribution of board papers may make it easier to send more information, the role of the chair is to avoid digital overload and to manage the flow of board papers. Dr Finkel advised that directors be pointed to essential reading with other readings as background and that there are ways of running meetings and reporting on activities. This would ensure time is not wasted on compliance and that there is space in the board meeting for strategic thinking.
He also raised the point of creating a “task and finish committee” for major projects. The role of the committee is evident from the name it is not just about starting but also monitoring and completing a project.
Finally, and following on from engineering thinking, his recommendations for boards was to use the engineering approach to identify problems, analyse them, test solutions and iterate until the appropriate outcome is found.
Author: Lyn Nicholson
Lyn Nicholson, General Counsel
T: +61 2 8083 0463
Dan Pearce, Partner
T: +61 3 9321 9840
Trent Taylor, Partner
T: +61 7 3135 0668
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Published by Lyn Nicholson