TMTYB S01E08 (Performance) This is Take Me To Your Board from the Tasmanian Council of Social Service. This show's about governance, and it's not just for aspiring or current board members. It's for anyone who wants to hear from some of the country's top leaders about how a good board really should work. Each episode's based on one of the 10 principles of not-for-profit governance as laid out by the Australian Institute of Company Directors, hosted by Bridget Delaney and Cameron Allen. This is episode number eight, Performance. Bridget Delaney: Welcome to Take Me To Your Board. My name is Bridget, and here with me today is Cameron. Cameron Allen: It's great to be with you, Bridget. Bridget Delaney: Today, we are going to look at things like the appropriate use and oversight of resources, financial health, measuring performance, and monitoring insolvency. We will be understanding why things like key performance indicators and how we measure outcomes are important. Delving deeper, we'll examine what we need to understand about trading insolvent, and as a consequence, and as strange as it sounds, why not-for-profits should embrace profit. All sounding very practical this time, isn't it? Well, that's because in this episode, we will be exploring principle number six, performance. Bridget Delaney: As introduced by the AICD, for an organisation to work towards its purpose, it must have clear goals and timeframes within which to achieve them. The board must have a clear view, understanding and direction on the organisation's resources, financial, physical, human and intellectual, the performance of the CEO, financial information, financial health, budget, and impact. Cameron Allen: A lot to unpack there, and why is that? Bridget Delaney: Good question. They do this so that they can be clear on if and how the organisation is meeting its purpose. I have a doozy of an example this time, and just like all the other episodes. This example is more complex than what we will be exploring today. That said, for the purpose of this principle, it explains it well. Now, I am also very aware that the name I'm about to say will provoke a very clear response for you. I'm going to ask that you put aside any current thoughts and explore this example for what it is, a great example of principle number six, performance. So without further ado, let's pop back to 1990 and visit the Trump organisation. Now, the first thing we need to know is what the purpose is. Without the purpose, it is hard to understand the performance of an organisation. The purpose of this organisation was to set new standards of excellence in the world of luxury real estate and lifestyle. Its purpose was the high life, the bling and everything that entails, for the people who paid for it's services, as well as those who owned it. To understand performance, you need to know what the organisation is made up of.
TMTYB S01E08 Performance Transcript by Rev.com
Page 1 of 8
In 1990, the Trump organisation was a group of 500 business entities. It was big and had all the staff, real estate and equipment that you can imagine, but for the purpose of this podcast, we will be concentrating on just a few particular business entities, namely the three casinos in Atlantic City, the Plaza Hotel, and the Trump Shuttle. So, were these businesses successful? Let's look at whether it met its purpose. Well, by all accounts, they lived up to expectations of a luxurious lifestyle, which Donald J. Trump embodied in his everyday life, and was clear when you stepped into the foyer of any of these establishments. Donald's father, Fred, has been quoted as saying, "everything Donald touches seems to turn to gold." This fits with the purpose of the business and supports the narrative created by the then president of the organisation, Donald J. Trump. As far as what they projected publicly, it was going to be a tremendous success. The Taj Mahal Casino was tagged the eighth wonder of the world by Donald J. Trump himself. Then 1990 came, and these entities in particular started ringing alarm bells around financial health, all monitoring insolvency. It was estimated that the Taj Mahal Casino alone needed to make one million US dollars a day to remain viable. It became public knowledge that these entities could no longer make their interest payments. Cameron Allen: Sounds like the waters are getting murky. Bridget Delaney: They sure are. Dozens of banks that had loaned money threatened to foreclose on the loans, which would have resulted in a chain of bankruptcy, including Donald J. Trump personally. Donald J. Trump, who is well-known for his showmanship and charisma, was able to persuade the banks to keep the entities afloat with another $65 million in credit. Because of this loan, Donald was asked to step aside and allow the banks who had bailed him out the management seat. Not long after, all three casinos and the Plaza Hotel filed for bankruptcy. Trump Shuttle was handed over to creditors along with other assets to meet the debts that were owed. On top of this, there was additional movement of money by Donald from the organisation fund that can't be directly accounted for to the tune of one million dollars. Cameron Allen: So Trump has clearly overextended himself. Now, what is the takeaway message in all of this? Bridget Delaney: The takeaway message? Well, all of this is clearly mismanagement of money, which, in this case, is an indicator of bad performance. There is another point that is worth seeing here as well. Last year, Donald J. Trump tweeted in response to some negative media about his actions that “real estate developers in the 1980s and 1990s, more than 30 years ago, were entitled to massive write-offs and depreciation, which would, if one was actively building, show losses and tax losses in almost all cases. Much was nonmonetary, sometimes considered tax shelters. You would get it by building or even buying. You always wanted to show losses for tax purposes. Almost all real estate developers did, and often renegotiated with banks. It was a sport. Additionally, the very old information put out is a highly inaccurate fake news hit job.” He has also said that he “left at just the right time in Atlantic City” and "Atlantic City was a very good cash cow for me for a long time." Cameron Allen: TMTYB S01E08 Performance Transcript by Rev.com
Page 2 of 8
It must be said, taking personal responsibility for one's failings isn't a strong suit of Donald's. Bridget Delaney: Here we have a different picture of what happened. What we don't have is an acceptance of the simple fact that the incoming cash did not match the outgoing cash. It makes it very difficult to understand the use of resources, the budgeting, the financial health and the performance of an organisation if the person leading it will not look at or discuss the negative points of the situation. With all of that in mind, I'm very glad we have someone as experienced as Sally Darke to guide us through how to fulfil this requirement as a board member. Cameron Allen: This week's special guest is Sally Darke. Sally is currently Chairperson of the Tasmanian Community Fund, and a non-executive Director of both TasWater and TasPorts. She's a past Chairperson and board member of Scotch Oakburn College, and was formally a non-executive Director, Chairperson and advisor to the board of B&E. She's also a panel member for the Tasmanian Local Government Code of Conduct panel and facilitator for the AICD. Sally was formerly a Director in the advisory practice of KPMG, where she has provided statewide consultancy services for many not-for-profit government and private organisations. As a human resources consultant, her core business has been strategic planning, executive recruitment, governance training, organisation, board and CEO performance reviews. Sally is keen to make a difference in the Tasmanian marketplace, and is motivated by the opportunity to provide best practice governance within the state. So plenty of plaudits there to Sally. Welcome to the show, and thanks for coming on. Sally Darke: Thank you, Cameron. Really appreciate it. Cameron Allen: First, I'd like to hear your take with regard to the actions of Donald Trump and the performance management of his casino empire. Now, I don't really know where to start with this one. There's a lot to unpack, but what could Donald have done differently, and where did it all go wrong? Sally Darke: Look, it's an interesting one, isn't it? Donald is obviously front and centre in today's news, isn't he, and appearances can be deceiving. I think Donald would like us to believe that his organisations were doing well, but I guess if we bring that back to not-for-profit boards, it's their responsibility to ensure that there is performance right across the organisation, and I think it's very clear that Director's responsibility is to use resources appropriately and to evaluate their performance. I think for many of us in our not-for-profit organisations, it's a far less glamorous role we have than what Donald Trump has. For most of us, it's very much about hard work and to ensure that the performance of that organisation does meet its purpose, and when it does, I think for most of us as board members, there's a huge sense of achievement when we obtain those outcomes that are very much in line with the purpose of the organisation. Cameron Allen:
TMTYB S01E08 Performance Transcript by Rev.com
Page 3 of 8
Yeah. It's great to hear you link it back to that not-for-profit sense, because as you mentioned, Donald is a very far-fetched example in the small world of Tasmania that we're in. How can a board ensure or be satisfied, though, that an organisation's resources are protected from misuse, as we saw in the case study, and what are the consequences for failing to do so? Sally Darke: A really interesting question. I guess for me, it's always being very clear about the organisation's purpose, and then making sure that the reporting framework is very much against that purpose. So when we talk about financial resources for all of us, we have budgets and to make sure that we report against those budgets, and to ensure we don't have misuse of financial resources, we've all got policies, procedures, delegations and controls which allow us to measure our performance and to make sure that there is no misuse happening. We have extra controls there like external and internal auditors, and the second part of your question was around the consequences of misuse of funds, and for me, it's a pretty clear one. If the consequence for individuals of misuse of funds is it's breaking the law, and thus it becomes a legal issue, for the board, it's often around looking at issues like solvency, which is an organisation's ability to pay its debts when they become due, and I think that's something that every not-for-profit needs to be continually looking at to make sure that it is solvent. Cameron Allen: Yeah, and does early intervention play a key part in that? Sally Darke: Definitely, and look, there are really good advisors out there to help not-for-profit organisations. So whether it be your accountant, whether it be the auditor, whether you bring in an internal auditor or forensic auditor, et cetera, when you get to that stage, you definitely need to be taking advice, and legal advice as well. Cameron Allen: That's great, Sally. You mentioned a little bit about the reporting framework, and I'd love to unpack that a little bit further. So in terms of measuring all our evaluating performance, is there value in having an agreed definition of success across the organisation, I guess from the board level to the CEO and so on? Sally Darke: Yeah, absolutely. It's something that I'm very passionate about. I think we do need to be able to measure whether we're meeting our purpose. We do need to be able to measure whether we're meeting our vision and our goals and our objectives and our strategic plan, and even our annual plan, and we do need to be able to measure whether the CEO is actually achieving from an operational perspective. So I think, yes, all of those things become really important in defining what success looks like for an organisation. Cameron Allen: Just theoretically speaking, what does that framework look like? What shape does it take on? Sally Darke:
TMTYB S01E08 Performance Transcript by Rev.com
Page 4 of 8
I think it's really looking at KPIs, so key performance indicators, and some of those will be financial KPIs and some of them will be non-financial, and I think the financial ones are pretty clear that we need to be monthly, going against budget, check how we're going. I think some of our KPIs are quarterly, and they're probably the ones against the strategic plan, and even from an annual perspective, I think with regulators and we can actually benchmark against sectors to get a real understanding of how we're going as an organisation in meeting our objectives. Cameron Allen: In your experience, have you found that very valuable in terms of benchmarking against others, perhaps of an even keel? Sally Darke: Absolutely. Yes, so for example, I spent quite a bit of time in the education sector, and we had some terrific benchmarks that came out that let us compare how we were going, and those KPIs might've been students to teachers, they might be in regard to outcomes. There are a whole lot of things where you can actually look at what's happening in the sector nationally and see how you're actually going. Cameron Allen: Sally, how important is it for the board to regularly take stock — you threw out some figures before in terms of quarterly, monthly and evaluate the financial and non-financial performance of the organisation — and what are the steps to ensure this oversight happens? Sally Darke: Look, for me, I think it needs to be alive, so you need to be doing them very regularly, and you need to be really clear on which ones you need to see monthly, and the CEO's report allows you to be able to have some really clear KPIs there and to be able to measure against them. The old traffic lights, the green, orange and red to let you know how you're going, is a really important one for me just to get a real good feel for what's going on, but I think the area we've moved on a lot in recent times is in regard to our non-financial KPIs. So I think not-for-profits understood the fact that their KPIs were around their balance sheets and their profit and loss and their cashflow, their reserves, but I think we're seeing some really interesting things happen in the area of non-financial KPIs. Cameron Allen: Yeah, exactly. We've spoken to some other people on this podcast around some of those, I guess, KPIs such as flexibility of funding arrangements, which have changed during COVID-19. I imagine you've seen that a little bit too through your work in terms of how that has evolved. Sally Darke: Definitely, yes, and I think we've been really clear what are the crucial KPIs for the organisation. For me, with a very strong HR background, safety is my number one KPI, so to ensure that people get home at night. So looking at KPIs like TRIFRs, which are about Total Recorded Injury Frequency Rate, to have a really clear understanding of how we're going safety. For me, another really exciting thing now is we're starting to measure culture, and I think as a board member, to understand what the culture looks like within your organisation is a really important thing to be starting to measure. Cameron Allen: TMTYB S01E08 Performance Transcript by Rev.com
Page 5 of 8
There must be ways in which you can do that, because it's not so much of a tangible thing, is it, culture, to measure? Sally Darke: I think it's becoming more tangible now than it has in the past. So there are some good instruments and tools out there that now allow you to do that, and for organisations where that might be a bit costly, then there are pulse surveys, there are little surveys that you can do with staff, which will start to give you an indication as far as what the culture is like, and I think there's much more acceptance now that boards and Directors do play a role in managing or having a good understanding of what the culture is like within their organisation. Whilst management are responsible for the operational part to it, from a governance and strategy point of view, I think it is really important for board members to have a good understanding of what the culture is within their business. Cameron Allen: Yeah, absolutely, and have that strategic oversight across the organisation. So does a clear, well thought out performance target or targets, do they contribute to long-term organisational sustainability, and if so, what processes should be in place to achieve this? Can you give an example, perhaps? Sally Darke: For me, it comes back to having some really good structures in place, so to have rigor around those structures. To ensure we get good oversight, I like to see a board annual calendar, I like to see a board agenda that's really clear on what months we do particular things so that we make sure we don't miss out on things which are part of ensuring performance. Good templates for board papers, really good templates for CEO reports. I think all of those sorts of things provide a framework to allow you to do the oversight that you need to do as a board member. Cameron Allen: Just unpacking that a little bit further, generally speaking, how frequently do those targets need to be reviewed, do you think? Sally Darke: They need to be alive, they need to be moving, so I think we're always reflecting, good boards are always reflecting on those KPIs to say, "do they need to be changed?" Is it time to have a more challenging KPI, or given the situation. The coronavirus has been a really good one, where we've had to change our targets. We were probably going along really well for the first nine months in a financial year, and then the last quarter was very different, so I think you need to be able to change those targets, given the environment that we find ourselves within. Cameron Allen: So it's very important for boards to be able to adapt and quickly? Sally Darke: Absolutely, and those organisations through coronavirus and the not-for-profits that had really good financial sustainability, had good reserves, et cetera, it has set them up. Well, those who've done very
TMTYB S01E08 Performance Transcript by Rev.com
Page 6 of 8
good risk management from point of view or frameworks and registers and policies and strategies, and I think they were the organisations that will come through coronavirus from a positive perspective. Cameron Allen: Yeah. It was definitely damaging to a lot of organisations, especially those heavily reliant in our sector on donations and other things like that, obviously, which well and truly was impacted by coronavirus. How should boards use key performance information in their decision-making? What's best practice around that? Sally Darke: Yeah. Look, again, it's a really interesting one. I think we're coming a long way in regard to the use of data, the use of information in order to make our decisions. It's no longer good enough for board members just to go on feel, and I think they need their management team to be providing really good data for them to be able to make the right decisions. So for me, I think that's an area where things have changed quite considerably in regard to the amount of information that is now available, and how we use that information in order to make the right decisions, and again, coming back to being very clear on what the purpose of the organisation is. Cameron Allen: Thanks, Sally, and it was awesome to be able to lean on your AICD training. Obviously, you give these courses, this is pretty bread and butter for you, so that's fantastic. I guess, finally, is there any tips or tricks you'd like to share with aspiring board members out there? Sally Darke: I guess from my perspective, I'm passionate about governance. So for me, I just encourage people to step up, to really get involved in not-for-profit organisations at a governance level. There's a real ability to be able to make a difference and to add value, but in doing that, I would suggest you do your due diligence before you go on board. So you make sure that the composition of the board is one that has the right skills, the qualification, the right experience. You make sure there's a really solid relationship between the board and management. You make sure that there are good structures in place, and then, for me, it's very much to then get in and have a go and be able to contribute, to be respectful around the table, hold management account, question, probe, but very much understand what the roles and responsibilities are. Probably my last point is to encourage your board to keep thinking strategically. We do tend to get very into the operational, and at times we have to, and coronavirus was a really good example of that, but boards will make the most value if they stay in that really strategic area where they really do monitor performance and then look to the future about what the organisation can and should be doing moving forward. Cameron Allen: Yeah, that's great. One of the key takeaways I got from hearing you speak was around remaining active as a board member and remaining engaged all the time. As you said, look, there's a fair bit that goes in before you even get on the board, but once you're there it’s important to remain constantly engaged with it all. Sally Darke: TMTYB S01E08 Performance Transcript by Rev.com
Page 7 of 8
Absolutely. Cameron Allen: Well, thanks so much for coming on the podcast, Sally. I really appreciate your time, and I'm sure we'll talk to you soon. Sally Darke: Terrific. Thank you very much for the opportunity. Bridget Delaney: Thank you, Sally, for coming to talk to us today about performance. This is such a big principle, and I often feel overwhelmed just looking at this principle. A resounding feeling that I got from Sally talking is how alive and flexible governance is and should be. It's constantly developing as we learn and understand new things and find new ways to use one data to our strengths and to adapt with that information, and because governance is so flexible, we do need to stay actively engaged as board members for our organisations. A few stand out pointers, key performance indicators came up quite a lot through that, and I don't know about anyone else but certainly for me they sort of make me switch off a little bit. However, the relevance to what we're trying to achieve as board members and towards our organisations really grounds them into something meaningful. We can have them throughout everything, and I guess the interesting and perky moment was that we can actually have key performance indicators for culture, and exploring the new ways to use data to make that meaningful and be able to actively bring that to the forefront of everyone's mind. It is also important for board members to have the time to reflect on those indicators and truly understand whether they are meaningful for your organisation. If we use the traffic light idea of having green for good, and orange for "maybe let's have a look," and red for, "this needs to be considered quite soon," you can understand why reflecting might be good. Just because an indicator has been green for six months doesn't mean it's reporting on the right thing. So being reflective as board members is really helpful. There's a lot more I could be talking about, but I think maybe we could wrap it up there. So thank you, Cam, for your interview. Cameron Allen: Great to be with you as always, Bridget. Bridget Delaney: I look forward to next time when we get to visit your board. Take Me To Your Board is produced by our Ikin Media for the Tasmanian Council of Social Service. It's presented by Bridget Delaney and Cameron Allen. Music from Tide Electric. With special thanks to Sally Darke. Thanks for listening to Take Me To Your Board. Please subscribe or follow wherever you get your podcasts, and remember to tell a friend.
TMTYB S01E08 Performance Transcript by Rev.com
Page 8 of 8