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Seeking counsel – the benefits of advisory councils

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Do you know the difference between a board and an advisory council? What does is meant to be a director? Seasoned director, John Sharp, joins Peter Switzer to share his insights on the advisory business.

Sharp was elected to Federal Parliament in the seat of Gilmore in South-West New South Wales in 1984. He was primarily shadow minister for transport for 12 years and then became minister for transport when the Howard government gained power. But in recent years, he has taken a role on a number boards and advisory councils.

Sharp is the deputy chair of Rex. He says they reported net profit after tax and while it was down five per cent on the previous year, compared with other airlines it was a strong result. At the report, he says he welcomed guests and shareholders to “Australia’s most profitable airline” as the airline has been producing a profit every month through the year.

Sharp says regional airlines may be the toughest sector in aviation, so it’s important to “do a thousand things well and focus on our costs.” For many years, passengers on a Rex plane would be offered a Mintie as the plane started to descend so people would chew and their ears pop.

“We looked at the cost of the Minties and thought can we do the same thing, but with something that’s going to save us some money?” he says. “So we went from Minties to Mentos and saved $20,000 a year. It’s little examples like that that make this business, Rex, a success where others in the same marketplace fail.”

Board vs advisory council

Sharp is also on advisory councils. He is the chairman of the Parsons-Brinckerhoff advisory council. Parsons-Brinckerhoff is an engineering and design business, designing “roads, tunnels, bridges, power stations, water recycling plants and so on.”

There’s an important difference between boards and advisory councils and it comes down to the word ‘council’.

“You use the world council for legal reasons because the wonderful thing about being on an advisory council is you bear no legal responsibilities,” he says. “You are not deemed to be a person in control of the company, and therefore you are not liable for any actions [or outcomes] … that company may experience. So, in a publicly listed company, if you’re on the board, you are deemed to be a person in control, and therefore you are liable for any damages this company may be responsible for.”

All directors, Sharp says, are very conscious of their legal liabilities whether it’s in terms of fiscal management of the business and occupational health and safety.

“The laws in Australia on occupational health and safety have changed substantially over the years. Now, directors carry substantial liabilities for persons who are injured or killed in the course of carrying out their duties, and they may not necessarily be an employee of your company,” he says, adding that in the event of injury or death of an employee from another company providing services to your company, “you can be deemed personally liable for that injury or death.”

Tick the boxes

Sharp says one of the greatest challenges directors face is spending all their time doing risk management and corporate governance and forgetting their other role is to “try and develop the strategy for your business and to make your business sustainable and more profitable in the long term. An increasing amount of time at board meetings is spent they haven’t left themselves liable for what may go wrong in the future.

“A lot of it’s, nowadays, about covering your backside on a board to make sure you’ve got all those processes ticked off, rather than looking at the ways to build the business.”

He says at Rex they tick all the boxes and “still focus on getting the strategy for the business right to make our business sustainable and profitable into the long term,” but a lot of boards spending “too much of their time, focusing on getting the legal liability ticks in the right boxes”.

Rex is exposed to the risk of an accident occurring as it is in the business of moving people. Sharp says the company has enlarged its safety department considerably over the last few years and employed more qualified people. Safety is an issue the company deals with at every board meeting.

SMEs and advisory councils

Sharp says small- to medium-sized businesses (SMEs) can benefit from advisory councils. SMEs can bring in people with “a lifetime’s worth of experience in business at senior levels to the decision making and strategy development of that particular company.”

He says at Parsons-Brinckerhoff, where he is chairperson of the advisory council, has a group of people with very senior business experience including one person who is a former CEO of a major mining company and another who is a partner at a major accounting firm.

“These people would ordinarily never have a role in a small- to medium-sized business,” he says. “Now they do through the advisory council and it also provides mentoring for the senior management as well, which is a very, very important and valuable part of an advisory council’s role.”

As a director, there is a lot of training to do as well. Sharp says the Institute of Company Directors has “excellent” training for people who want to be directors. But a large amount of training comes from experience.

“The best sort of training comes on the job, as it does for so much in life. I think you learn an enormous amount as you go along,” he says. “The one thing about it is it’s constantly changing. The exciting element of being a director is that things change everyday. No two meetings are the same. There’s always challenges, and there’s always differences.”

If you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching

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Published on: Friday, January 21, 2011

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