• Financial literacy is seen as a main weakness of board members
• Programs are available to train directors for the job

Six months ago when Sydney-based management consultant Con Livissianis was advising a corporate board, a director sidled up to him and asked what DSO stood for.

DSO stands for days sales outstanding, as any credit manager would know, but what makes the incident worrying for the company is that the director had been reading the board papers for years.

For the wider business community, the episode is more significant of the need to improve the skills of directors in these post-HIH, One.Tel, Pan Pharmaceuticals, Enron and WorldCom days.

“With some directors, you can’t understand why they are on the board,” Mr Livissianis said.

“Often it comes down to the buddy system.”

At other times, it’s sheer boardroom inertia, but the wheels of change are slowly turning. 

“Unchallenged tenure of a decade or more is a luxury that no longer can be justified,” Colin Barter and Jay Lorsch said in their book, Back to the Drawing Board, published this year by Harvard Business School Press.

Messrs Barter and Lorsch argue strongly that board evaluation at least every two years is essential for monitoring the quality of the team.  It’s a view in line with Mr Livissianis’s work testing directors’ skills.

This April his firm, Exemplar Performance Advantage, launched its new Skills Index for Directors, a method of objectively establishing the competency of an individual.

The online test consists of 130 questions that examine every aspect of boardroom competency.  It covers mathematics and spelling, ASX principles, the Sarbanes-Oxley Act and Clerp 9, profit and loss statements, cash-flow reporting, balance sheet management and case studies. 

According to Mr Livissianis, who has a 30-year career in management, is a CPA and one-time CEO of Australian Metals Holdings, in his studies and practical experience, financial literacy emerges as the main weakness with directors.

“Financial literacy is a minefield and often shows up as a low score.  These weak areas can be worked on.  One can’t rely on the auditors or the papers presented.  It is up to the directors to challenge and question the executives to assure themselves the information provided is accurate, timely and can be used in the strategic decision-making process.

“A directorship is one of the most prestigious pinnacles of business but, in the past, there has been a lack of training for the post,” he said.

One of the longer-established training schools for directors, the Australian Institute of Company Directors, has also added to its portfolio to keep up to date with the changing environment.

“Since 2000, we’ve looked more closely at the director’s lifecycle,” said general manager of national education Pamela Murray-Jones.

AICD introduced its first course, the knowledge-based Company Director Diploma Program, in 1975, 12 months ahead of the UK.

In July 2003, it started a performance improvement course for experienced directors called Advanced Program – Survival to Mastery in the Boardroom.  This February, a Directors’ Essentials course was started for new directors, including director owners, as well as those aspiring to a directorship. 

Next April, the institute plans an international company director course for people exporting substantially, employed by foreign subsidiaries here or working internationally.

“It will look at the principles of corporate governance and how they are being addressed in various parts of the world,” Ms Murray-Jones said.

Also in AICD’s portfolio is a series of four national specialist programs, developed with consultants Competitive Dynamics.  The series titles are Strategic Boards Implementing Great Governance, ASX Principles and Your Board, and Board, Directors and CEO Assessment.