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A management consultant has devised a skills test for directors.  Be careful how you use it.

So, it’s the executive Christmas cocktail party and you find yourself standing next to a member of your board.  You’ve talked about current events, the weather and your holiday plans.  The century old chief financial officer adept at communication, however, you save the moment by springing on your unsuspecting interlocutor a simple quiz (see below).

The questions are taken from a skills test for directors devised by management consulting firm Exemplar Performance Advantage, led by Con Livissianis, a former chief executive officer of Australian Metal Holdings.

According to Livissianis, the full test, which consists of 130 questions, can determine in just two hours whether a company board is fit to govern.

He says:  “There is a lot of bluff and bluster at the director level.  It’s clear from the debris of the publicly paraded corporate crooks and anecdotal tales of incompetency.”

The full test isn’t a simple “pass” or “fail”, but is designed to balance strengths with weaknesses. 

“A board’s strength in strategy may hide a weakness in reporting,” says Livissianis.

“It just isn’t sufficient to say, ‘We have a lawyer that does that or an accountant who does this.’  The key to boardroom savvy is to have the knowledge and strength of conviction to drill down to the details wherever an anomaly occurs.”

Be warned:  if your victim performs badly, he or she will hardly look kindly upon you.  Do not under any circumstances try this on the chair of your audit committee.

QUESTIONS

1.  According to the Australian Stock Exchange, who should sign off on the financial statements?

2.  Should a director sign the directors’ guarantee on a credit application?

3.  Are directors personally liable for debts incurred by a company if it has been trading insolvently?

4.  If opening stock plus purchases less closing stock is deducted from sales, what does the balance represent?

5.  Where is it best to report contingent liabilities in the balance sheet?

ANSWERS

1.  The CEO and the CFO.  Although in the unravelling of Enron, CEO Kenneth Lay found out that signing off carries with it obligation and implication.

2.  If you answered yes, your personal assets are at risk – be careful.  Answer no if you are cautious.

3.  Yes – the director has an obligation to satisfy himself that the company is not insolvent at the time a debt is incurred.  Just ask the Parmalat guys or John Greaves.

John Greaves, the former chairman of One.Tel, got this one wrong and is now risking personal bankruptcy.  Directors should be aware of what they are signing as this makes them personally liable.

4.  Gross profit.  And a question that should have been put to FAI and HIH.

5.  Notes to the accounts.  The WorldCom board thought the answer was nowhere: they left it off the balance sheet completely.

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