NBR, 23 January 2009, Table Talk by Nicki Crauford

Personal liability fears
There is growing evidence that director liability, and personal liability in particular, has a negative effect on board recruitment, retention and decision-making. A survey of 600 directors of ASX200-listed companies, by the Australian Institute of Company Directors revealed that 80% think there is a medium-to-high risk of being personally liable for board decisions made in good faith. These occasionally or frequently caused directors to take an overly cautious approach to business decision-making. Some 71% of respondents said they had declined the offer of a company directorship because of the risk of personal liability and 62% believed their boards had lost a suitable board member because of personal liability fears.

When the going gets tough
Despite the economic downturn, chasing growth opportunities remains firmly on the agenda in 2009 for some of Australia’s fastest growing entrepreneurial companies, according to new research by Ernst & Young. This reveals 61.5% of the sample of companies listed on the ASX201-400 increased revenue in the past financial year and 73% enhanced profit performance. And, 33% embarked on acquisitions between January 1 and October 20, 2008. Most CEOs agreed Australia was better placed than many to weather the economic storm and, while they had no illusions about the challenges ahead, they were cautiously optimistic about 2009. Many believe there are once in a lifetime acquisition opportunities for companies on a growth track and with access to cash.

Focus on risk assessment
A skillful, competent board of experienced directors is critical when it comes to managing risk and in identifying potential risks to a company's health. More than half of the companies in the E&Y survey had developed a separate risk management committee from the board, and had combined it with the audit committee, creating a layer of risk assessment at divisional levels. Forecasting in the current climate is especially challenging so directors need to ask questions about the organisation’s sensitivity to change, how it will affect cashflow and debt and about how the company can mitigate any risks that emerge.

Weathering the storm
If there is one thing that companies are learning in the recession, it is the importance of resilience – the ability of an organisation to withstand shocks and remain sustainable under prolonged periods of duress. So says Richard Barrett, international culture consultant and author of Liberating the Corporate Soul. He says the most resilient companies possess a high level of staff engagement, a shared vision and set of values, a focus on adaptability and innovation, and a low level of cultural entropy. Organisations that are strong on the inside are also strong on the outside. These qualities create not only resilience but also lead to internal cohesion, a key component in driving the goals and performance.

A matter of entropy
Entropy is the amount of energy unavailable for useful work and in a cultural sense is the degree of organisational dysfunction. It arises from the presence of limiting values such as bureaucracy, internal competition, blame and short-term focus etc. Barrett’s research shows that low levels of cultural entropy are accompanied by high levels of financial performance, high staff engagement and higher growth. 
He offers the following seven-point checklist to help build a company’s resilience:

• focus on building financial stability: build up cash reserves. Seek ways to stay financially sustainable;
• ensure good communication and instill confidence. Everyone should know what is being done to get through the crisis; 
• focus on core business: become lean and agile by streamlining systems and reducing costs;
• be adaptable and innovative;
• maintain a clear sense of direction;
• build strategic alliances;
• ensure that short-term plans do not compromise the viability.