Tony Peacock, CRCA CEO

When should you appoint Directors to a CRC?

When should you appoint Directors to a CRC?

By Tony Peacock, CRC Association
All the bids in the 20th selection round for CRCs have nominated a Chair should their bid be successful. But a common question is when should they approach potential Directors of their CRC company? At this stage, it is a hypothetical directorship; there’s no company, no staff and no money as yet to direct. The people developing the bid don’t represent all the bid participants, so they don’t really have a complete mandate to appoint directors. So people naturally feel uneasy about approaching potential directors too early.
On the other hand, think about the critical role company directors play. It is to approve strategy, appoint the CEO and put in place appropriate governance measures. These are also some of the critical factors happening during the development of a CRC bid (although appointment of a CEO may come after a bid is successful). So waiting too long might mean that directors are coming into a company where their ability to direct things is quite limited. The strategy of the CRC may already be quite strongly “locked in” via the contract with the Commonwealth; the CEO might be known and governance arrangements already set up.
What’s the best balance to achieve?
In my view, it is best to nominate a strong board early. In a legal sense, these will be the nominated “initial directors” of the CRC company to be in place until the first AGM of the company. Of course, normally you will want them to go on past that first AGM, so you will be nominating people acceptable to the CRC participants. Things to consider include:
  • Independent versus directors from participants. The Commonwealth requires the Chair to be independent of all participants. It also stipulates at least half the board must be independent of the research organisation participants in the CRC. Many CRCs are now opting for a completely independent board. Whatever the case, you must establish the board composition early in the bid process .
  • Skills mix. The company constitution will usually stipulate the skills and experience that the participants agree must be on the board. Some of these will be skills generically associated with running a company like “governance”, others will relate specifically to the aims of the CRC. But be careful that you don’t set up the CRC so those skills become de factomanagement activities. For example, legal skills on a board are not to avoid using a lawyer. If directors “own” a certain patch of the CRC’s activities, this can result in very poor governance as directors might cease to have their critical overview if they each pick up some management responsibilities. It’s an easy trap for small companies to fall into.
  • Size of the board. Four’s too few and ten’s too many for a CRC. Six, seven or eight works.
  • The frequency of meetings. I find people rarely talk about the frequency of meetings of the board of a CRC in comparison with all the other issues to consider. But I reckon it is critical and I favour six meetings a year over less. A lot can happen in three months. When boards meet infrequently, they spend an inordinate amount of time catching up on things. Continuity becomes a problem if directors need to be brought up to speed before making decisions. With four meetings a year, a director missing a meeting becomes a big deal because it might be six months between meetings for them. Decisions can sometimes even be rushed because the time until the next board meeting is so far away; directors may let something pass through when another round of consideration might be warranted. People also bring up the cost of meetings when I recommend more frequent board meetings but with more meetings, they don’t all have to be face-to-face.
  • Board diversity. CRCs are pretty bad in terms of board diversity. Over time, we’ve lifted gender diversity from 17% women to 24% but that is a long way short of where we should be. So much research shows improved decision making with greater board diversity, it seems incredible that research organisations like CRCs haven’t fully addressed the issue.
  • Remuneration. I favour paying all directors. Some people can’t accept because of their employment contracts and in those cases I recommend no special arrangements are made (like travel funds or the like – it just gets too complicated). Some boards operating in charitable or environmental areas might decide all directors will be volunteers but they need to consider whether they are closing themselves off to good directors who simply might not be in a position to work for free. Paying directors puts everyone on an equal footing and continually reminds them that when on the board they work for the CRC company, not one of the participants. The biennial CRC benchmarking study can assist members to set appropriate remuneration.
The management arrangements for a CRC makeup 10% of the selection marks and often seem to take up a significant portion of the interview. AusIndustry staff tell me that sometimes the area is particularly poorly addressed in the written application with the guidelines sometimes simply stated back to the Advisory Committee. If you are planning a CRC, then you’ll need to spend time on the board arrangements. Much better to spend that time early on and enable the board to participate in the shaping of the CRC.
The CRC Association is happy to assist bidders in finding directors that will make a positive contribution. Potential directors are always welcome to let the CRC Association know of their availability.

Tony Peacock is a Fellow of the Institute of Company Directors and completed his Company Director’s Diploma in 1997.

The 19th CRC selection round shortlist is expected in the coming days.