“Sometimes I just don’t know whether it is all worth it,” said a despairing Jack Robinson after a long, tense pause. “We did everything by the book. Three times back to the board. Numbers and more numbers. Views and more views. Unprecedented industry and member support and major investments from business. And after all that …” he gestured expansively, shook his head and stared out into the car park.
“I’ll call the chairman tonight,” said TPA chief executive Maria Taranto. “Maybe it is just a small stumbling block. You’ve won three groups out of four, Jack. You can make it work, anyway, with the funding and support you have.”
“Number four is the linchpin. It all rides on the restructuring. Otherwise, we’ll be treading on each others toes everywhere we go and competing against each other in our own back yards,” replied Jack in a flat voice. “I think the board knows that. I just don’t understand why they can’t see that this is the best way forward for the industry.”
Jack Robinson had been headhunted to be executive director of the Australian IT Institute (AITI), a proposed research and development, education and advocacy group representing computer and information technology businesses and professionals. AITI had originally been planned as a subsidiary of the Technology Professionals Association (TPA). However, because AITI would champion the interests of the four membership organisations in the sector, the decision was made to establish it as an independent entity from the outset.
The proposal for forming AITI resulted from a strategic review of the industry as part of the Federal Government’s Innovation 2010 Task Force. Then, TPA chairman, Bob Grinfell, was invited to join the Task Force Committee. In that role, he argued that the sector would be best served by one strong business-driven research, education and advocacy organisation, independent of each of the industry bodies and of government control.
The process of industry consultation created support for the proposal that AITI be established as a separate institute, not a subsidiary of TPA. Independence would allow it to access grants and international projects on behalf of its constituency and to draw on other resources and service providers.
Bob Grinfell was asked to chair the Task Force Subcommittee charged with setting up AITI within 12 months. As soon as the Federal Minister for Science and Technology allocated $1 million for establishment costs and facilities in Liham Technology Park, Bob resigned from the chairmanship of the TPA board to oversee the project. One of his first priorities was to hire an executive director. He chose Jack Robinson.
AITI’s inaugural chairman was the highly respected and successful biotech businessman Ernie Jasper, who agreed to take the role because of the difficulties he had experienced with a technology start-up in Australia. With the newly appointed executive director and the Task Force Subcommittee chairman, Ernie Jasper mapped out four steps – nicknamed the “four clicks” – to creating a strong and successful AITI. Bob and Jack set about gaining industry support for the new organisation and its objectives.
The first step, Click on Presence, involved persuading a diverse range of influential business people to join the AITI board. The second step, Click on Profile, involved a public relations campaign to gain financial and in-kind support from businesses in the sector. The third step, Click on Possibilities, involved the development of a strategic plan and a three-year operating budget. The fourth and critical step – which would start in earnest when the board was formed – was Click on Power. This step required sensitive negotiations with the four membership organisations in the industry to win their agreement to cede research, education and advocacy activities to AITI and provide funding support for its operations.
A potential benefit of the AITI option was that the activities it proposed to undertake often became the financial “black holes” of the individual associations. So, all would gain strength through financial consolidation, a unified voice, and elimination of duplicated programs and strategies. On the other hand, it was these same activities that created a profile and government recognition for individual industry associations and the members and managers working with them.
The two smaller industry organisations, both of which had had declining membership in recent years, readily agreed to support AITI. Their boards viewed the direction that AITI proposed to take as an answer to their declining fortunes, and they joined forces to present a further proposal: that the four membership organisations merge, creating one membership-services provider and one central research, education and advocacy provider in AITI.
The AITI board endorsed this proposal. “This is our industry’s opportunity to reinvent itself,” said Ernie Jasper in his presentation to the board of the second-largest organisation. It agreed to undertake in good faith the due diligence for a merger. This was a strategic coup for all concerned. Then, the largest industry body, TPA, was approached.
The TPA board was surprisingly testy about the proposal, given its industry role and policy priorities of research and education. It declined to give “in principle” support to AITI until it had reviewed the charter and operational plan of the organisation that would be created by the proposed merger. “You have to realise that TPA has been built up over 15 years and is not prepared to give away its industry leadership,” said the new chairwoman, Sussan Milstradt. “Our membership growth is strong and has come from the smaller associations, and, increasingly, from the No. 2 body. We don’t need to merge.”
Despite their immediate disappointment, Jack Robinson and Bob Grinfell knew they would have another opportunity to gain TPA support for AITI. Three of the nine TPA board members had to retire by rotation in two months. So, Jack and Bob diverted their efforts to the other Clicks, figuring that TPA would eventually support the merger or it would not have access to the funding and resources that AITI could provide. They canvassed prospective TPA directors and worked with TPA chief executive Maria Taranto, hoping that TPA board approval would be given by October. That would allow a two-month lead time before AITI was launched and operations were begun.
But, it was not to be. At the board review of the AITI proposal in October, TPA requested representation on the AITI board. This was rejected, consistent with AITI’s commitment to independence. So, TPA was offered a position on the advisory board. The same offer that had been made to the three other associations. Jack Robinson had been asked to attend the meeting to answer directors’ questions about details of the AITI operation. He spent an hour with the board, working through operational plans and accountabilities, and outlining the support that AITI had received from the other associations and influential industry participants.
At the conclusion of the discussion, the chairwoman advised Jack that Maria Taranto would inform him of the TPA board’s decision.
An association board should act in the best interests of its members. Are the boards in this case study doing this? What other factors are influencing their decisions? What arguments and strategies would you recommend to Jack Robinson for persuading the TPA board that the new structure of one organisation with a membership-services arm and an AITI arm is in the best interests of the members?
Proposed Solution #1
This case study comes from Fran Morris, director, Education Asia Pacific, which develops programs and publications for institutes in the region. Fran was National Education Manager for the Australian Institute of Company Directors from 1992 to 1999 and for the Property Council of Australia from 1987 to 1992.
Michael Denham has worked in professional associations for more than nine years and is a member-services manager of a large association. He has also served on the boards and committees of four voluntary associations. His academic qualifications include a masters degree in management.
Anyone who has worked with an association or not-for-profit board and not felt the frustration that Jack Robinson experienced has not really been close to the board, or the issues.
Jack Robinson’s original objective was to gain support from four industry bodies for the formation of AITI.
The boards of the two smaller organisations were understandably enthusiastic about the original proposal. It would have saved them money, conserved scarce resources, and permitted them a level of industry influence that they were unlikely to achieve by any other means. However, both bodies would have been wiser to wait and allow AITI to be established before proceeding with their amalgamation proposal. The proposition to merge the four bodies was visionary on their part, but the concept of a single member-services entity might have had greater support from TPA if the advocates had been able to point to the collective benefits to the industry from the endeavors of AITI.
The board of the second largest organisation clearly acted in the interests of its members by agreeing to undertake due diligence. It thereby ensured that its members’ needs and interests were assessed against the potential benefits and any downside of the amalgamation.
There is a little arrogance in the initial response of the TPA board to the proposal. It claims a “leadership” position and strong membership growth. Is TPA simply moving the deck chairs by gaining new members from the other three industry bodies? I suggest that the efforts of TPA would be better focused on attracting new members from the wider industry workforce, especially its young participants and new entrants. The question that the TPA board needs to ask itself is whether sustainable growth can be better achieved by a strong, unified industry entity or by four competitive bodies.
Many factors motivate the efforts of voluntary non-executive directors in associations. Some members genuinely want to advance the organisation or profession. Others may want to push particular agendas. For some volunteers, involvement on a board or committee is a means of raising personal profile. Understandably, the board of TPA is focused on expanding the organisation’s strength and influence rather than on the untried potential of a unified membership body. With three new directors and a relatively new chairwoman, the TPA board may also be influenced by the desire of these individuals to serve their terms of office. In a new industry association structure, their board positions might be uncertain.
Jack Robinson should be working on the principle that a united association is the best proposition for the future of the industry. Three powerful strategies he could use in dealing with any opposition to the proposal are:
First, present the compelling case to TPA that AITI can be set up by the other three organisations with the funds available from government and industry sources. At first, that may entail some duplication of activities, but the eventual outcome would be the exposure created by the new organisation. AITI would become a competitor to TPA and would threaten its perceived industry leadership. Indeed, if the three smaller bodies decided to go one step further and amalgamate, the new body would present a substantial threat to TPA dominance.
Second, Jack should appeal to the personal motivations of the members of the TPA board and its chairwoman. The political and media exposure that would follow a merger would reflect well on the directors’ strategic capabilities and vision, especially if communications emphasised the benefits of the merger for the good of the industry and the public.
Third, Jack should prepare a well-documented case on the basis of the most cost-effective use of members’ funds. He should appeal to the directors’ responsibility to act in the best interests of TPA members. In an amalgamated membership body, subscription fees would be offset against services and, with economy of scale, this could allow for a possible reduction in fees or an improvement in services and benefits. AITI activities would be funded by grants from the new industry association, as well as from business and government. The new industry body would represent members with one voice, not four separate voices, each struggling to be heard.
Proposed Solution #2
Tim Sheehy is chief executive of Chartered Secretaries Australia (CSA), the peak body representing company secretaries and other officers responsible for the good corporate governance of Australian entities. CSA sets the standards for the profession and provides support and professional development opportunities for members and the wider professional community.
As in most areas, the thing that drives innovation in the boardroom is necessity.
Unlike the directors of the three smaller industry organisations, the directors of TPA found no compelling reason for supporting a merger that might not offer any substantial benefits to TPA members yet could adversely affect the directors, individually and collectively.
Self-interest played a part in the TPA board’s decision to reject the merger proposal, however Jack Robinson and Ernie Jasper showed a real lack of understanding of the role of the board and of sound corporate governance practices. They could have, and should have, adopted a more commercially realistic approach to the merger discussions with TPA.
The three smaller organisations supporting the merger had declining memberships, declining fortunes and difficulties providing the full range of services. TPA, on the other hand, had market dominance, was financially sound and seemed to be the industry leader in most member services.
The smaller organisations had everything to gain from the merger proposal. Not so the TPA. The directors were being asked to relinquish control to an unproved entity and management team. This in itself raises several corporate governance issues. No doubt the TPA directors did act out of some self-interest, but the reality is that they would have been negligent if they had done otherwise.
To shepherd the merger to a successful conclusion, Robinson and Jasper require a more consultative strategic approach.
TPA should have been drawn into the process much earlier, with one or two representatives from the TPA board involved in the strategic planning from the outset. Not only would Robinson and Jasper have benefited from these directors’ experience, areas of concern to TPA would have emerged and could have been resolved much earlier.
These experienced directors would also have focused on a range of governance issues, including sound financial projections, locking in funding arrangements with government and industry, and harnessing well-documented and clearly articulated support from a strong majority of the membership.
In this way, there would have been a far greater likelihood of gaining TBA board support.
It was also naive not to offer the TPA board strong representation on the AITI board. The very fact that the offer of an advisory board position was the same offer that had been made to the other associations was another nail in the coffin.
The fact is that, if it agreed to the proposal, TPA would have been ceding control of some of its policy priorities, notably education and research and development, to an inexperienced and unproved team. And, without experienced TPA director oversight, they could not ensure that the new entity would continue to align these functions with their members’ best interests.
The TPA board was coming from a position of strength and the long-term objective of a single and powerful body should have overridden any short-term fears of AITI supporters that the TPA would wrest control. Strong leadership and management from Robinson would have overcome this issue.
Access to grants and other resources was clearly not enough reason for the TPA board to consider the proposal. They needed to be shown that adopting a unified structure would substantially improve the way members’ funds were used.
Although AITI could not function as a subsidiary, Robinson could have considered other fee-paying structures or affiliations that would achieve genuine value for TPA members. It would lend weight to the AITI advocacy function by showing a connection to a large support base, and it would give TPA members greater access to AITI resources.
At the end of the day, the TPA directors were not satisfied that the proposal as it stood, for a single entity to represent the industry, would add enough value for TPA members. Neither were they convinced that the merged entity would not bring about their own demise.
On balance, the directors of TPA probably made the right decision in rejecting this proposal.