Peter Crow
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On coping with growth...what is the Board's role?

25/6/2013

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There have been several interesting developments at sharemarket darling Diligent Board Member Services recently—developments that merit discussion and comment. Last week, Diligent, a high-growth, publicly-listed company, announced that it had incorrectly recognised some revenues relating to new customer agreements. Then, at the AGM held this week, the Board announced that no dividend should be paid in 2013—despite strong revenue growth and cash reserves—and that consideration is being given to dual market listings. Individually, these announcements seem relatively uneventful. However, when read together, they raise some interesting questions of governance:
  • What role is the Board actually fulfilling as the company copes with growth?
  • Does the Board really understand how the executive is progressing in terms of strategy implementation and the management of risk?
  • Why did the Board's Audit Committee not detect the revenue recognition error, particularly as the scale of the error was not insignificant?
  • How clearly defined are the company's strategy and governance practices?

High rates of growth naturally present challenges for most companies, and this latest series of announcements suggest Diligent is by no means exempt. All power to the Board though, because it has recognised that it is experiencing stresses and strains, and it seems to be committed to resolving them. It will be very interesting to see how the Board responds, particularly in terms of the strategic decisions it makes to redeploy resources and adjust processes, in order to secure the next stage of business growth.
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Peter Crow PhD CMInstD

Company director | Board advisor
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