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Million-dollar bonus at Brien Holden sparks board governance concerns

07/09/2018By Matthew Woodley
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Concerns have been raised about corporate governance practices at the Brien Holden Vision Institute (BHVI) following the decision to award a significant bonus to a long-serving staff member under a vague approval process.

The issue was first revealed earlier this year when an anonymous letter, signed by ‘concerned staff’ was sent to BHVI’s chairman, Professor Brian Layland and then-CEO Professor Kovin Naidoo, questioning the appropriateness of a “substantial bonus” and requesting an investigation. Numerous sources have since confirmed to Insight that the bonus equated to around $1 million.

The letter asked Layland, “How can this be fair to the rest of us or correct for a charity organisation that has little money?”

Insight understands that the letter was sent to various media outlets including the Sydney Morning Herald, which conducted preliminary enquiries about the bonus.

Who knew?

The processes undertaken at BHVI in the lead up to awarding the $1 million staff bonus are vague, because it’s unclear whether all board members and senior management were informed of the magnitude of the sum or were consulted prior to making the payment.


“Whoever wrote this letter, in my view, should be hung, drawn and quartered.”
Brian Layland, BHVI’s chairman

During a wide-ranging interview, Layland told Insight that Brien Holden himself first floated the idea of the bonus at a board meeting five or six years ago. The board approved it, however, at the time it was determined the employee could choose between either a property owned by the institute, or an undefined cash payment.

The employee chose the property and moved in, however, sometime later – Layland was unable to clarify exactly when or how – it was determined that a cash payment would be more appropriate as a bonus.

Further questions

Layland initially also said he didn’t know, or was unsure of when the dollar amount was decided upon, who approved it, whether board members knew what the total was, and whether it was paid to the employee last year or in 2016.

In addition, Layland refused to confirm the bonus amount, saying it was “nowhere near” $1 million, but said the total was a commensurate reward given the amount of royalty income the staff member had secured for the institute, and in his opinion it was not “a big deal”.

“Nobody has come to me and complained about this, and I’m accessible and I talk to people and nobody there [BHVI] has even said a word to me,” Layland said.

“Whoever wrote this letter, in my view, should be hung, drawn and quartered.”

Former BHVI CEO Naidoo, who occupied the position from July 2015 until his resignation in July 2018, was named in the anonymous letter as the architect of the bonus – despite never having sat on the board. However, when contacted he denied this was the case.

“I was first told about it sometime last year, but it hadn’t been activated [paid] at that stage. Then I was informed this year, and I can’t remember the exact date, by the chief operating officer [Ms Yvette Waddell] that the board had taken a final decision on this matter,” Naidoo said.

Interestingly Waddell, as COO, held a board position even though Naidoo, as CEO, did not.

“I was excluded from the [board] meetings that took place and I was not included in that decision [about the bonus payment],” Naidoo continued.

He also said he was never consulted about the amount or form of the bonus, and that any board discussions that might have taken place at that time related to it were not communicated to him. When Insight asked Naidoo to relay his response upon discovering the payment had been made, he declined to comment, citing legal advice.

“Under the terms of my contract, I’m not allowed to go into the detail of how I responded and what I said, etc., but I was never asked for my opinion nor did I express any support for this,” he said.

The same legal advice prevented him from being able to comment on; whether he thought the amount ($1 million) was appropriate; if it played a part in his decision to resign; if he felt maligned or shut out from board decisions; or whether he ever questioned why his subordinate Waddell had a seat on the board and he did not.

Serious reservations

Concerns about whether the six-year sequence of events and the enormous staff bonus represented transparent and sound corporate governance led Insight to refer the matter to the Australian Institute of Company Directors (AICD).

AICD forwarded the matter to leading governance consultant and professional company director, Ms Julie Garland McLellan, who said she had serious reservations related to a number of processes that had supposedly been undertaken in the lead up to the bonus payment.

McLellan’s initial concern was that the value of the bonus should have been either determined at the time the decision was first made to award it (six years earlier), or expressly delegated to the CEO for setting within an approved dollar range – neither of which occurred.


"In not-for-profit companies, it is unusual for the CEO to be a board member, let alone someone who reports to a CEO."
Julie Garland Mclellan, Governance Consultant

“When a bonus is awarded by the board, the board minutes should record what the special performance was, the amount of the bonus, how and when it is to be paid, and any other factors that the board considered in making their decision,” McLellan said.

She also expressed surprise about the then-COO Waddell having a seat on the BHVI board; especially given her superior Naidoo did not.

“In not-for-profit companies, it is unusual for the CEO to be a board member, let alone someone who reports to a CEO,” McLellan said.

“Having your underling on the board to which you report is a difficult chain of command, even when the CEO is on the board; [but] when the CEO is not on the board, it is likely to be almost impossible to manage the conflicts of interest.”

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Ironically, given that Waddell was appointed CEO after Naidoo resigned, it now means the CEO sits on board, even though McLellan says that’s unusual for a not-for-profit.

Inconsistencies

When questioned, Layland confirmed Naidoo had no involvement in any decision-making surrounding the payment. Instead, despite earlier in the interview denying knowledge of when the amount was decided and how it was determined, Layland suggested he, the employee and the employee’s accountant had negotiated it.

“I went and spoke to [the employee] and said he needed to get it in order and that he needed to go and speak to his tax accountant and see what the accountant could come up with,” Layland said.

“It happens that his office is immediately next to mine. I see him every day… Ultimately, when [the employee] came back from the accountant and said what the amount was I said ‘great, that will be the end of it then’.”

Layland then confirmed he arranged the bonus payment, but was unable, or unwilling, to say who gave final approval. He also said he wasn’t sure if all the board members were aware of the final amount, but believed it was irrelevant as it had already been approved by the board five or six years earlier.

This seems to suggest that the structure of a $1 million payment was made and agreed to on the advice of the recipient’s personal accountant and was approved by the chairman, with no knowledge of the then-CEO.

Layland said because the composition of the board hadn’t changed in the ensuing six years, there was no need to raise or discuss the issue with anyone, including Naidoo.


"I was excluded from the [board] meetings that took place and I was not included in that decision [about the bonus payment]"
Kovin Naidoo, former CEO of BHVI

However, this is demonstrably incorrect as Holden’s passing in August 2015 resulted in a change of the board with the elevation of Waddell to Holden’s position – some two or three years after the board was said to have approved the financial bonus without a predetermined amount.

Knowing that the current board was not the same, Insight provided Layland with multiple opportunities to clarify or change his version of events.

In addition, believing that the bonus was in the order of $1 million – even though Layland said it was “nowhere near” that figure – it was also suggested that he reconsider his comments overnight and clarify them if there was a need, but he declined.

Regardless of whether the composition of the board had changed or not, McLellan said a chairman had a duty to keep the board informed of “all relevant facts at all relevant times” and that a decision of that magnitude should have been taken back to the board – especially as there had been a substantial change in the arrangement.

“As a director I would really want all the details before approving this payment. The chairman does not usually set executive remuneration – that is for the whole board. [Also] conflicts of interest should be declared before any action is taken and the board should approve the action,” McLellan added.

McLellan also questioned who authorised the payment, as the chairman does not have this capability, and suggested a full review of the circumstances surrounding its awarding was warranted.

“I would get laughed at if I asked the accounting staff at any of my boards to make a payment without proper authorisation, and I am reasonably certain the payment would not get made until it had gone up the management chain of command until it reached a person with the authority to approve such a payment,” she said.

Major concerns

Based on Layland’s explanation about timing, McLellan expressed major concerns and suggested an independent review was warranted, especially given the company is a not-for-profit.

“It would be a very good idea to get an independent review of each step in this saga. Have the chair of the audit committee commission and receive the review, then have the board discuss the review initially in camera without the chairman or CEO,” McLellan explained.

She also suggested the outcome of the review should determine what action, if any, is taken with regard to those involved in awarding the bonus.

If the $1 million bonus was paid in the second half of 2017, as Insight understands it was, it would have been made in the wake of a financial year in which BHVI recorded an operating loss of $2.64 million on a turnover of $17.8 million, which had fallen from $30.75 million the previous year

Layland has been on the BHVI board for 30 years while three other members – Francis Back, Anthony Chapman-Davies and Charles McMonnies – have all been directors for 20 years, joining the board in 1998. Aside from Waddell, who replaced Holden in 2015, the current member with the shortest tenure is Dr G Nag ‘Rao’, who is in his ninth year.


Editor’s note: Insight in no way implies that the recipient of the bonus acted inappropriately in the lead up to, and upon receiving the payment. Issues highlighted in the story refer to governance, rather than the merits of whether the bonus, or its size, were justified.

More reading:

Naidoo departs Brien Holden, new leadership confirmed.

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