We seem, as nation, to be pre-occupied with thinking and talking about sports selectors, players’ form, team composition or on-field strategies and tactics. But despite New Zealand’s less than satisfactory economic and investment performance there doesn’t appear to be much discussion or consideration of the teams or selectors entrusted to lift our economic and corporate performance. Only when these teams drop the ball rather badly in front of everyone do we ask the question: “Are the players and selectors up to the game and are the strategies correct?”
New Zealand’s corporate performance scoreboard of wealth and value creation suggests many companies are yet to step up to the mark. Some observers estimate New Zealand’s larger corporates collectively destroyed around $21 billion of economic value in the 10 years from 1991 to 2001. Lack of value creation was also evident in the unlisted and small to medium enterprise sector if true cost of capital employed was accounted for.
To analyse corporate value and wealth creation or destruction in New Zealand would take book, or two. Until such book is published we can refer to the regularly published performance scorecards for the larger and listed New Zealand companies produced by various organisations such as LEK Consultancy and ANZ Investment Bank/Stern Stewart. These are always interesting and useful. Also interesting would be qualitative study that analysed what, if any, correlation exists between the composition of board and the quality of its decision making and the economic value it delivers.
In an increasingly dynamic and competitive business environment such as ours, well-rounded and multi-dimensional board is likely to become an imperative to formulating and executing appropriate, innovative and sustainable strategies. There will always be key roles for specific operating, compliance and technical skills around the mahogany. However, increasingly the defining difference possessed by the innovators who create true “superior value” will be the strategic creativity and foresight of the board. This invariably results from differing perspectives that question, challenge and add to the offerings provided by other members who focus on industry specific operating, compliance or specialist technical areas.
If the multi-dimensional skills and perspective of well-balanced board are coupled with the execution ability and operational competence of strong management team organisations are better positioned to achieve true value creation. This is brilliantly discussed in the book Damn Right, biography of Warren Buffett’s business partner Charles Munger. The Appendix is speech by Munger, lawyer by training, and provides interesting insights and comments regarding the varied skill sets, problem-solving abilities and philosophical perspectives of people from varied occupational groups Munger has worked with. The book is worth buying just for the Appendix.
Air New Zealand’s board has recently undergone significant restructuring in an attempt to incorporate range of skills, experience bases and perspectives. I took look at the new board and want to offer few observations.
First and understandably, the mandate of the new board is survival. There is greater emphasis on cost and service reduction than before. Now while this is understandable, it is also interesting given the apparent lack of true operating experience and aviation industry knowledge on the board. Whether these actions will assist only in achieving survival and bolstering short-term results at the expense of preserving the company’s long-term sustainability remain to be seen. The new board might be in Catch 22.
Secondly, none of the directors appear to be specific nominees for individual shareholder groupings as they were previously when nominees of both Brierley Investments and Singapore Airlines sat on the board. The New Zealand Government, as major shareholder, appears to have its interests totally aligned with those of all other shareholders. This seems to be positive for robust corporate governance and all Air New Zealand shareholders.
Thirdly, the new board is an interesting mixture of differing and diverse skill sets contributed by people from wide range of varied commercial and industrial backgrounds and experience. While generally commendable, in Air New Zealand’s current situation it raises some concerns. Many of the new directors have little or no previous international business exposure.
What really concerns me, however, is my fourth and most important observation. There is glaringly obvious lack of seasoned and indepth operating experience and knowledge of the aviation industry at the board table.
It may not be necessary, or indeed desirable, that all directors possess specific industry skills and experience. But it seems foolhardy for board to be entirely without specific industry operating skills and experience. It is difficult, if not impossible, to believe there were not at least three or four well-credentialled candidates in this country willing and able to make board contribution to Air New Zealand.
The need for such contribution is even more pronounced given the appointment of the new chief executive officer and many of the new management team, all of whom have little or no operating experience in the industry. The lack of real operating skill and knowledge of the aviation sector at board level is cause for concern. quick analysis of the composition of other major international airlines suggests Air New Zealand is alone in absenting such experience and knowledge from its board.
Diversity and additional perspective are always welcome on board. These should not, I suggest, be taken to extremes at the expense of retaining or obtaining industry relevant experience and knowledge.
Playing team game well against tough seasoned competition is always difficult. It may be impossible if all members of the team are beginners. Reflecting back on what Michael Jordan said about teamwork I can’t help but think that the quote should also read – “but when you pick team to play in the major league – make sure that at least some of them have played in it before!”
