Boards exist to draw the best out of management

Governance has “changed and grown” since Paterson took her first seat at board table 35 years ago. No more so than in the way in which directors must treat employees, particularly their chief executives. Her first experience of board that, without warning, sacked its CEO was sobering one for her. “That could not happen today,” she adds. “It would cost fortune in constructive dismissal compensation. Things have unfortunately gone to the other extreme. The dismissal processes are now so complex and fraught that they can seriously impede an organisation.”

An upside, perhaps, of the changed employment rules is that the financial consequences of employment contract mismanagement are so high that “directors are more conscious of the need to build and maintain the effective collaborative relationships that should exist between board and the CEO”,  says Paterson.

Continuous disclosure rules and the implementation of new international reporting standards have also injected performance-enhancing, or at least performance-changing, stimulants into directors’ veins. Governance has become “more professional”, is her summary of the changes, major and minor, made since the 1970s. She is also comfortable that the governance model of leadership and shareholder interests has served enterprise well. The consistent failure of many of New Zealand’s small to medium sized companies is evidence of this, she says. “Our businesses get to certain level and stagnate. And that is because they fail to separate out governance from management.”

Paterson has served on an impressive portfolio of public and private sector boards including the Reserve Bank, Wrightsons, Landcorp, Waitemata District Health and, of course, Abano Healthcare where, as chair, she has polished her gilded career. She is, at 75, still working hard.

Boards exist to “challenge, debate and draw the best out of senior management teams”, she says. “The board’s objective should be to get the best possible thinking and results from full, frank and constructive conversation and consideration of management recommendations. Directors must be as good as, or better than, the management team by having both industry knowledge and mix of skills appropriate to the company’s situation.”

If the governance model has any weakness it comes from having too many under-achievers on board. “Too many egos, too much vested interest and, though my husband (former High Court judge Barry Paterson) hates me using the expression, too much testosterone around the table can all be dreadfully destructive,” Paterson says. “A good board will listen to range of opinions and then make good decisions based on the best evidence available. bit like judge really.”

• From an interview with Reg Birchfield in The Director in the March issue of NZ Management. For copy of the magazine visit www.management.co.nz/subscribe

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