By: Geoffrey Kiel and Gavin Nicholson
Publisher: McGraw Hill
Price: $74.95
A number of New Zealand’s leading company directors and financial market participants recently expressed the view that commercial life is “becoming over regulated and over corporate governed”. They were attending an Auckland dinner and panel discussion on continuous disclosure that was sponsored by PR specialists Porter Novelli at the city’s Auckland Club.
Their argument was that the fundamental purpose of commercial enterprise in today’s capitalist system was to generate sustainable value and wealth creation first for shareholders and then other stakeholders. Like other people who may invest in commercial enterprise or sit on the board of any company I find it hard to disagree with this proposition.
Losing sight of the primary objective because small minority of boards sometimes do not function properly could seriously cramp the future manner in which companies are run and shareholder value is created. If you believe the dual functions of the board are ensuring the creation of sustainable shareholder value and good governance and compliance – in that order – then this book will interest you.
Boards That Work seeks to map out durable framework that should assist with the secondary governance and compliance function while recognising the primary importance of the value creation objective. The book provides framework that will be more conducive to increasing the total effectiveness of boards in their compliance and process role and therefore enhance the time available for them to focus on optimising shareholder returns.
No silver bullet
Finding an effective and efficient means of balancing the dual value creation and compliance objectives, which are not always totally complementary, significantly impacts on the success or otherwise of board.
Although written within the context of the Australian system this book provides some valuable “practical” advice and assistance for directors individually and to boards collectively about achieving the balancing act.
This is not silver bullet “answer all” but then again, to the best of my knowledge, no book is. For my money this title, together with Joseph Healy’s recently released Corporate Governance and Wealth Creation in New Zealand and the Stern & Stewart classic on shareholder value The Quest for Value, are invaluable touchstones for anyone wanting sound theoretical, conceptual and practical set of texts and case studies covering board’s dual objectives.
Authors Kiel and Nicholson’s basic tenet is that corporate governance model based on well-thought through and defined corporate governance charter establishes robust practical and philosophical approach to achieving satisfaction of both objectives. They explain and seek to demonstrate the validity of their last chapter conclusion that “the power of the model is that it addresses the issues of performance and compliance, offers solutions as well as recognising key problems, and is process as well as philosophy”.
The book provides solid background to corporate governance, including introducing and discussing the key concept of the charter – which would be of use to any companies commencing review or overhaul of their board practices.
Following the introductory section is an excellent and perceptive analysis of the changing nature of corporate governance, which has direct application and should be of interest not only to existing company directors but also to those who may be considering accepting board appointment. Those running organisations representing shareholder and other stakeholder groups might reflect on some of this section’s findings and conclusions when considering the required attributes and skills of directors and the value of these relative to the remuneration offered by companies seeking them.
Other sections focus on more specific and somewhat mechanical matters relating to legal frameworks, governance rules and improving board process and defining requirements and procedures. The book provides relevant case studies, analysis and process and structure recommendations as well as set of very good template process, procedure and charter documents in the Appendices.
The text also provides some interesting insights gained through the authors’ practical experience as company directors and corporate governance advisers to many of Australia’s largest companies. One fascinating example is an analysis of how board seating plans and positioning of various director personality types and styles can impact on the efficiency of the meeting and more importantly the effectiveness and quality of deliberations, discussions and end decisions.
The closing chapter of the book summarises the authors’ thoughts on the likely future trends in corporate governance including an observation that “in the short term at least, corporate governance reforms will tend to focus on tightening controls on managers and directors to make them more accountable… The signs, however, are that the emphasis on performance will become more of focus for corporate reforms in the future.”
The authors sign off by restating their opening and underlying tenet that “the corporate governance charter model is the most appropriate form of governance to guide companies into the 21st century and equip them to deal with the challenges of the future”.
The real usefulness and practicality of this book is enhanced by the systematic and compartmental manner in which it is written and organised.
Readers can locate and refer to individual sections and topic categories easily. All in all, more than worthwhile addition to the company director’s, adviser’s and shareholder advocate’s library.
Martin Webb is an Auckland-based chartered accountant and company director and member of the Porter Novelli Investor Relations Advisory Board.
