Corporate Governance : Breaking into NZ Boardrooms – Toward effective governance

There’s not enough of them, they’re mostly middle-aged men and many privately owned Kiwi companies don’t bother with them at all. So what sort of directors do New Zealand organisations want, how will they find them – and how to ensure they add value?
A recently completed survey of more than 1400 New Zealand organisations – most of them in the country’s extensive SME sector – found that over half will be looking for independent directors over the coming year. Extend that need out over the entire sector and it tots up to demand measured in thousands rather than hundreds.
But as the survey also revealed, the existing pool is both small and limited in scope. The average age of directors is around 50 and there’s little evidence they believe in expanding the diversity of their make-up. Though both age diversity and global expertise showed up as desirable traits, the need for gender diversity didn’t show up as an issue – as it did in similar survey conducted last year.
“This year’s survey shows less demand for professional skills such as accountants and lawyers but more emphasis on track record, work experience and global business experience,” says survey co-author Waikato Management School associate professor Jens Mueller.
It highlights shift in attitude that boards aren’t just about compliance but about adding strategic value. Those looking for independent directors want people who can give strength to their business having already experienced some of the pitfalls of growth for themselves, says Mueller.
“Increasingly that is about bringing strategic direction and fresh perspectives to the board rather than just satisfying its straight regulatory role.”
Interestingly it seems companies in Christchurch and Dunedin value diversity more highly than their northern counterparts.
In about 65 percent of cases, only current board members and management get involved in selecting new directors – and that potentially limits the search to what is already known. In other words, people are opting to stick inside the social comfort zones. wider search could lead to more challenging selections, suggests survey co-author and experienced independent director Sandy Maier.
He notes that it is common practice in the US and Europe for CEOs and their direct reports to serve on the boards of non-competing businesses where they get exposure to different sectors, styles and thinking. Similar practice here would help extend the pool of potential director talent.
The survey found that the smaller the organisation, the more likely it is that its directors will have potential conflict of interest – and the less likely they are to have policies in place to deal with it. That more boards have formal process for handling conflict of interest issues is seen as positive trend. Also trending the right way is the tendency for CEOs to also serve as board chairs. Although smaller companies are more likely to have someone taking on both roles, the overall percentage has dropped since last year.
Since smaller firms are those with the greatest potential for growth and development, there are opportunities to intervene early in the growth cycle to help these organisations with the establishment of robust governance principles, say the survey authors.
Other findings are that the average term director serves on board is less at firms where there is public accountability than others; that smaller firms value board stability substantially more than larger firms (the latter appreciate regular injections of fresh knowledge); and that government and non-profit organisations are leading the way on separation between governance and management.
The ‘Directions: Understanding Governance 2007 Survey’ is designed to build on the prior year’s work and provide comprehensive data pool for governance trends in New Zealand, says Maier.
“One of the reasons we got into this – apart from academic interest – is that we kept finding ourselves in room where people felt free to make these assertions about this but nobody had any data. If we keep it up over five years, we will be able to say what is trend and what isn’t.”
And as the authors note in the survey introduction: “recent governance challenges at Feltex, Vector and Bridgecorp illustrate that good governance is very relevant topic” in New Zealand.

Management’s panel discussion on the survey results focused on issues of board diversity, independent directors and conflict of interest as well as the availability of director talent and possible steps to improve the governance of Kiwi organisations. The panel included: Greg Muir (Pumpkin Patch), Jo Brosnahan (Chair of Leadership NZ and company director), Graeme Pinfold (PricewaterhouseCoopers), Bruce Sheppard (NZ Shareholders Association), Hamish Bell (ANZ Bank), Jens Mueller (Waikato Management School) and Sandy Maier (professional director/consultant). Submitted comments from Nigel Williams, ANZ Bank’s managing director institutional/corporate/commercial banking, are included as box insert.
The following is an edited excerpt from what proved lively discussion.
Management: What does board diversity mean to you and why does age seem to have replaced gender as primary focus?
Greg Muir: I’m at loss to understand why diversity is an issue at all for people in SMEs. I would have thought competence and skills relevant to what you are trying to do with the company would be the big issue. Looking at the large organisations, I also think diversity is overplayed – the characteristics most boards seek are experience and competence. Diversity of age or gender has never really taken up lot of airtime on boards I’ve been on. However diversity of skills is usually sadly dealt with – particularly sales and marketing skills. Historically, I think there’s been too many grey old men who’ve come out of legal, accounting or operational management areas – so I’d be looking for people who understand the marketing approach and dealing with customers. I happen to be chair of board (Pumpkin Patch) that is amongst the most gender diverse in New Zealand. Does it work any differently to any other boards I’ve been on? Well, no.
Jo Brosnahan: I’d probably agree. But diversity becomes really important when it brings perspectives that wouldn’t otherwise be represented. Are boards standing back and asking whether they have people who are going to challenge them, to bring new ideas, fresh perspectives, or perhaps better understanding of how our customers think? However, it does trouble me that the proportion of women on boards is so low. Sure boards should look for the skills and expertise they need but I believe there are lot of incredibly competent women out there – particular in the sales and marketing area. Is that to do with the selection process. If you look at the statistics [from this survey], it appears directors largely select directors so they’re drawing from the same social sphere.
(The point was also made that while women make up an increasing proportion of university graduates, they are under-represented at CEO, senior executive and senior partner level so lack logical pathway to directorships.)
Graeme Pinfold: I think diversity is mainly about skills and experience but what I’d question the survey asks is: where are the 30-year-olds? Presumably they’re out there developing skills and experience and, in an SME sense, often within their own businesses. But they’re not well represented at board level.
Bruce Sheppard: It doesn’t surprise me we keep talking about diversity because that is the political landscape of PC bull-shit we live in. But the reality is the boards themselves say it’s about performance, track record, globalisation – those are the things they want in terms of diversity. So the survey answers the question. They just want block of skills that drive performance. Regards the comment about challenge – people need to grow comfortable with it and develop culture

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