You’re on the board of company that is pursuing profitable business opportunity in Asia and negotiations are proceeding well when you’re told that “facilitation fee” is required before the deal goes any further. What do you do?
It’s the sort of situation more New Zealand companies are likely to face as they chase business in markets where commercial practices don’t operate on quite the same set of shared values that underpin Kiwi corporate behaviour. So, do you opt for pragmatic accommodation to prevailing local mores in order to gain the economic benefits of pursuing the relationship? Or do you jeopardise potential business returns by refusing to compromise your values around ethical business practice?
Okay – this isn’t quiz and you won’t find the right answer on page 83. It is, however, an interesting example of how the personal values of board chairs or directors can be tested.
Interesting because the values that drive boardroom behaviour are usually only tested in action or identified in practice – they are seldom explicitly shared and are unlikely to appear on director CVs. But there’s no doubting their prevailing presence at the boardroom table – whether woven through robust discussion, making their influence felt in decision-making processes or determining who gets an invite to join the board.
They can even prompt quite radical behaviour.
When Tony Gibbs, John Goulter and Greg Muir resigned from the Vector board late last year, Muir was reported as saying Michael Stiassny’s leadership is “inconsistent with the values held by the independent directors”.
So what sort of values guide director decision making and what role do they play as compass for both boardroom and corporate behaviour?
Drawing the line
Writing in recent issue of McKinsey Quarterly, Daniel Yankelovich – described as “founding father” of public opinion research and attitudes toward business – talks about where the line should be drawn between corporate behaviour that is acceptable from purely legal standpoint and what would be dictated by the ethics of different generations of consumers. And it’s line he says is shifting away from Milton Friedmanist world view that anything good for business profitability also enhances wider social good.
There are now higher public expectations of business morality – and how that morality plays out starts at board level, says Yankelovich.
“Ethical issues dominate board meetings. They may appear under the guise of normal business decisions but most of them come back to this notion of corporate culture. No one but the board has real authority… The CEO contributes, but it is the board that makes the decisions that then radiate through the company.”
Boards have to draw firm line on what constitutes ethical corporate behaviour, agrees Rob Challinor. partner and director of investment bankers Northington Partners, he has notched up more than 20 years’ experience as director of numerous public, state-owned and private companies in New Zealand and sees the role of personal values as absolutely paramount to good governance.
“I think that with all board behaviour – and indeed that of the company – the tone is set from the top. It starts with the chair and board, then the chief executive. If chief executive sees behaviour in the boardroom that is lax in certain regards then they could continue that type of decision making down through the organisation.”
Such values are tested in range of ways. One of the companies with which he’s been involved did actually face the “facilitation fee” example with regard to major offshore transaction, says Challinor.
“Our board very quickly said there was no way we were going to be involved in that. Of course it’s an international issue and while there are strict international laws designed to prevent the payment of backhanders, it may be difficult to monitor the actions of intermediaries.”
And there are times, he says, when you have to look at the overall effect of decisions or actions rather than just read the “black letter of the law”. Another example of that is the use of complex tax structures.
“I think it’s an area where directors’ attitudes have changed. Technically you could be told by your lawyers that certain tax structure complies with the law but then you have to stand back and ask whether it is also fair and reasonable for all concerned, taking into account the intent of the legislation.”
A saying he likes to use is that “there is no right way to do the wrong thing” which is why facilitation fees are no-no in his values book.
“If you find you can’t deal in certain country unless you do it their way, you really have to stand firm and when you do then that culture seeps right down through the organisation. If you don’t then you might find other people in the company taking backhanders.”
And how can you come down hard on that sort of behaviour if your own slate isn’t clean?
“It’s case of giving very clear signal as to what sort of behaviour is unacceptable,” says Challinor.
Board desire to see things done properly will filter down through the organisation, agrees John Goulter, whose own résumé includes long and successful tenure as MD of Auckland International Airport, chairing the NZ Lotteries Commission, United Carriers Group and NZ Business and Parliament Trust and directorship at the Reserve Bank.
“How the board acts and behaves impacts right through the company in the sense that if it takes short cuts, that eventually gets known throughout the organisation. So I see the influence of the board as being very very real in company.”
He also describes the role of personal values as “critical” to boardroom behaviour.
“And they have to be of the highest order – it’s as simple as that. One board I sit on is the Reserve Bank where the values that are practised are literally of the highest order and you have no problems because everyone on that board adheres to those high values.”
That’s not been true of every board he has sat on and while Goulter doesn’t want to talk specifically about the Vector experience, it’s clear he regards it as glaring failure on the values front from which his only option as director was to withdraw. There is, he says, an integrity element that comes into play when you’re faced with something you can’t support.
“When you’re backed into corner you can exercise the values you personally believe in and if you see they are being queried or are not being delivered on, then you have the option of walking.”
Core values
Honesty and integrity are values Goulter sees as essential to well-functioning board – as is effective communication which in his terms means being totally straight, absolutely clear and completely consistent – ie, no political gamesmanship.
“Being consistent in what you say – not having mixed messages or saying different things to different people – that is very important to me.”
It would be difficult to find common basis to resolve issues if there were not some shared values around the board table, says professional director Sandy Maier.
“While these aren’t often made explicit, I think if you asked there would be very quick convergence around handful of things led by integrity, frankness, intellectual openness, curiosity, and an attitude of respect toward the people you deal with. For those new to the corporate governance field, that might sound bit mom-and-apple-pieish but I think the longer you’ve been in commercial situations you come back to those simple truths because experience shows you they work.”
He has been in situations where money has talked louder than personal values and that’s resulted in behaviour he describes as shocking.
“I think despite New Zealand’s clean image, there are pockets and levels of our market that are very tough and bare knuckle. I think the carnage in the financial markets today makes this very topical issue. It seems there are people in there who from managing and controlling point of view are pretty
