Have boards, as they are currently constituted and constructed, reached some kind of use-by date? Can they deliver on the expectations legislatively required of them? Or is there new corporate governance model waiting somewhere in the wings that will effectively ensure both organisational performance and compliance? These are some of the questions thrown up by the findings from some leading-edge research into board effectiveness. The findings, based on responses from around 600 New Zealand directors, suggest that boards play second fiddle to management and their influence and effectiveness is compromised by the ways in which these two hierarchies interact, access information and influence the decision-making processes. It is an intriguing study by the Centre for Corporate and Institutional Governance at Massey University’s Albany campus, and looks set to be repeated in Australia later this year or early next.
The researchers, Massey’s professor of corporate governance and leadership Nick van der Walt and senior lecturer Coral Ingley, were struck by the extent to which directors feel they have limited influence over what is going on inside the organisations they govern. Given this uncertainty van der Walt wonders if we shouldn’t be thinking about “changing board architecture”. The research is timely. The critical debate over just how far New Zealand should go on adopting more prescriptive governance rules and regulations is not over. So far we have only set of principles and guidelines handed down by the Commerce Commission as basis for additional compliance reform. New Zealand has not moved to adopt the rigid regulatory impositions of America’s Sabanes-Oxley Act for example.
The research offers some valuable new insights. There are, as the researchers point out, issues about board architecture and the whole nature of legislation relating to governance and compliance and the real power that directors do or do not have. The world in which organisations of every shape, size and focus operate is rapidly changing. The evidence of this research suggests that the corporate governance model is not ‘one size fits all’ creation. The researchers set out to better understand the nature of board and management interaction; to investigate risk and how directors think strategically; to get fix on the effectiveness of board control over key performance measures and to understand the dynamics of director interaction, particularly in board meetings.
There is growing volume of literature on re-thinking boards. But, as van der Walt says, “when you try to get to grips with it there is nothing very specific there. We are dealing with dated models, considering the speed with which organisations are moving and changing. I think there is room for change.” This issue of The Director publishes highlights from the Massey research. It is grist for the debate on the future of boards. There might also be room, as another article in this issue suggests, not just for new governance model but for “uniquely Kiwi one”. Turn to pages 8 and 22 to read about it.
The Director is published with the sponsorship support of Sheffield Ltd and Simpson Grierson. Ian Taylor (left), managing director of Sheffield, and Robert Fisher, chairman, Simpson Grierson.
