EDITOR’S LETTER Strategy Vs Compliance

How to strike the balance between strategy and compliance – that is the question. And whether, by ignoring one at the expense of the other, the result is an untimely death, or at least very sick enterprise. Our cover story in this first issue of The Director for 2004, takes case study look at the consequences of forsaking organisational strategy for governance compliance. Massey University’s Centre of Corporate and Institutional Governance research director and senior lecturer James Lockhart analysed both Air New Zealand’s disastrous crash with Ansett and the New Zealand Rugby Football Union’s inept game plan for sub-hosting the Rugby World Cup, to prove his point that it is just as important for directors to have game plan as it is to enforce the rules. Both organisations effectively kicked for touch rather than get on with the game.
The boards of both Air New Zealand and the NZRFU behaved perfectly legally in the lead up to their respective corporate failures. “The NZRFU observed fiduciary responsibility to the total exclusion of strategic governance, while Brierley Investments (BIL) through Air New Zealand, attempted high risk exit strategy also to the detriment of strategic governance,” argues Lockhart. So what is the relevance of revisiting these sad episodes of commercial history? Simple. Boards are in danger of bowing even more deeply to the altar of compliance while forgetting the true purpose of an organisation’s existence.
Lockhart points out that the traditional practice of governance in New Zealand is “almost entirely related to compliance”. His claim is reinforced by the abundance of lawyers, financiers and accountants – 47 percent of all directors – on the boards of our public listed companies. According to Lockhart, who presented his findings to the prestigious McMaster World Congress in Ontario earlier this year, “the call from legislators and regulatory authorities for increased compliance will force the focus away from strategy even further, and have the opposite effect from that intended.”
We have turned significant portion of our editorial coverage in this issue over to examining the Securities Commission report on “governance principles” by interviewing the SC chairman Jane Diplock (page 4) and asking what additional compliance legislation might follow (page 24). To illustrate the point, we report how Air New Zealand has turned its entire corporate strategy and performance around by installing the ideal governance and management team at the top. The way Air New Zealand’s chairman of the board John Palmer and CEO Ralph Norris (page 16) work together to deliver Air New Zealand’s future is lesson of very different kind.