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Engineering Directorship Diversity

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Last month’s unflattering media headlines must have been agonising for the Crown Company Monitoring Advisory Unit (CCMAU). Government ministers accused this usually discreet but influential body of leaking embarrassing information to ACT party MP Rodney Hide. The Government ordered an immediate investigation of the unit which monitors crown organisations and appoints directors to state-owned entities and corporations.
There was another, rather more welcome, investigation earlier this year into the unit’s identification and screening criteria by consultant Dr Brent Wheeler. The review was triggered, in part, because successive governments have worried over the shallowness of the pool from which CCMAU draws directors.
The ministerial criticisms included:
* The omission of some highly capable and well-qualified individuals in the identification process;
* The belief that directors as group lacked the kind of diversity found within the community as whole;
* Inadequate representation of various ethnic groups on boards and male gender bias.
The criticisms pointed to call for more diverse board membership but Wheeler says it isn’t quite that simple.
For example SOEs, which are linked directly to more than 10 percent of GDP output – more than $10 billion year – require commercial skills which have historically equated to male skills. In other government entities like Crown Owned Companies (CROCs) this emphasis is less pronounced – but ironically, so too is the ideal of gender balance.
CCMAU emerges from Wheeler’s review with some credit but also suggestions that it codify arrangements with departments, like the Ministry of Women’s Affairs, to achieve more gender balance. He also suggests reporting formally to Parliament to improve transparency of the appointment process.
The review’s dominant theme is that the board of 2001 and beyond is different animal to last century’s. Crown boards need to make the leap in terms of the environment, gender, ethnic sensitivity and stakeholders, it said. For its part the unit believes that when it looks for directors, it acknowledges an array of Acts and each Crown company’s constitution.
Wherever there’s debate on governance and appointments there’s one point of agreement however. Directors should be appointed on merit. Wheeler’s report agrees, though it comes with qualifications. He suggests that candidates without merit qualifications based on commercial skills and experience required for directorship should be considered, provided the team meets the merit criterion. Non-commercial merit factors like gender balance, ethnic representation and diversity of professional background should be explicitly spelt out.
This broadening of perspectives beyond the traditional legal, accounting, governance and company management skills has, over the past 10 years, subtly, and sometimes not so subtly, altered. At one IoD seminar for prospective directors last year, speaker asked how many of the group were accountants. Silence. “How many lawyers?” she prodded. One put up his hand and added apologetically that he was “only half accountant”. “Which half?” she asked.
The ideal of gender balance is, apparently, better served in the state sector than in private enterprise. See the table below for what Wheeler’s research showed.
Wheeler identifies various reasons for gender imbalance including previously male dominated professional skills of accountancy and law, lack of the broader mix of skills called for in director roles and insufficient experience across number of industries.
However, there are now enough women with suitable merit-based qualifications on CCMAU’s database to build better balance.
That leaves ethnicity and the data indicate that, as an increasingly ‘Polynasian’ society, we still have some way to go. Non-European New Zealanders represent about 20 percent of the population of New Zealand. Their representation on current boards stands at 12 percent.
A generally small number of people in groups – notably Maori – have been trained or educated in governance skills and competencies. And Wheeler also suggests the relative absence of non European New Zealanders in traditional New Zealand business circle networks mitigates against their selection.
The issue remains but the report suggests why the ‘same old faces’ are submitted for directorships. At any given time with the present number of CRIs and SOEs there are between 170 and 180 directors (including chairs) appointed to boards. In any one year around 60 board appointments are made. On average, half of these are re-appointments for second term. Ministers, therefore, are generally familiar with, or know half of the appointments recommended to them in any given year.
Meanwhile Cabinet working party has looked into the report. The Government may consider the selection processes acceptable – but in changed environment it seems unlikely the unit itself will.