GOVERNANCE & MANAGEMENT : Property in their blood – Understanding the boundaries

The timing is lousy. Finance companies are making headlines for all the wrong reasons and there’s an understandable air of caution in the boardroom of Strategic Finance’s Wellington office as to whether this is the moment for company chair Denis Thom and CEO Kerry Finnigan to be chatting freely to journalist about how they do corporate governance.
But the way the issue was raised, openly discussed and then sorted to their mutual satisfaction in matter of minutes perhaps says something about the relationship these two have built since Finnigan took the helm of the company two years ago. Trust is central and the tone one of measured professionalism.
Thom – seasoned director – airs the doubts. How, in the light of Bridgecorp’s very recent collapse, do you ensure this doesn’t start looking like ‘them and us’ discussion when it ain’t? We want, he says, to keep the focus on “how we function as company and to my mind that’s something we do regardless of what is happening to any other company”.
Finnigan agrees and, sense of mutual understanding confirmed, the interview proceeds.
It’s clear the industry has its share of challenges but the two men are confident their company has got its structure right – strong policies and procedures, good communications with stakeholders, culture of compliance that is running ahead of proposed financial legislation – and good corporate governance.
Each is very clear about their respective roles. Finnigan is empowered to run the company and functions as its ‘eyes and ears’ for the board; Thom provides sounding board when needed and is the conduit through which company matters pass before coming to the board. Their relationship, they believe, is central to the company’s good governance.
Having served on variety of boards, Thom sees it as arguably the most pivotal interaction in any company.
“A lot of commentators would say, and I’d agree with them, that one of the most important aspects of good governance is the relationship of mutual respect and mutual trust between CEO and chair. I believe we have that.
“That we understand and get on with each other and know where the boundaries are is very important.”
If you feel uncomfortable with one another then that is what’s going to drive the outputs, adds Finnigan. “You need to keep communications at good strong level in these sorts of companies – if you’re precious about what you say and how you behave because of some tension in the relationship, then you’ve got problem.”
As to how they handle differences of opinion, Thom’s goal is to “always to talk issues through” and, particularly at board level, get consensus view.
“I think it’s sad day if at that level you have to put something to the vote and that vote isn’t unanimous. It can happen but if it happened too often you’d start to wonder whether you had dysfunctional board. And it’s the same with Kerry – things come up but I don’t think we’ve had situation where we’ve ended up not agreeing.”
Which doesn’t mean there’s not some vigorous discussion.
“You’ve got to be prepared to have compelling argument to support your point of view,” says Finnigan. “If you can’t then you deserve not to be successful in achieving the outcome you want. So I think good level of dialogue on particular issues is healthy relationship to have.”
If issues are important enough to come to the board, they’re usually worthy of robust debate, agrees Thom. “Or we’d get through board agendas in half an hour and that just doesn’t happen. Our board makeup ensures range of views and different perspectives and it’s important that there is robust discussion on the way forward.”
“Robust” is also word used to describe the processes, checks and balances that are central to its governance structure. It has an audit and risk committee chair by another independent director – David Wolfenden, compliance committee chaired by solicitor from outside the company and delegation process that ensures interaction all the way up the line.
“There are lots of changes in our sector,” says Finnigan, “and the impact that has on our business has to be properly understood. We’ve also been quite active in trying to assist in the direction that regulation takes so we’re having to deal with that at many levels.”
The strong emphasis on best practice and governance was one of the characteristics that prompted Thom to take on the chair’s role some six years ago. As governance practices have become more refined and sophisticated over that time, he believes the company has been right at the forefront of those trends.
“Our belief is if you get that bit right then the rest of your systems or methods of operation flow through from it. We’ve been pretty solid on that from the start.”
The role was also “good fit” – utilising his background in commercial law and the property sector. lawyer and former executive chair of Phillips Fox NZ he has chaired several property companies since becoming full-time professional director 14 years ago. At 67, he still holds range of directorships and given “a professional lifetime” in matters of property as well as commercial mergers and acquisitions felt the role was very much in his comfort zone.
Finnigan’s professional pathway was one of chartered accountancy – cutting his teeth with the likes of KPMG and gaining overseas experience before returning to join Bayley’s Real Estate. He became co-owner and director of the company and was there for 10 years before becoming CEO of Hanover Finance Group and related companies.
“I’ve had fairly long period of engagement with the property sector and with the finance sector – so it’s in my blood.”
The two met for the first time over coffee with former CEO Jock Hobbs for general discussion as to how each saw the CEO-chair relationship might work and found common ground.
“We looked at how that had been working and how they wanted to continue that level of engagement with the CEO going forward,” says Finnigan. “We tested each other as to how we might deal with circumstances and how we might work together and it seemed good fit, really.”
The company structure has been put to the test over the past year as it went through major ownership change – it became 100 percent owned by Australian listed company Allco HIT (AHL) earlier this year.
“They had two bites of the cherry – taking 50 percent stake then buying the balance and there was quite bit of challenge in that process and we integrated three new board members into the parent board,” says Finnigan.
But changes at the top didn’t impact on senior management relations or the company’s business model and both Finnigan and Thom take that as vote of confidence.
“If I were an incoming shareholder I think I’d be looking very carefully at how I saw the operations of the board, CEO and senior management and you could take it as measure of their satisfaction that they opted to leave it how it was.”
The change will see more expansion for the company across the Tasman.
“Part of the rationale for [AHL’s] acquiring the business was that they liked what we do in this space and the expectation is that we enter into the [Australian] market and start to replicate some of the attributes we have in New Zealand,” says Finnigan.
In terms of the company’s long-term growth aspirations, the property cycle in Australia is at different stage than that in New Zealand – “there’s probably more upside potential”.
One of the biggest challenges they face going forward is retaining investor confidence and getting some stability back into the finance sector – without using the “B” word, it’s fairly evident that not all finance companies are cut from the same cloth.
Says Finnigan: “Good companies do things properly, have good politics and procedures; they accept the responsibilities they have to investors, staff and other stakeholders; anticipate regulatory change and conduct themselves the right way at all times.
“I think Strategic is at the forefront of all that.”
And in the wid