Leadership: Flawed governance

The fish rots from the head,” according to Bob Garratt’s three-times-revised book and the Chinese proverb from which he stole the title. Both the book and the proverb are about odorous leadership. Garratt’s analogy specifically targets governance leadership. The proverb is more widely applicable.
The state of governance leadership in New Zealand has long since passed beyond the head. It hasn’t reached the tail as it has in some countries but, make no mistake, putrefaction is advanced. Honest and competent directors agree, though seldom in public. It is not, after all, seemly to wander into boardroom holding one’s nose.
A couple of things happened last year that promise to freshen the air little. The Institute of Directors (IoD) introduced its Mentoring for Diversity programme which, it says, will “increase the number of women on NZX-listed and large company boards”. And the NZX drafted new rules to disclose the gender and other diversity makeup of listed boards and management.
But it took shame and political pressure, not wisdom or integrity, for these two bastions of male influence to concede the need to act.
The other important development was declaration by Transparency International to become more proactive in rooting out organisational and political corruption in New Zealand. The organisation’s boosted presence here hasn’t come moment too soon. (See the upcoming March issue of NZ Management’s sister publication The Director for more on Transparency International’s new focus in New Zealand.)
The IoD and NZX moves, however, provide little more than whiff of something. The chairmanship of the boards heading New Zealand’s largest enterprises is sadly unimpressive.
Try, unprompted, to recall more obviously competent or inspirational board chairs than you have fingers on one hand. If you can do this without too much effort, either you have an unusually small number of fingers, don’t know what good leadership is about, or should be drafted onto the judging panel of the Deloitte/Management magazine Top 200 Awards, of which I have been convenor for the past 22 years.
Choosing finalists for the Chairman of the Year category when there are so few real contenders to choose from, is tougher than filleting anchovies – not impossible but undoubtedly difficult. New Zealand should, and indeed needs, to be stocked with competent directors.
So why isn’t it? Because, according to growing school of informed opinion both here and abroad, the governance model of organisational leadership is failing. As one very wise, professional and seasoned director recently confided: “Our boards are in trouble. They can’t attract competent directors and chairs. Governance is now the Achilles’ heel of enterprise.”
The governance dilemma, however, runs deeper than diversity of board composition. What do companies do, for example, when directors and chairs don’t measure up? Senior managers are, in theory and practice, held accountable for, and evaluated on, their performance.
Director performance evaluation, on the other hand, is “self” administered and collectively appraised. There is effectively no independent or meaningful evaluation. Directors are stuffed to the gills with self interest and invariably lack both courage and conscience. The vast majority of directors are male, self-absorbed and consequently conflicted. Mutual reinforcement keeps them safe.
Directors should be easier to hire and fire: particularly those who gather appointments and boast about the number of boards on which they sit. It is almost impossible to do either. Shareholders should not have to wage extended campaigns to rid themselves of obviously incompetent and underperforming directors. But they must. Prevailing rules dictate it.
Along with the urgent need to expand the pool from which directors can be fished, shareholders need greater powers to grace or replace. As Canadian academic and governance expert Richard Leblanc wrote recently: “Troubled boards [of which New Zealand has many] drag their feet, are silent, write letters, conduct studies, avoid meetings and refrain from making the tough decisions. They do this because they can.”
They are also often ill equipped for the job and don’t know what else to do. The world around them has changed.
Putting aside issues like diversity and the under-stocked gene pool, Leblanc identifies three important governance flaws, all of which prevail in New Zealand.
Directors are, he says, seldom truly independent. They invariably lack the relevant industry experience to know what to do – particularly when so many sectors are faced with dramatic market, technological and competitive change. And they lack leadership, the consequence of which is their capture by management and “default to process and denial”.
In short, they lack the wit, wisdom, and therefore the courage to make tough choices that are in shareholders’ or other stakeholders’ interests. Local accountants, lawyers, academics, consultants, politicians and even CEOs of unrelated industries should, he adds, always be in the minority.
What is most telling about the poor standard of governance leadership is the way in which it has so steadfastly excluded women from listed boards in particular. Only stupidity, arrogance, fear of being found out, obsession with power, and the protection of perks, or combination of all these, could have motivated directors to consistently ignore organisational realities.
Logic and abundant research show why women should fill three times as many chairs around board tables than they now do. The exception is the public sector where women hold around 41 percent of the directorships.
How any organisational leader can ignore the input of 50 percent of his workforce, customer base, community, talent and intellect, is hard to comprehend. The rationalisation that women are not “skilled” in governance practice is nonsense. Many men don’t get governance, that’s why the world is in the state it is.
Most men only get the rules of compliance and process. They understand the immoral rationalisation that it’s “necessary” to regularly lift their fees and pay organisationally, financially, economically and socially destructive and illogically-high executive salaries to “attract the best people”.
The IoD’s perhaps well intentioned but somewhat patronisingly scripted press release on its mentor programme will show which of the two, mentor or mentee, is the smartest and most competent individual in the room. Given some of the women “invited” onto the programme, the boys had better look to more than their laurels.
Ineffective boards are the expression of ineffective, unthinking and ill-equipped chairs. And the institutions that have kept them in place are their progeny. If you think this stinks and New Zealand needs fresh offerings, don’t look to the established fishmongers. After all, New Zealand women won the right to vote in 1893. M

Reg Birchfield is writer on leadership, governance & management. [email protected]

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