Fonterra, Air New Zealand, Bendon, Tasman Pacific, Southern Cross Healthcare. Big fish in their respective ponds and all, in the last year or so, falling into varying levels of disgrace. And in each ensuing outcry, one question is shouted loudest — how could the board have let this happen?
Wherever the fault lies when corporate disaster strikes, responsibility rests with the directors – men (mainly) who are seldom visible until something goes wrong. But the boards that don’t hit the headlines have more to teach us about getting it right. Management magazine asked some stellar performers the secrets to their boards’ successes – and where the pitfalls lie.
“It’s easy to be glib,” says Greg Muir, CEO and director of commercial success story, The Warehouse.
“Directors have an incredibly hard job. They come to maybe 12 meetings year, and do 10 to 20 other days. It doesn’t give them lot of time to understand [the business].”
Directors are reluctant to point the finger at their colleagues on “problem” boards – as much from sense of “there but for the grace of God go I” as from reluctance to rat on their old mates – but there are some recurring themes in discussions of where things go wrong.
Acquiescent board syndrome
A lack of tension in the boardroom – between board and management, and among directors – is serious threat to strong governance. It is vital for the board to challenge the executive, says Muir. “Our board had huge regard for Stephen [Tindall, former managing director], but plenty of times [the executive] put stuff forward and the board sent it back. These days, in any meeting there’ll be half dozen items that have degree of contentiousness. Ours is not rubber-stamping board.” At the same time, there has to be “a lot of trust between the board and the chief executive. Ninety-nine point five percent of the decisions I make, my board never sees.”
Gary Paykel, chairman of Fisher & Paykel Healthcare and executive chairman of Fisher & Paykel Appliances, says he always allowed managers free rein in their board submissions dur-ing his time as managing director. “They were never reticent about saying no [to my ideas], and I didn’t censor the board papers. They could call me complete bastard if they wanted.”
Continual questioning is essential, says independent director Joan Withers, whose directorships include The Warehouse, Auckland International Airport and Meridian Energy. “In any major initiative the board must be absolutely sure [that it is getting] the best possible advice. You have to be prepared to put your hand up and keep asking questions until you’re satisfied, even if you think it’s dumb question.”
And when tension in the boardroom is insufficient? History suggests that many public companies in New Zealand suffer questionable governance, according to at least one managing director. Boards too often give chief executives “too much room” and they “take too much on trust”. Good governance is “bloody common sense – this is not rocket science”, he said.
I or we
And commercial woes are never helped by rampant egos in the boardroom, egos which inevitably force teamwork to take back seat, and which make it harder to get help when problems arise. “[Problems can occur] when you have selection of people that have egos that must be served – but I don’t know if that occurred [in recent situations],” says Michael Beard, Tranz Rail managing director.
“Sometimes personality can become more of the focus than board responsibility,” agrees John Goulter, managing director at Auckland International Airport. Boards that are generally admired are unlikely to have flamboyant or self-serving personalities at the helm.
Balance
The word balance occurs frequently in discussions about board effectiveness. Finding the right blend of skills, experience and disciplines in an appropriate mix of executive and non-executive directors, without numbers getting out of hand, is challenge. And while the old boys’ network is an out-of-date concept, it offered one vital part of the balance – chemistry.
Maurice Ellett, managing director of executive search firm Signium International, which recruits non-executive directors, says the ideal is “small, robust board with strong leadership by very competent chair. Otherwise the directors can show degree of superficiality.”
“I’m often little surprised at the size of boards in New Zealand – they tend to be quite large,” says Goulter. Auckland International Airport has board of six. “They are all still pretty active in business or commerce, so they’re tuned into the realities. They all have their own area of expertise, and those are complementary. They have mutual respect for each other’s abilities.”
The Warehouse’s board includes people with accounting, law, retail and general business backgrounds. “A good board is blend, like everything in life. We have diversity of backgrounds, ages and experiences,” says Muir.
“In general, boards would be stronger if there was more customer-focused representation at board level,” suggests Sky City managing director Evan Davies. “Where problems can develop is where you have differentiated interests around the table. For example, conflict between management and shareholders, or where the board is dominated by interests of particular shareholders, whose interests aren’t the same as others. They need to think about the interests of the business they’re governing, rather than of those they are representing.”
To say that boards are dominated by accountants and lawyers is an over-simplification of the problem. The composition of Restaurant Brands’ board is diverse – an accountant and lawyer, naturally, but also two venture capitalists and one retired senior executive. “What’s more important [than their profession] is their strategic ability and commercial acumen,” says CEO and director Jim Collier. “I’d like to see greater diversity in all its forms – not just gender and ethnicity, but experience, style and age. Diversity brings energy, enthusiasm, passion.”
“If there’s one discipline really missing on New Zealand boards, it’s engineering,” says Tim Saunders, chairman of Feltex Carpets and Solid Energy, whose 12 directorships include Affco, Contact Energy and Capital Properties. “And we desperately need the contribution of marketing, especially in consumer product companies.”
Nuplex Industries does have an engineer on its board. “It’s particularly valuable to have someone who understands the operations, who has feel for the financial statistics he’d expect to see in manufacturing business,” says managing director John Hirst. Tranz Rail is currently seeking swathe of new directors, following changes in ownership. “We’re looking to Kiwi-ise the board,” says managing director Michael Beard. “We want good governance skills, especially in the area of ethics and conflict of interest issues. Then we want more technical skill sets, for example, transportation, investment banking, sales and marketing, strong accounting and audit and legal skills.” And where will Tranz Rail find these people? “It’s matter of looking around the New Zealand marketplace, perhaps the Australasian marketplace. You need the right chemistry and mix, set of individuals who will work with and challenge management.”
Joan Withers predicts more sales and marketing skills – her own background – on boards as more people in those relatively new disciplines reach their mid-40s. She believes that the women who have reached CEO level in the last 10 or 15 years are an untapped board resource.
“A good board requires balance of skills and attributes, such that the issues the business faces – risks and the opportunities – are well appreciated around the table,” says Davies. “Boards should fit the businesses they’re governing. It’s important to work as team to achieve the overall objective of the organisation. It does not mean they should always agree, but they should al
