The Global Financial Crisis (GFC) and meltdown in New Zealand’s non-bank finance sector was immensely damaging and has left investors with jaundiced view of the markets, institutions, directors and regulators, McDonald writes in newsletter article for Grant Thornton NZ Ltd, of which he is chairman.
He says the extent of corporate and board failures in the USA is particularly sobering considering that it is less than decade after Enron and the imposition of Sarbanes Oxley – designed to prevent repeat performance. “Yet, the GFC saw repetition, on larger and more damaging scale, with little sign that the major regulators had any understanding of what was happening.”
The hangover from the GFC risks spawning yet another generation of New Zealanders – like that following the 1987 crash – who are unwilling to put their savings into equity or securities investments, says McDonald who is also chair of the Savings Working Group.
Company managers and directors must have very focussed and strategic approach to this and other economic issues and develop clear plan of action, he contends.
• They must exert clear and strong influence on the policy environment within which they operate, reinforcing the vital importance of tradable goods and services, so that barriers and burdens are minimised and opportunities maximised. “Fewer officials and politicians these days have worked seriously in business and are therefore lacking real understanding of it,” says McDonald.
• They must also be more hard-nosed about remuneration and performance, demanding that the entire board is working, adding value and earning its pay, and that management is also up to the mark. “While ‘remuneration at risk’ is contentious topic, losing significant slice of reward for poor performance does tend to focus one’s attention,” observes McDonald.
• They must ensure their organisation(s) continuously improves and increases its competitiveness.
The Government also has role to play, says McDonald. “I used to think that markets function best without government interference – but the evidence seems to be strongly against that view now. Government must establish framework within which high standards of governance are not only encouraged, but required – with serious consequences awaiting those who fail.”
He says the performance of SOEs and their boards is also worthy of close attention, given that they are not subjected to market forces and returns on capital are not what they should be.
Being director is more than just sitting around board table, McDonald concludes. “You must be out and about, walking around, seeing, questioning and talking, and, forming view as to the culture, risks and performance of the business. All that is part of the rich tapestry of being company director. Done well, it’s hard work, but extremely satisfying.”
