Responsible governance: Air NZ’s flight plan

There is heavy environmental bias in Air New Zealand’s approach to responsible governance. It’s understandable given the nature of the business and marketplace realities that confront it.
The Air New Zealand Environmental Trust, for example, is smarter answer to the carbon credit certification programmes promoted by other airlines when they came under pressure from the environmental lobby five or six years ago.
The Trust is now reasonably popular with the airline’s passengers and customers and, says the company’s general counsel John Blair, it is environmentally effective. Instead of issuing certificates which are, at best, just piece of paper, the scheme encourages travellers to donate to the Trust’s specified environmental programmes. The airline in turn tops up the fund by calculating the carbon-offset value of its employees’ travel and injecting “several hundreds of thousands of dollars year” into the Trust.
The Trust is independent of the airline, though Blair and the airline’s deputy chief executive Norm Thomson are both on its board of trustees. Three independent trustees, bug man Ruud Kleinpaste, Living Earth founding director Ron Fenwick and Auckland University of Technology professor of sustainable tourism Mark Orams make up the rest of the board.
The Trust is one of several environmental initiatives driven originally by the airline’s chief executive Rob Fyfe and embraced by its board. Fyfe’s environmental epiphany is reportedly attributable to an encounter with potential customer in the United Kingdom who told him she would “love to travel to New Zealand” but flying there in 747 was, she felt, “like turning up at Greenpeace conference in Hummer”.
The aviation industry was, at the time, in defence mode, recalls Blair. Airlines might contribute only three percent to the world’s global carbon emissions, but they were getting bad press for their carbon air miles. And given Air New Zealand’s positioning as business based on promoting New Zealand as an environmentally attractive and active destination, Fyfe realised the company’s strategic marketing and operational approach had to align to be credible.
“We could hardly operate within New Zealand’s global ‘100% Pure’ environmental branding and not be seen to be doing something to substantiate the claim,” says Blair. “There are limitations to what an airline can do, but when we really started thinking about it we found many things to help us improve our environmental footprint generally and not just the carbon emissions that go with air travel. It is one of those classic situations where good social responsibility governance aligns well with the commercial aspects of the business,” he adds.
Other initiatives now include Green Team of roughly 3000 employees. They get involved in range of clean-up, planting and other environmental protection projects.
Three years ago Air New Zealand successfully tested ‘generation two’ non-food bio-fuel in flight. And it continues to test other technologies on the Auckland to San Francisco route, proving that with proper air traffic control and the use of satellite navigation systems on its aircraft it can reduce fuel burn by “many thousands of litres” on each flight.
Refinements that reduce moisture and consequently the weight of an aircraft in flight have significantly cut fuel consumption, as has the decision to spend roughly $30 million attaching winglets to its 767s. “These environmentally-linked decisions have both cut costs and enhanced revenue,” says Blair. “They are also the right things to do.” It is difficult to argue his point given that last year Air New Zealand won NZ Management magazine’s inaugural Most Reputable Organisation Award.
Air New Zealand’s general approach to responsible governance is, according to Blair, led by the company’s chairman John Palmer. “His view on governance, and it is one the executive team buys in to, is simply that we do the right thing. You can have the picket fence approach to governance, with all the rules and structures, but if you don’t have people with the right mindset willing to act with integrity you are wasting your time,” he adds.
Responsible governance is not strategic priority at Air New Zealand. “We don’t list it as big objective,” says Blair. “Rather it is value that underlies what we do. It is now firmly embedded within the organisation’s corporate culture. Acting with integrity is, on the other hand, definitely priority. And that has come from the chairman’s leadership, the board and the executive team.”
Air New Zealand’s legal team runs an online compliance training programme called “Integrite”. And almost all the company’s 11,000 staff take it. The company has written code of ethics and publishes handbook on business ethics and other issues, such as workplace safety, bullying, confidentiality, privacy of information, competition, how to deal with suppliers and treat customers fairly. It is also the basis for one of the online modules in the training programme. “It gets refreshed every year and our employees go through it annually,” says Blair. “The board does the online training too.”
And while it is difficult to ensure pan-organisation compliance with the company’s behaviour guidelines, it constantly audits for non compliance, particularly in areas that involve workplace or operational safety.
The board takes the Securities Commission’s Corporate Governance Principles into consideration when setting, implementing and reviewing its responsible governance standards and practices. “These principles were released about the same time there were significant changes on the board,” says Blair. “So, we used the legal team to create board charters, committee charters and to ensure we had the right structures and reporting processes to comply with the principles. All these charters are published on our website and they are regularly reviewed. The board members also self review their performance as directors.”
The company’s whistle blowing provision, or as it is called, the “Just Culture” process, is firmly in place. Employees are encouraged to report issues, particularly safety-related matters, to their managers, the HR or the legal department, on ‘no names, no comeback’ basis. “In business where safety is paramount it is critical to have culture in which people know they can put their hand up and report potential problem without fear of any recrimination,” says Blair.
Safety is, says Blair, the genesis of Air New Zealand’s Just Culture approach. “A problem might be caused by colleague’s actions or any number of other things. Either way we need culture that encourages willingness to report anything that seems to be wrong. There is quite sophisticated process to ensure that people are comfortable in reporting, even if they have made mistake themselves. The most important thing is for the company to be aware of the issue. The Just Culture policy says you can self report that you have made mistake and while there may be some repercussion, the priority is to fix the issue. The individual gets credit for coming forward.”
Blair is now thinking about improving Air New Zealand’s stakeholder communication options. He does not, however, want to emulate what he calls wasteful European practices of turning out massive corporate social responsibility reports. “I am bit cynical about reporting at length on how well behaved you are. Besides, we are very visible in the New Zealand marketplace and to that extent there is pretty constant communication with our stakeholders.
“And there are things we do that we don’t necessarily want to trumpet. After the Pike River tragedy and the Christchurch earthquakes for example, we helped families and spent around $10 million providing flights and on-ground support. There are things we don’t do for the media profile. We want to do things because they are the right things for New Zealand company to do. People soon become cynical if they seeing actions as simply PR s