Responsible Governance: A healthy concern for strong governance – Abano Healthcare

“When it comes to the governance of Abano Healthcare,” says Alison Paterson, the company’s high profile chair, “our overriding concern is to comply with the New Zealand Stock Exchange’s (NZX) listing rules and to keep the market fully informed of the company’s activities. That focus drives much of what we do.”
Alan Clarke, Abano’s managing director, agrees. “We are the stewards of our shareholders’ funds and we are charged with making sure the market knows everything that we know about the business. Trickling off that go all the codes, policies and behaviours that we need to follow to achieve that,” he adds.
There is, however, nothing incompatible with meeting NZX rules and governing responsibly. The demands of both are, to their minds, part and parcel of being responsibly governed and managed business.
But given that all NZX 50 companies comply – at least most of the time – with listing rules, why are so many New Zealand corporates seemingly somewhat cavalier about meeting the kinds of global measures of ethical and responsible governance performance that companies in other countries, such as Australia, more willingly embrace?
In some cases, New Zealand’s corporates seem little bothered about even complying with the New Zealand Securities Commission’s Principles and Guidelines of Corporate Governance.
Duncan Paterson is chief executive of Corporate Analysis Enhanced Responsibility (CAER), the Canberra-based organisation that measures the governance and senior management performance of the NZX 50 for institutional investor AMP Capital.
According to him, no NZX 50 company has an “advanced” environmental, social and governance (ESG) risk rating, only 19 percent are rated “good”, 23 percent qualify as “intermediate” and solid 57 percent provide limited or no evidence of making any commitment to an ESG performance measure.
The criteria for measuring board and senior management risk and opportunities performance is set by Experts in Responsible Investment Solutions (EIRIS), CAER’s London partners.
As Duncan Paterson puts it: “According to research by the world’s leading ESG analysis firm EIRIS, less than half of New Zealand’s listed companies can supply reasonable evidence of senior corporate accountability for ESG risk.”
At the heart of responsible governance measures are questions such as:
•Does the company have an approved code of ethics?
•Is the code published?
•Does it include measures for dealing with breaches of the code?
•Is employee and management training on the provisions and practices of the code provided?
• Is implementation of, and compliance with, the code monitored and reported on?
•Does the company provide whistle-blowing procedures?
• Are there procedures for implementing and reviewing the code?
• Do board policies describe the company’s relationships with significant stakeholders?
• Does the board regularly assess compliance with these policies?
Both Alison Paterson and Clarke accept that Abano’s reputation for being governed responsibly is critical to its success. “A board that is recognised and respected goes directly to the company’s ability to transact business,” says Clarke.
And Paterson believes that responsible governance involves, at least in part, creating board that “has the range of individual director skills necessary to make it fit for purpose”.
They interpret “responsible governance” to mean having captured both organisational competence and, as result, market confidence. “You cannot have responsible governance if there is no confidence in the company,” says Clarke.
“We are in the business of investing shareholders’ funds and providing good return. That will not happen unless investors and market analysts alike are confident that the company is governed and managed responsibly.”
Paterson accepts that there is an important principled component of responsible governance. And while she has some reservations about the performance of the Securities Commission, she thinks that its nine corporate governance principles are “about right”.
Those principles call on boards to:
•Observe and foster high ethical standards;
•Comprise balance of independence, skills, knowledge, experience and perspectives;
•Use committees to enhance effectiveness but retain board authority;
•Demand integrity in financial reporting and timeliness in reporting company disclosures;
•Remunerate directors and executives transparently, fairly and reasonably;
•Verify processes that identify and manage potential risks;
•Ensure the quality and independence of external audit processes;
•Foster constructive relationships with shareholders; and
• Respect stakeholders’ interests.
Clarke sees the principles as “simply an expression” of the behaviour that his company follows innately. “There should never be need to rush off and consult list of principles to tell you how to behave,” he adds. “If you have to consult code of ethics before you make business decision then something is already long since broken in the organisation.”
The Abano board’s policies and procedures are regularly reviewed and, it has formal and published code of ethics. It does not, however, formally review its ethics code. “It would be an oxymoron to say you were going to review your code of ethics,” says Clarke.
The code is, as Paterson points out, published as part of the company’s annual report and statement on Abano’s governance. “And all directors sign off on that statement,” she adds.
The company does, however, have an annual board review process by which Pat-erson talks individually with all directors. The results of those personal encounters are then reviewed and discussed by the full board.
Abano is not ruled by tick-the-box approach to governance or management. “We are,” says Paterson, “a relatively small company. We have board of six: four independents, and the senior management team of Clarke as managing director and Peter Hudson, non-independent executive director. It is tight team that knows each other very well.”
The company has annual revenues of around $200 million but, as Paterson says, its governance and management processes are designed to fit.
Clarke doesn’t advocate proscriptive behaviour codes. “Get proscriptive and you invite the lawyers in,” he says, drawing analogies between American and British financial market regulations. “The more proscriptive, the more you can manipulate decisions through the proscription to take an outcome,” he warns.
Appropriate or inappropriate behaviour is not, in Clarke’s opinion, determined by the imposition of inflexible, tick-the-box rules. “You cannot be proscriptive about ethics,” he says.
“Having said that, we accept and effectively comply with the detail outlined in the Securities Commission’s ethical standards guidelines,” adds Paterson, who is stickler for compliance with the well-established gamut of governance rules on matters such as directors’ conflicts of interest and insider trading.
The Abano board receives quarterly risk management report which reviews the company’s compliance with all applicable statutory regulations – from the Treaty of Waitangi to the Taxation Act.
“This provides regular pause point for us to review how we are complying with these regulations and to ask if there have been any breaches or drifts off target. That review is reported to the board,” says Clarke.
The company doesn’t formalise ethical training of its employees either. It relies instead on example setting to get its behavioural messages across. “We select our partners – both business and employee – on the basis that we believe their behaviours will fit within our moral and ethical code,” says Clarke.
“Our business model comprises series of different business organisations – dental, audiology, radiology, orthotics – and each has board that runs the business. It, in turn, is part of Abano. The individuals in the businesses and on the boards must be values-aligned with Aban