Responsible governance: Maori and Mighty River Power

Responsible governance, says Mighty River Power chair Joan Withers, starts with having the right people around the board table. Then it takes an open and trusting working relationship between the board and senior management team to deliver.
And board composition, she says, is about having the right skill mix. That’s not always easy in state owned enterprise. Politicians, or more accurately cabinet ministers, pull the candidate selection strings. Getting good directors in place can, therefore, be challenging – not that Withers would express it that way. All political regimes stack SOE boards with favoured hacks when they can.
Mighty River has, in that regard, fared better than most. It has been forced to accommodate the occasional aged wasp, but generally its board ranks well on gender and other diversity, experience and competency. The result is an energy enterprise that has performed consistently well and was named Energy Company of the Year at the 2010 Deloitte Energy Excellence Awards.
Board behaviour is important to Withers. “Forging relationships in which directors have respect for each other without resorting to group think is critical,” she says. “We have diversity of views around the Mighty River board table. The senior management team runs an outstanding induction process for new directors. It brings them up to speed quickly. And now we are running series of refresher tutorials so that director understanding of the complexities of our business is up to scratch.”
Mighty River’s induction programme emerged from comprehensive board process review. “Some of the less commercial directors were struggling to keep up,” says chief executive Doug Heffernan. “Management was therefore challenged to help the board. The induction programme emerged as the flow on benefit.”
Electricity generation is complex business. Keeping directors up to speed and providing board papers that distil and interpret the issues and help directors make sound decisions is both management and governance priority. “We get very good board papers,” Withers says. “They are long enough for us to understand the issues and ask the right questions, but short enough for directors to comprehend without 20 hours of reading. That is hugely important. Directors come to the meetings knowing what the issues of the day are.”

Management demeanour
Board composition, professional processes and “the demeanour of management” are fundamental to responsible governance practices, according to Withers. “The board must be treated with deference and respect so that when the questions are asked, management responds and comprehends the relevance of the questions. I have never felt, on this board, that we are treated like mushrooms. That’s how management treats some boards. They expect directors to simply rubber stamp what they want to do.
“Our executive team is always ready to debate and discuss issues and to put forward and defend their views. Most importantly, they suck the wisdom out of the directors to gain critical insights or leads on new approaches.”
Heffernan agrees that his management team benefits from the board’s diversity of views and experiences. “The electricity industry’s dna is pretty close,” he adds. “It is tight sector. The roots of those employed in it are all grafted from the same gene stock. Having access to the diversity that sits around the board table is important.”
The electricity industry administers large assets and earns its living from managing natural resources, says Heffernan. “At cultural level, the characteristics of these two realities require that we act responsibly both within the community and for the regulators. Otherwise, we won’t be given the privilege of accessing those resources. Because we need licence to operate, professional environmental management, sustainability and ethical practices are imperatives. Governing responsibly is fundamental to our success,” he adds.
“On the big assets side, being responsible for personal safety is paramount. If we weren’t on top of that we’d be exposed to reputational damage in big way. To take the company forward strategically, we must protect our right to use the natural resources and have the trust and respect of our people.”

Maori partnership
Both Heffernan and Withers credit Mighty River’s understanding of the need to embed ethical governance in the company’s corporate dna for its decision to partner with Maori land trust interests to use geothermal resources to power its energy generation strategy.
“Nobody owns our geothermal resources,” says Heffernan. “To get access you must reach an agreement with land owners. Typically, Maori land trusts own the land that sits atop our geothermal reservoirs.”
When Mighty River saw New Zealand’s Maui oil field declining while the need for more energy grew, it saw the geothermal potential. Coincidentally, Maori interests were looking for greater involvement in the development and ownership of their resources. Maori were effectively disenfranchised by traditional royalty-based resource exploration models. But they had no cash to develop their resources.
Mighty River decided to find ways to allow Maori landlords to participate in their geothermal strategy and simultaneously build equity in the energy business. “They became true investors in the project,” says Heffernan. “Electricity generation is long-term business. Projects take 30 to 50 plus years to complete. There is, therefore, risk from any misalignment of investor interest.
“Maori investors take very long view. Having them involved as joint equity participants means we are joined at the hip.”
Mighty River’s new $430 million Nga Awa Purua project on the Rotokawa geothermal field, 14 kilometres northeast of Taupo, is now 25 percent owned by the Tauhara North No 2 Maori Land Trust. “It is earning royalties that are being distributed to its 2000 plus owners,” says Heffernan. “As consequence, the economic wealth of their people is fundamentally changed from what it was decade ago.
“They would not have partnered with us unless we could demonstrate that we could look after and manage that resource sustainably. They want it for their grandchildren and their grandchildren’s children. Sustainability was fundamental to the business proposition.
“We used creative financial and other professional expertise to find way to structure venture that delivers fair return to the company and provides the Trust with equity and income. The process by which we aligned our interests and found solution was highly regarded by Maori. Until year or two ago we were the only company doing things in this way. It was very innovative,” says Heffernan.
The exercise has given Mighty River traction with Maori investment interests. “We saw what we did as being significant and responsible approach to harnessing valuable energy resource,” he adds.
The Nga Awa Purua project and other negotiations around the use of Waikato River water resources have lifted both the board and management’s understanding of how established large enterprises and Maori interests can work together. “We must work together more for the greater economic good of both parties and the country in general,” says Withers. “New Zealand needs to get the picture of the potential of Maoridom as an economic powerhouse for this country.”
The company is also partnering with Maori on other projects. In kind of role reversal, Mighty River executives like Heffernan are providing technical advice and governance guidance to Maori boards keen to lift their governance skills and understanding of conventional business models.
Mighty River, like other SOEs, complies with the Securities Commission based Corporate Governance Principles of responsible governance standards and practices. It also has its own continuous disclosure regime. The board acts much like listed company board. “We are accountable to one shareholder, but all the processes around our governance recognise

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