Life in the boardroom is simply not the sinecure it used to be. There are increasingly punitive repercussions for individuals who don’t measure up to the role and responsibilities of best practice corporate governance and who get caught for letting the side down.
But more importantly, the complexity and competitiveness of commercial enterprise demands that boards now play full and constructive role in both the success and the survival of their organisations. Boards need effective executives, but equally, management needs the strategic, visionary and incorruptible input of competent boards. The question then is who will be best equipped to deliver this?
The board model dates back to the 1800s. And while it has its critics, no one has yet come up with convincingly better structure for guiding enterprise. The problem is that boards frequently act as though they are still operating in the 1800s. Management has been forced to raise its game in the past 20-plus years. Now boards must ante up too. It is meaner, leaner, more transparent and accountable world out there and so many elements of our daily existence are inter-related that organisations and boards can’t act as they, or their shareholders, might choose. Boards are ultimately accountable for any mess their organisations might make. The buck stops no longer with the CEO, but with the chairman and the board.
A growing demand for more professional performance and the changing demographics of our society are two of the more potent forces remodelling the face of tomorrow’s board. It may seem to be slow to materialise, but the new face will take shape, and increasingly quickly. As Robert Skeffington wrote recently in the Australian Business Review Weekly, “A new breed of company director is emerging. He or she is younger, might never have worked as chief executive, and possibly is from overseas or has worked overseas. The new breed will be paid more than existing directors – and will be under greater scrutiny from investors and the public.”
Issues of Age
Attitudes and experiences canvassed in the New Zealand market reveal future face not unlike that sketched by Skiffington. Recruiter and academic research shows that in New Zealand, as in Australia, Asia and elsewhere, the ages of both executives and board members are dropping – though to be honest, they are dropping less and more slowly at board level.
The baby boom will, however, catch up with directors, sweeping an increasing number of the older generation, who now dominate the large table, from the room. This age attrition will be hastened by other factors more compelling than the simple reality of less wrinklies in the corporate world. And some researchers of the change process, like Massey University’s Albany Campus academic professor Nick van der Walt, warn against any haste to appoint directors on the basis of age. “There are just as many older individuals up with the technology play and with mind willing to embrace change. Look at the people,” he warns, “not their age. It would be very dangerous assumption to make that boards should be dominated by young people.”
Some research of New Zealand corporate boards done by Korn Ferry International in 2000, and quoted by van der Walt and fellow academic Coral Ingley, found that the majority of New Zealand’s male executive directors (in our largest companies) are aged between 51 and 55, and non-executive directors are mainly aged between 56 and 60. Women on our boards are, on the other hand, younger. The majority of women directors were aged 50 or younger and clustered in the 41 to 50 age group. More recent research conducted this year of the 300 largest companies in New Zealand and Australia, found the average age of directors is 58 with the average age of non-executive directors 60 and of executive directors 53.
Sheffield Search principal John Sinton sounds similar note of caution on the age issue. He concedes that some boards are recruiting younger, choosing as he calls them, “emerging” directors. But he also points to well-argued Harvard Business Review article published in September last year which concluded that having older members on the board might still deliver “an advantage”. Deloitte chairman John Hagen simply doesn’t see any evidence yet that boards are recruiting younger directors.
“Age is not the issue,” says former New Zealand Institute of Management chairman and director of several, including public sector, boards, Doug Matheson. It is, he says, important to have some younger board members but boards need directors who satisfy the general requirements and attributes of good director and who together bring the competencies, background and perspectives board needs to be effective. “The perspectives and values of younger directors will be an important mix in future,” he adds, “providing they satisfy the other requirements.”
Nevertheless, it is likely that over the next five years New Zealand will experience similar trend to that which has been predicted for Australia, if for no other reason than that our boards will increasingly be driven by global owners and Australian influences. And those predictions suggest that about third of our directors will retire and they will be replaced by more of the new breed of director, including more women.
The Female Influence
Women represent only around 15 percent of directors of New Zealand’s corporate boards, and the higher proportion of them are on public sector boards where legislative and statutory requirement ensure greater diversity of board membership. As van der Walt and Ingley point out, gender representation on our public sector boards is presently about 70 percent male and 30 percent female. In the private sector it is about 90:10.
The Government believes representation on boards should be more diverse. Rather than let natural selection deliver, it has taken an ‘affirmative action’ approach to appointments to the boards it controls through the Crown Company Monitoring and Advisory Unit (CCMAU), which recommends candidates for director appointments to crown company and state sector boards.
Former National prime minister Jenny Shipley lifted the issue of greater female representation on boards onto the political agenda. She undertook to raise the proportion of women on statutory boards to 50 percent by 2000. Legislation now compels organisations to make appointments with diversity in mind under the State Sector Act 1988 and the Employment Equity Act 1990.
Recruiters like Sinton again make the point that like age, gender is not the issue. The reality is, as he says, females increasingly inhabit senior executive corridors and that is one route to the boardroom door. “Boards have their own unique requirements and criteria and they should be met regardless of gender. But as more females participate in senior levels of business the number of suitably qualified women will increase,” he adds.
John Hagen puts it slightly differently. He’s not in favour of discriminating board selection on any “politically correct” basis but agrees that women bring “different perspective” to boardroom deliberations which can be positive. “It is the balance of skills that is important, not the gender,” he adds.
Apart from any question of how women might change the functioning of boards, they unquestionably change the face of the boards of tomorrow. They deliver both different gender balance and lower the average age of board members. Those serving on boards now are serially younger than their male counterparts and that is unlikely to change over the next 10 years. Even as those on boards now age they are still, in percentage terms, small fraction of the total number of directors. The greater number of women entering the boardroom will be younger than those traditionally appointed. Women are only now dominating top positions in the professional sectors and the organisational world and they get to the top relatively early as more of them opt for full-ti
