VIEWPOINT Governance – Kiwi Style?

It seems to me that our fixation with the belief that “if it’s from overseas it must be better than the local version” distracts us from developing our own unique, innovative approaches to operating our organisations and institutions. The field of governance is no exception.
Most of the literature on the subject deals with different approaches by different jurisdictions to combat the recent raft of spectacular corporate failures, Enron for example. Our politicians, business academics and corporate leaders appear fixated on more compliance. Give us America’s Sarbanes-Oxley Act and all will be well in the world of governance. There is, of course, world of generic literature and raft of best-practice guidelines, especially from the “Old Commonwealth Countries”, which could be applied in many governance situations. But equally, there is uniquely local need in New Zealand governance which remains unmet or unfulfilled by this one-size-fits-all approach.
In February the Securities Commission produced its Corporate Governance in New Zealand: Principles and Guidelines that sets out nine principles of governance, which are so general they can be found in any reputable text on governance from anywhere in the world.
The Commission does however, deserve credit for attempting to articulate collective New Zealand perspective. Unfortunately, there is very little governance approach in the report that could be called uniquely “New Zealand”. There is reference to our small pool of qualified and experienced directors in New Zealand, by-product of our demographics. And where regulations or legislation such as the Companies Act (1963) apply, there will no doubt be differences in governance responses between jurisdictions. Other than that, it seems governance principles are generic and governance practices universally applicable.
But is this correct? Is there anything unique about New Zealand organisations which might influence or impact the way we govern them?
For start, there are relative sizes of the three main governance sectors: business, public and voluntary. Research by Massey University’s New Zealand Centre for Small and Medium Enterprises (SMEs) provides some startling statistics:
* 86% of New Zealand enterprises employ five or less persons.
* 99% of New Zealand enterprises employ fewer than 50 people.
* Only 1349 enterprises in New Zealand employ 100 or more people.
We are nation of “micro” businesses. There are, therefore, relatively few New Zealand firms for which the need for traditional board of directors is even recognised, let alone appropriate.
Next, there are substantial number of public sector entities including State Owned Enterprises, Crown Companies, culture and heritage entities, hospital and health providers, schools and educational institutions, local and regional authorities, which require governing body, via legislation. The appointment of directors or board members in the public sector is highly politicised with political and social agendas often taking priority over efficiency and effectiveness goals.
Then there is the voluntary sector. There are, apparently, at least 35,000 “registered” charities, all of which operate under their own specific legislation (trusts or incorporated societies) and all have governance requirements and responsibilities.
Each of these three sectors have specific governance requirements which may lead to quite specific governance practices reflecting local conditions and issues. If it can be established that the size and nature of these sectors varies significantly from similar sectors in comparable jurisdictions, there are grounds for claiming that governance issues might be said to be peculiarly “New Zealand”.
In the set up phase of SMEs for instance, management and governance are often indistinguishable. As the enterprise grows, multiple owners seek some say in and control over the enterprise relative to their equity holdings. As the business develops into maturity, more formal governance structure emerges. Conclusion? There is an equal if not greater need to provide for “emerging” governance requirements in New Zealand as opposed to the requirement to appoint boards of mature and sizable enterprises – there aren’t many!
New Zealand is also somewhat unique in the public sector. The State requires that public sector bodies include “representatives” of the community on their boards. Rather than “the best person for the job”, public organisations must, through legislation, ensure that Maori in particular and/or other so-called “disadvantaged” groups, are appointed (not elected) to boards.
Not only is board composition engineered in the public sector, but governance processes are as well.
Ongoing research by Maori academics at Massey University recommends, inter alia, that tertiary education councils should be governed according to “Tikanga Maori” or Maori custom, to give effect to the Treaty of Waitangi and that legislation should be enacted to ensure that this occurs.
It is not difficult to imagine the difficulties Chair might have in moulding coherent, effective board from mix of elected candidates and persons appointed on the basis of their ethnicity, gender or level of disability, all in the name of politically correct “representation”. In true Kiwi style, it is surprising that many of these public sector bodies operate at all.
For the voluntary sector, however the differences between New Zealand and other jurisdictions are less obvious, apart that is from the sheer size of the sector relative to our population of four million. There will presumably be differences in the regulatory and legislative requirements of voluntary sector organisations. And I suspect the small number of people with governance experience plus our pragmatic approach to “getting things done” may well differentiate us. Again, I see potential for specific governance practices which reflect the local situation.
The Maori dimension may, however, be the singular element in this discussion which requires uniquely “New Zealand” approach to governance. The Government’s requirement that Maori are represented on boards, especially in the public sector, must be unique. If the recommendations by Maori academic colleagues are adopted then clearly revised approach to governance in the public sector in particular will need to be developed.
Maori academic, professor Ralph Love of Victoria University, and chairman of PriceWaterhouseCoopers and the Business Roundtable, Rob McLeod, claim that Maori approaches to both management and governance are not only different from, but are in some respects, superior to, the generic “Western” approach. Love believes Maori management employs more caution and consultation (than non-Maori management) and that governance is characterised by stronger interaction with employees and clients, and steady commitment to the community. He is quoted as saying: “The fundamental difference between Maori firm and ‘random’ [presumably non-Maori] business is that Maori ones tend to have long-term strategy and particular ability to innovate.” Maori managers had broader vision because of culture that balanced several influences. “Maori business people are able to think ‘outside the box’.” Maori businesses were not constrained by permanent drive to maximise assets. Unlike most non-Maori companies, shareholder value generally did not take precedence over sustainable development models, ecological concerns and family needs. Interviewed on National Radio in mid-June 2004, Rob McLeod made similar comments.
Given these differences, and presuming Love bases his claims on verifiable research, investors in, suppliers to, partners with and funders of, Maori businesses, will need to review their traditional business practices to share in these claimed advantages over more traditional “Western” business and governance practices. If these claims are true, then governance and management according to “Tikanga Maori” could herald