VIEWPOINT : Why Accreditation?

The New Zealand Stock Exchange (NZX) released its final version of the proposed changes to its Listing Rules on corporate governance in August. The proposal was the result of extensive consultation with stakeholders and submissions from the public.
It consists of listing rule changes and corporate governance best practice code which listed companies will disclose against if their practices materially differ from the code.
When the first draft of the proposed changes was released in September 2002, one of the proposed listing rules required directors to have completed certification course within 12 months of being appointed. The objective was to ensure that directors are fully cognisant of the obligations of director of listed company, and to assist in increasing the skill levels of New Zealand directors.
This requirement was not intended to be panacea for corporate failure or fraud. NZX sees the education and skill levels of directors as important for the long-term development of the New Zealand market.
The majority of submissions did not support mandatory certification. In response to the feedback, NZX included more general statement that directors should undertake appropriate training to keep up-to-date with how best to perform their duties.
NZX remains convinced that the education and training of directors is key feature of good corporate governance.

• By Damas Potoi, solicitor, New Zealand Exchange.

Effective company performance is determined by the qualities, attributes and skills of the directors. An accreditation process sounds sensible to provide quality benchmark for selecting directors. The idea of ensuring that directors are well qualified fits with the status and demands of the job description.
But what criteria can be used for the accreditation process? How can strong character, sound ethics, common sense and integrity be assessed by interview or academic qualifications? What does ‘qualified’ actually mean? It is important not to undervalue the ‘layman’s common sense’. The range of what’s ‘qualified’ is generically too broad to cope with the needs of great range of organisations. And extensive qualifications could mask an unethical director. How does one assess ethical behaviour? How does one measure entrepreneurial flair and innovative thinking that is important in the boardroom?
After appointment to the board, ongoing development is important. Accreditation must not be an end in itself. Directors, like key executive staff, must keep up-to-date with their sector and global trends. Directors must recognise the importance of academic qualifications but past study is only one attribute of an effective director. Maintaining ‘currency’ is the prime responsibility of directors and organisations that appoint them. Directors cannot be assumed to ‘know all’ on appointment. Too often directors feel that they are appointed to board as reward for previous good performance and their past experience is ticket to the boardroom. Instead, the appointment is the start of new and challenging career where the only true qualifications are experience in the boardroom.
The selection criteria for director assumes the board is focused, understands its needs prior to seeking required talent, and monitors its own performance. This is where the emphasis should be. Analysing board composition, the future direction of the company and identifying the personal attributes, skills and expertise required prior to selecting new director are as important as seeking an ‘accredited director’. Too often the selection of director is based on seeking comfortable fit rather than unique set of valuable skills.
Policing director qualifications is not the complete answer because too often exceptions will override the rule, given the complex nature of our commercial markets and their diverse needs.
Who will the ‘police’ be? And what qualifications will they have? Principled governance needs strong endorsement and practice, not further regulations and hurdles. However, if the accreditation process can increase the emphasis on the professional standards necessary for sound ethical corporate governance, then benchmark for selecting directors will contribute to improving the performance of New Zealand corporates.

• By Ian Taylor, managing director of human capital consulting firm, Sheffield.

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