While some are ‘climbing on the bandwagon’ of the governance education boom, there is plenty of substance in the new offerings. Massey University’s new Centre for Corporate and Institutional Governance (CCIG) in particular is real commitment to advancing governance practice in New Zealand.
According to the centre’s director Professor Martin Devlin, dysfunctional boards resulting in ongoing corporate and organisation failures – many of which are not made public – are evidence of the need for governance education. And little attention is paid to governance – as distinct from management skills, in traditional executive education.
Massey taking leadership role
Massey is responding to this need with the establishment of the CCIG. Devlin says the aim is to be central focal point for studies, research and training in governance and to provide New Zealand model of governance.
“There is no other organisation, other than the Institute of Directors (IOD), where this is the sole focus of people’s attention. The IOD is professional body but research is not their area of expertise.” The IOD is however working with Massey on the enterprise through Memorandum of Understanding.
Devlin says that ‘inclusivity’ is prime principle of the centre and joint research between institutions will be encouraged. All New Zealand universities were officially invited to participate in the centre. “There was interest from Otago and we have researchers from Victoria [University of Wellington] involved.”
Massey is targeting ‘national market’ with its governance programme and will have an ‘Outreach’ extramural option.
Devlin says there is demand for corporate governance education from all three sectors: business; the public sector (including hospitals and all state funded institutions); and the voluntary sector.
And the greatest need is where there are representational boards (members appointed by representation of shareholders) and where no board experience is required by new members. “Hospital boards are good example – they’re mix of elected and appointed members.
“Political and representational boards are recipe for dysfunction,” says Devlin. “There’s need to get effective boards.”
The key learning objective of the centre is to increase effective governance in all three sectors.
Another driver of the developments in corporate governance education is the whole area of compliance. “Compliance is an issue for boards internationally with some industries becoming regulated to extremes.” Devlin cites the electricity industry where reforms have imposed “hundreds of thousands of dollars” in compliance costs annually. “Legislative and industry restructuring have meant more time and focus on compliance and less on strategic and entrepreneurial.”
He says that with the tendency of legislators to promote more complex compliance legislation, the CCIG will take on lobbying role, advancing the case for less legislation.
Demand for better perfomance from boards has also come from shareholders. Shareholder advocate and chairman of the New Zealand Shareholders’ Association, Bruce Sheppard, is on the CCIG advisory board.
Devlin says the centre is still working on its research programme which will include the evolution of governance needs in SMEs and Maori governance. Other possible research areas are: the role of governance; strategic outputs; director selection; board structure and processes; quality of governance; corporate failures; shareholder relationships; board performance; director wisdom; quality of information in governance; measuring good governance; role of the chair; and the New Zealand model.
The centre will satisfy demand from directors seeking some formalisation of their skills and experience. Devlin notes that the New Zealand stock exchange (NZX) has flagged the need for certification of directors (of public companies) as has the Crown Company Monitoring Advisory Unit (CCMAU).
“There is huge need in the public sector. Just in schools alone there are 15,000 school board trustees,” he points out. “All these board members are liable for any negligence under legislation and many do not have clue of their liabilities.
“There’s little training for board chairs either – pivotal role. Some research evidence shows board’s efficiency rises or falls on the strength and capability of the chair.”
Devlin says most of the Centre’s teaching staff have experience as directors and are currently active. Its governing board advisory group includes “representatives from New Zealand’s most significant organisations, and highly regarded individuals from the governance community – including the Institute of Chartered Accountants, the School Trustees Association, Local Government New Zealand” – to reflect the breadth of governance needs. Visiting academics and judges, individual consultants and the large accountancy firms are also represented. International corporate governance expert Justice Mervyn King attended the first advisory group meeting in March.
Devlin says there is, however, huge counter argument to training directors – it says experience counts, not certification, and that you can’t stereotype boards. And to illustrate he refers to column by New Zealand Business Roundtable executive director Roger Kerr published in The Dominion June 16, 2003, where Kerr asks: “Would you invest in this company?: Its chairman is also its chief executive, and is 72 years old. On its seven-member board is his wife, 70; son, 48; vice-chairman, 79; the CEO of major subsidiary; and two other executives with business ties to the company.
“The company doesn’t even come close to conforming with the prescriptive rules for corporate governance being canvassed in New Zealand. Yet Berkshire Hathaway is America’s most admired investment company and its founder, Warren Buffett, has created untold wealth for its shareholders.
“By contrast Enron and WorldCom had all the standard US corporate governance policies in place,” Kerr wrote, and then introduced New Zealand examples.
“Similarly, in the last 10 years the four companies that destroyed most shareholder value in New Zealand – Fletcher Challenge, BIL, Carter Holt Harvey and Air New Zealand – satisfied all or most of the prescriptive rules for board and audit committee composition being contemplated.
“In separate exercise the Institute of Directors is proposing that new directors of New Zealand companies will have to take an approved course and be accredited.
“The upshot is that someone without formal qualifications could be prime minister and run the operations of government, but would be barred from serving as director of small public company.
“We are at serious risk of losing the plot,” Kerr concluded.
Devlin refers also to the current debate around the need for independent directors: “Regulators insist that it is important to have them.”
He moves on to explain that the CCIG has particular focus on developing New Zealand governance model (see Devlin’s article Governance – Kiwi Style? in the August 2004 issue of The Director, or visit www.management.co.nz and follow the links to the editorial archive)– reflecting the New Zealand business climate. That climate supports huge number of SMEs and there is the unique Maori dimension. “Boards where appointments are made on the basis of ethnicity makes us unique. And there’s huge public and voluntary governance sector. We need to develop people with governance skills within this sector allowing them to be mobile.”
Devlin argues that other country’s compliancy regulations do not suit the New Zealand governance model. “For example the Sarbanes-Oxley Act requirement for quarterly reporting would kill lot of SMEs.
“We need to go back to basics – at the start of the board appointment process – and look at whether the appointee is there representing particular sector, or because of their skills: representational or merit-based. Appointments may be politically driven – the public sector can dictate b
