Corporate governance, boards and related topics have attracted much attention in recent years, more so as the search for business performance has moved from the executive suite to what was previously ignored, the boardroom. The situation in New Zealand and Australia is no different. The aim of this article is to provide an overview of current and emerging governance issues in New Zealand and, to a lesser extent, Australia.
Awareness of corporate governance as a source of both protection and wealth creation for shareholders has profilerated in the last two decades provoked by the corporate collapses of the early 2000s (Enron et al.); the global financial crisis of 2007–2008; and, the Basel III accord. In New Zealand, the Companies Act; the Securities Act; and, other statutes, controls and codes have been created to provide protection and, in rare cases, a prescriptive framework for performance. However, these measures have not been sufficient to avert several high-profile failures of governance – although the judicial consequences felt by notable individuals have recently piqued the attention of others.
News reports of fraud, excess, incompetence and judicial consequences have heightened the awareness of governance – regardless of what it might mean or how it is executed. In New Zealand as first noted by Bob Garratt, a ‘game’ of collecting directorships, while avoiding being caught with a ‘dead man’s hand’, has now emerged: Welcome to the professional director. The media and some members of the public have investigated the actions (or inaction) of boards in many high-profile cases of excess or failure – including Air New Zealand, Solid Energy, Allied Farmers, Pike River and Fonterra – in an effort to draw broader attention to those ultimately responsible for unacceptable performance. Despite this scrutiny, most involved have managed to deflect attention elsewhere. Notwithstanding this, we meet directors who regularly introduce themselves as being a professional director quickly appending the number of appointments they currently hold – as if that is some form of badge of honour. Generally, the number of concurrent appointments – amongst this group – is around eight to ten, but we know of directors with 15 or more concurrent appointments. Quite how these so-called professional directors hope to discharge their duties effectively, let along contribute to the growth and performance of the companies they direct, is yet to be disclosed or understood.
“Calls for diversity in the boardroom abound on both sides of the Tasman – a positive affirmation of the contributions offered by women, minorities and the disabled”
Another development that has emerged in both jurisdictions Down Under is the view that the establishment of a corporate governance framework of some kind (advisory board, full fiduciary board, other) is somehow a panacea for business performance. Promulgation of this view has been most prevalent amongst governance and recruitment consultants, many of whom have aimed their comments at the owners and shareholders of smaller companies. The suggestion has gained traction to the extent that the Institute of Directors now provides tacit endorsement (at least) for advisory boards, even though the probability of “deemed director” is evident to those with a judicial background. We have governance, in any form, being promoted as a solution, irrespective of the problem!
There is now irrefutable evidence in New Zealand that acceptance amongst peers appears to be a greater moderator of behaviour rather than the pursuit of company performance. This propensity – in effect to protect one’s reputation ahead of fulfilling one’s duties – may be a function of the small size of the economy. However, this is not likely. News travels quickly everywhere, particularly in this age of social media and the democratisation of communications. Hopefully, the establishment of a formal chartered director programme by the Institute of Directors will raise the level of professionalism and commitment to continuing professional development across the governance community, and so stimulate individuals to move beyond peer acceptance and the protection of reputation as primary drivers, towards a far more steely focus on accountability and performance.
Interest in governance in the New Zealand government sector, which is relatively large by OECD standards, and state-owned enterprises, has stimulated interest in directing. This has, in turn, attracted a broader range of people to consider appointments than may otherwise been the case. However, New Zealand currently has a dearth of suitably skilled and competent directors, although an increasing number of high quality professional development courses are now available, from the Institute of Directors, the universities, and others. Calls for diversity in the boardroom abound on both sides of the Tasman – a positive affirmation of the contributions offered by women, minorities and the disabled. This augers well for the future should the merits of diversity in the boardroom emerge from the sex, ethnicity and physical ability of directors.
Is the governance community in New Zealand, and to a lesser extent Australia, any different than anywhere else? The governance community has developed to the point where it is now quite complex. It reaches across publicly-listed companies; wholly-owned subsidiaries of multi-national companies; cooperatives; quasi-public businesses; state-owned enterprises; membership organisations; trusts; NGOs; regulators; and, government. However, the roles of the participants, and the relationship between governance and company performance, is not well understood. The depth and breath of the governance community provides a fabulous reachable bed from which to conduct research, and to reflect on what needs to be achieved. Therefore, efforts to understand how boards can contribute to performance outcomes and what effective corporate governance might involve, and to grow a larger pool of competent and experienced directors, must continue because important economic and societal benefits are then expected to flow from better company performance.
At the end of the day, the mandate held by every company board – to optimise performance in accordance with the shareholder’s wishes – remains. While the business communities in both countries are grappling with the tension that exists between rules and principles, the much needed focus comes down to just three things: responsibility, accountability and performance.
