Spotlight on Directors: New Survey Reveals Hard Truths; Charged with Acting as the Early Trip Wires for Corporate Issues, Directors Have a Few Issues of Their Own to Address. According to a Comprehensive New Local Survey, These Include Their Selection and Evaluation Processes and Levels of Expertise. It's Not a Pretty Picture

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When a survey of New Zealand directors was launched earlier this year, it aimed to reveal the true nature of the state of organisational governance in New Zealand. Boldly broadcast as the largest and most authoritative nationwide survey of its kind to date, among other things it wanted to know whether New Zealand companies and other organisations have easy access to high-quality directors. Are our boards populated by directors with sufficient competence to do the job, it asked? And, do Kiwi directors believe they are effective?

Jens Mueller, associate professor for entrepreneurship and strategy at Waikato Business School, and company director Sandy Maier are the mainstays behind the survey. They've also got the public support of a raft of organisations. Coordinated by Waikato University's Management School, Mueller and Maier's work is backed by corporate and professional heavyweights that include Simpson Grierson, KPMG, Sheffield, the Bank of New Zealand, the New Zealand Shareholders Association, the Institute of Chartered Accountants, the Government's Crown Company Monitoring Advisory Unit (CCMAU), the New Zealand Venture Capital Association, Brook Asset Management and The Director.

Findings so far paint a fascinating picture of the stresses and struggles inside our nation's boardrooms. While the Directions 2006: Understanding Governance survey remains open to new respondents (see box story "Still filling the knowledge pool") its proponents say the data to date is sufficiently robust to demonstrate some key underlying trends.

"If we had to say in 10 words or less what the survey is all about," says Mueller, "it's that we want to stimulate a discussion." Add to that a desire to provide factual underpinning to such debate. "All too often," adds Maier, "discussion takes place with raised voices and no facts." This "battle of assertions", as he calls it, could, in his opinion, be about to end.

Take, for instance, the revelation that in the next five years these respondent companies alone will need to find another 1960 new independent directors. Extrapolate that out across the nation's business community and alarm bells start to ring. That's especially so among small and medium sized enterprises--which represent a whopping 96 percent lion's share of New Zealand's businesses and which lack the market magnetism of big corporates when it comes to attracting talent at the top.

Able to offer a heady mix of more dollars, media headlines and stock market attention, big business exerts a stronger pull and will doubtless remain at the sexy end of the directorship scale. Smaller businesses, in no less need for good corporate governance, struggle to attract talent. Indeed, Maier reckons they are already fast approaching a crunch point.

The Directions 2006 survey shows that, across the board, in 40 percent of cases directors themselves find incoming directors. They are the single largest source of new blood. Management follows in the number two slot in providing the link to the next generation of board members. This raises the significant issue of where tomorrow's directors will come from and how business as a whole can reframe its search processes.

Directors are currently selected in a way that most likely will not allow future directors to emerge, says Maier. "Because if Tom, Dick and Harry all go golfing and Tom recommends Dick, and Dick recommends Harry we're not going to have room for anybody new from the outside."

It's pretty clear, he says, that this old "informal, incestuous" way of selecting directors will not work in the future. In any case, he says, when it comes to SMEs, common sense dictates that they cannot afford to source directors through search firms. "They don't pay enough to begin with ... so new tools have to come into being."

There is a "virginity conundrum" here too. "Most people say that they want a person with a track record of directorships," notes Maier. …