A Question of Values: What Role Do Personal Values Play as a Compass for Boardroom Behaviour and Director Decision Making? How and When Do They Get Tested? We Ask Experienced New Zealand Directors What Values They Bring to the Table and Whether Those Values Outweigh Regulation as a Determinant for 'Doing the Right Thing'

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YOU'RE on the board of a company that is pursuing a profitable business opportunity in Asia and negotiations are proceeding well when you're told that a "facilitation fee" is required before the deal goes any further. What do you do?

It's the sort of situation more New Zealand companies are likely to face as they chase business in markets where commercial practices don't operate on quite the same set of shared values that underpin Kiwi corporate behaviour. So, do you opt for a pragmatic accommodation to prevailing local mores in order to gain the economic benefits of pursuing the relationship? Or do you jeopardise potential business returns by refusing to compromise your values around ethical business practice?

Okay--this isn't a quiz and you won't find the right answer on page 83. It is, however, an interesting example of how the personal values of board chairs or directors can be tested.

Interesting because the values that drive boardroom behaviour are usually only tested in action or identified in practice--they are seldom explicitly shared and are unlikely to appear on director CVs. But there's no doubting their prevailing presence at the boardroom table--whether woven through robust discussion, making their influence felt in decision-making processes or determining who gets an invite to join the board.

They can even prompt quite radical behaviour.

When Tony Gibbs, John Goulter and Greg Muir resigned from the Vector board late last year, Muir was reported as saying Michael Stiassny's leadership is "inconsistent with the values held by the independent directors".

So what sort of values guide director decision making and what role do they play as a compass for both boardroom and corporate behaviour?

DRAWING THE LINE

Writing in a recent issue of McKinsey Quarterly, Daniel Yankelovich--described as a "founding father" of public opinion research and attitudes toward business--talks about where the line should be drawn between corporate behaviour that is acceptable from a purely legal standpoint and what would be dictated by the ethics of different generations of consumers. And it's a line he says is shifting away from a Milton Friedmanist world view that anything good for business profitability also enhances wider social good.

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There are now higher public expectations of business morality--and how that morality plays out starts at board level, says Yankelovich.

"Ethical issues dominate board meetings. They may appear under the guise of normal business decisions but most of them come back to this notion of corporate culture. No one but the board has real authority ... The CEO contributes, but it is the board that makes the decisions that then radiate through the company."

Boards have to draw a firm line on what constitutes ethical corporate behaviour, agrees Rob Challinor. A partner and director of investment bankers Northington Partners, he has notched up more than 20 years' experience as a director of numerous public, state-owned and private companies in New Zealand and sees the role of personal values as absolutely paramount to good governance.

"I think that with all board behaviour--and indeed that of the company--the tone is set from the top. It starts with the chair and board, then the chief executive. If a chief executive sees behaviour in the boardroom that is lax in certain regards then they could continue that type of decision making down through the organisation."

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Such values are tested in a range of ways. One of the companies with which he's been involved did actually face the "facilitation fee" example with regard to a major offshore transaction, says Challinor.

"Our board very quickly said there was no way we were going to be involved in that. Of course it's an international issue and while there are strict international laws designed to prevent the payment of backhanders, it may be difficult to monitor the actions of intermediaries. …