GOVERNANCE is a curious topic in New Zealand. We see directors fail to instil an organisation-wide culture of 'good business' in rugby teams, health boards and carpet makers. Yet when directors do take action they are challenged by the popular media for acting, rather than re-acting. What, then, makes a good board and how do organisations create boards that perform rather than act the part?
Contrary to the 'she'll come right' approach in many firms, board members are not cruise directors, assuming that markets and competition owe the organisation continued well-being while the leadership rearranges deck chairs on the Titanic. Directors are called upon by shareholders, and increasingly by other stakeholders, to proactively guide the management team.
Rather than wait until the first signs of danger emerge, directors must take charge of creating an atmosphere in which every member of the organisation knows intuitively how to act. For those who take it seriously, this is an awesome and humbling duty.
New Zealand is picking up the global trend of adding independent directors to its boards. Last year's "Directions--Understanding Governance" research throughout New Zealand confirmed the need for thousands of new independent directors. The need is most pressing in small to mid-sized firms but it is equally true of for-profit firms, non-profit foundations and trusts, government entities and family-owned businesses.
As shareholders increasingly look for directors who can chart a long-term strategic course for their firms instead of managing through the rearview mirror of compliance and audit functions, this creates a dilemma for investors: Where to find and how to recruit the most suitable directors from outside the firm?
The Government helps with the regulatory mandate of independent directors to sit on boards of publicly listed firms and by putting non-profit entities on notice of the scrutiny of their performance through the Charities Bill. This leaves a huge range of organisations for whom the mandate of shareholders decides the composition and quality of boards.
The more than 2500 responses to the 2006 Directions survey revealed that, currently, new directors are mainly recruited through the personal networks of existing directors and senior managers. This finding backs up fears that similarity to existing directors and managers is a key deciding factor in picking new boardroom talent. While, there is nothing wrong with directors and managers using their broad networks of friends and associates to identify new colleagues, the practice raises in shareholders' minds questions around whether or not the search was sufficiently widespread. Did we really look at a large enough group of people to contribute to our board? Could someone a few postal codes away have been a better match?
Without doubt, robust discussions occur during board meetings, directors sometimes do not get along with each other and some directors walk out on a board.
Current owners and directors regularly cite such disharmony as a reason why 'outsiders' can do more harm than good. But exercising a drop of tolerance for diversity is a small price to pay for the infusion of talent in helping an organisation chart a sustainable plan for its future.
If everyone agreed with everyone else about the future, we could replace boards with robots with huge rubber stamps.
Directors and executives in New Zealand have clearly stated that they join boards not because of the glory of serving on a large company board--although we assume that few would refuse such a call to duty--but to 'do good' and to contribute their skills in a meaningful way.
This documents the earnest approach of these prospective independent directors to their new duties: A serious effort to contribute executive experience for the benefit of another organisation, its shareholders, employees and other stakeholders. …