Could We Show the World Sustainable Governance? Are New Zealand Directors in a Unique Position to Embrace Sustainable Business Practices? and Could Our Sustainable Corporate Governance Strategies Be an Example to the World? Yes, Apparently. Why? Read On

New Zealand Management, February 2004 | Go to article overview

Could We Show the World Sustainable Governance? Are New Zealand Directors in a Unique Position to Embrace Sustainable Business Practices? and Could Our Sustainable Corporate Governance Strategies Be an Example to the World? Yes, Apparently. Why? Read On


Many New Zealand enterprises are already world-class at meeting their wider environmental, social and cultural interests while simultaneously delivering high level economic performance, says professor Neil Richardson, chairman of the Foundation for Research, Science and Technology.

He told a Sustainable Business Conference in Hamilton late last year that in reality, local enterprise had no choice but to adopt sustainable business strategies because New Zealand's traditional wealth-creating sectors are "populated by cooperatives, community and government-owned organisations" and all three categories are required to deliver a range of outcomes to many stakeholders simultaneously. "They have done so without easy access to either debt or equity capital," he said. "In addition, the governance arrangements for these organisations are complex and subtle to a level far beyond what you would expect for [enterprises of] their size."

According to Richardson this situation has given New Zealand both a unique understanding of sustainable corporate governance means and an "opportunity to share this leadership experience on a global level".

Conventional definitions of corporate governance are, he says, too "narrowly focused on control of business power and authority. They don't reflect expanding expectations about the roles that business should play in modern society.

"Increasingly, governance is about partnership and mutual responsibility. Narrow views about what is good for the company and shareholders are now being balanced with acceptance that the health of the local community and economy in which a company operates is of direct interest to both the company and the shareholders they serve," he said.

"Corporate governance," said Richardson, "is a rapidly evolving concept", and he offered his own "more useful definition".

"Corporate governance, is the system or process by which an organisation is led, planned, directed and controlled in order to protect, create and ultimately maximise the sustainable achievement of direct shareholder interests, in synergy with wider stakeholder interests."

"Boards have responsibilities that extend beyond looking after a single bottom line," he added.

According to Richardson, "effective boards enthusiastically embrace the new reality. They recognise that their business activities have an impact on the environment, local communities and other affected groups and to be sustainable enterprises they must deliver a substantial net benefit to all stakeholders."

Boards, he said, were still focused on ensuring conformance with legal requirements and maximising profit, but they are also taking responsibility for providing strategic leadership "in the wider context".

Organisations of any type fail if they do not deliver four outcomes simultaneously; conformance, performance, strategy and leadership.

"But too many boards are still operating under the old single dimension definition of corporate governance," Richardson said. "They believe their responsibilities begin and end with acting in the best interests of the corporation and its shareholders, which is usually interpreted to mean maximising the share price. As long as today's share price remains high, directors feel confident. Yet it was the singular focus on share price that contributed to one of the biggest corporate catastrophes of recent years--Enron.

"It may seem unconscionable negligence on the part of Enron's directors for them to admit they didn't see the collapse coming, but it is more fundamentally a result of a failed model of corporate governance. A narrow fixation on the short-term share price meant deeper problems and wider issues were never resolved."

Other companies have managed to avoid these problems by revolutionising their approach to corporate governance. Westpac in Australia is, said Richardson, successfully making the transition from the old paradigm of the single bottom line to the new paradigm of the triple bottom line. …

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