Corporate Governance : Unlocking Potential Growth - Are Boards Underutilised in Growth Strategies? Is New Zealand's SME Sector Being Held Back by a Dearth of Director Talent? the ANZ Bank's Privately Owned Business Barometer Sheds Some Light on Such Questions, as Ellen Read Reports
Byline: Ellen Read
Privately owned medium-sized companies are valuable contributors to the New Zealand economy with an estimated 3500 of them contributing an estimated $110 billion a year in revenues.
But could they be contributing more?
The ANZ Bank's Privately Owned Business Barometer identifies barriers to growth and suggests that the underutilisation of boards may be preventing some of these companies from acheiving their maximum growth potential.
Given their importance to the national economy, this not only frustrates the owners' individual aspirations, it has negative economic implications for the whole country.
ANZ managing director of institutional, corporate and commercial banking Nigel Williams says there is a lot of talk about the need for New Zealanders to be world champions not only in the sporting and cultural arenas, but in business too.
"We look enviously at Finland where a former gumboot manufacturer became a world leader in mobile telephony; to Europe for its reputation in haute couture and to Japan for world leaders in the design and manufacture of household electronic products and motor cars," he says.
The stories of most of these firms are very similar: they started small and grew to become world leaders.
"In their home markets Nokia, Versace, Sony and Toyota have even greater significance than abroad. As icons they create national pride and confidence; as economic powerhouses they create enormous wealth for their employees, suppliers, shareholders and the economy," says Williams.
In order for the same to happen here, some significant issues currently confronting the privately owned medium-sized business sector must be addressed. The Barometer identifies these.
1) The role of boards. Do the ones in place really cut the mustard and do business owners really understand the role boards can play beyond governance?
2) Barriers to growth. Is complacency stifling business growth or is a lack of knowledge (about how to grow or how to fund growth) a factor? Could greater access to advice and expertise help?
3) Growth by acquisition. Is lack of capital a constraint to growth and why aren't more companies growing via acquisition?
4) Motivators for change. What are the real motivators for change and do owners want more options? Forget succession - if anything, it's staggered exits that many owners are really after.
5) Is value being destroyed? Are majority shareholders holding onto the reins too tightly and for too long?
6) The role of management's family. Why is management seemingly being ignored and is handing down to family becoming an increasingly unrealistic goal?
Williams says an increased and wider use of boards would address some of these issues and expresses concern that the survey found 31 percent of companies surveyed had no boards at all, of those with boards, only 57 percent met regularly (monthly or bimonthly), and 48 percent had no independent directors.
He believes the sector is 'holding back', not achieving maximum potential which, given its role as as the economy's engine, is of concern at a national level - and that a lack of boards and advisors is a key issue.
Also causing concern are findings that the sector has looming succession issues, that there was a reluctance to take on risk to achieve maximum potential and that glass ceilings in New Zealand businesses meant untapped growth potential.
While there are many reasons for this (skill shortages or access to capital for starters), Williams says it is clear that directors and boards are underutilised and their increased involvement could help address the current problems.
"Boards can offer more than just governance, yet one third of these companies have no boards at all, only half of boards which are in place meet regularly and only half have independent directors," he says. …