Responsible Governance: Why Are We Reluctant Practitioners? Do New Zealand's Directors and Chief Executives Understand What Responsible Governance Is All about and Just How Important It Is? NZ Management's Reg Birchfield Isn't Sure and Wants to Find Our Best Governed Enterprises

New Zealand Management, May 2011 | Go to article overview

Responsible Governance: Why Are We Reluctant Practitioners? Do New Zealand's Directors and Chief Executives Understand What Responsible Governance Is All about and Just How Important It Is? NZ Management's Reg Birchfield Isn't Sure and Wants to Find Our Best Governed Enterprises


Byline: Reg Birchfield

A $70 billion telecoms corruption scandal poses what the executive director of India's largest company, Tata Group, calls "the greatest threat to the country's civil society" since it won independence from Britain.

To draw any parallel between the state of commercial life in India and New Zealand is, on the face of it, absurd. It may be an extreme example of customer dissatisfaction but, local enterprise should watch what is happening in other countries very carefully. Public discontent is easier, thanks to telecoms technology, than ever to foment. And examples of seemingly opportunistic enterprise here and abroad are under scrutiny. Ask the directors of our now rotting finance companies.

Responsible governance is about the overlap between an organisation's environmental, social and risk management practices and the interests of its shareholders and an increasingly wide circle of other stakeholders.

Last year a few more of our larger companies took some steps toward being more responsibly governed, but it was driven "more by regulatory and market pressure" than by any significant shift in corporate attitudes, according to Duncan Paterson, the chief executive of Corporate Analysis Enhanced Responsibility (CAER), whose Canberra-based organisation measures the governance and senior management performance of NZX 50 companies for institutional investor AMP Capital.

The consensus in the business consulting and corporate analysis marketplace, is that New Zealand enterprise is dragging its feet on the adoption and implementation of corporate social responsibility (CSR) practices. Less than half of New Zealand's listed companies can, for instance, supply reasonable evidence of accountability for any environmental, social and governance (ESG) risk rating. That is well behind Australia and increasingly behind other advanced economies, particularly the United States and Europe.

Rewarding

Some companies, like law firm Kensington Swan, which backs the Responsible Governance Award within the portfolio of the Deloitte/Management magazine Top 200 Awards, are encouraging business to adopt more socially responsible governance practices, but the firm's chairman, Clayton Kimpton, concedes it is a slow change process.

"When we first started sponsoring this Award, there was a low level of recognition of the need to promote more responsible governance practices," he says. "That has changed. More companies are beginning to realise the effect their governance practices have on the communities around them."

But like Paterson, Kensington Swan believes most companies move in response to regulation or consumer pressure. Chris Parke, the firm's corporate partner specialising in governance advice, says changed responsible governance attitudes and policies are led by consumer demand. "People expect businesses to respond to the sustainable and environmental policies now being raised."

The reluctance to embrace or seek out the upsides of responsible governance simply invites change by regulation. Politicians, both central and local, see votes in promoting more "consumer and investor-protection" rules, even if they are more costly and cumbersome to implement and police.

Companies are, according to Paterson, responding to increasing community and regulatory pressure in climate change and environmental management but "it is more reactive than proactive". "There is very little movement in some of the social aspects of the ESG spectrum, like human rights and supply chain issues."

Competitive advantage

Few New Zealand companies have latched on to the competitive advantages that CSR advocates claim the initiatives deliver. They believe stakeholders, particularly investors, view the adoption of responsible governance practices as a tangible expression of a board's commitment to best business practice, sustainable leadership and transaction transparency, all of which boost profitability. …

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Responsible Governance: Why Are We Reluctant Practitioners? Do New Zealand's Directors and Chief Executives Understand What Responsible Governance Is All about and Just How Important It Is? NZ Management's Reg Birchfield Isn't Sure and Wants to Find Our Best Governed Enterprises
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