Directors of the decade: Governance is a team game

Kirsten Patterson, CEO of Institute of Directors. Photo / Supplied

COMMENT:

The NZ Herald launched the Directors of the Decade project in early May to spark debate on corporate governance.

This is a great debate to be having, and it's important that New Zealand challenges itself to continue raising governance practice and standards.

And of course that's a focus and passion for the Institute of Directors.

The Directors of the Decade project ranked the performance of public company directors in New Zealand based on business performance over 10 years.

The authors of the project acknowledged that they took an "admittedly crude batting average to the boardroom table" and many of the directors interviewed also cautioned about the limitations of the approach taken.

They highlighted a myriad of factors that contribute to business performance and the challenge in attributing these to one director.

This last point is particularly relevant because governance is a team game. A point that is sometimes overlooked.

A key reason for having a board in the first place is that it provides access to the collective wisdom of directors. However, it's not enough to just have a group of high-performing individuals on a board.

It's the combination of a balanced board and a healthy culture that creates an effective board that adds true value.

Board composition is a major consideration for the effectiveness and performance of the board.

Boards need a broad mix of skills and experience now and for the future. Individual attributes of directors are also highly relevant such as integrity, courage, judgment, emotional agility, energy and curiosity.

Other factors relating to composition include diversity, new membership and tenure.

While a balanced board is necessary, it is not sufficient to create an effective team. It is board culture that allows directors to work together to make the most effective decisions.

The key is to build and nurture a healthy operating environment. What does this look like? It should be one where the board supports open debate, diversity, thoughtful challenge and constructive dissent.

Timing plays a part in board success. Director responsibilities depend on the stage of the life cycle of a company or entity – it may be in a growth or consolidation stage. A company could be struggling.

Some directors have made a speciality of coming in at this time to help a company regain its footing.

They therefore may not feature in your batting list – assessed in average gross return per share – or be well down the order, but their expertise is valuable. They are keeping the company going and laying down the foundation for success in the future. It is often in tough times that the mettle of directors comes to the fore around the board table and delivers strong decision-making.

A board is not an island, however. Management is part of the wider governance team and this relationship needs to be valued. It is essential that a healthy and effective relationship exists.

A board is there to support and guide management, as well as hold them to account for performance and compliance matters. It is critical that the board and management have a productive working relationship.

Effective boards will regularly review their performance and this is best practice. The NZX Corporate Governance Code recommends that boards of listed entities should have a procedure to regularly assess director, board and committee performance.

However, evaluating board performance is something to be encouraged for all boards and can be done formally or informally. At the end of each board meeting, all boards should be able to ask and answer did we add value today

- Kirsten Patterson is the CEO of Institute of Directors.

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