NZX chairman James Miller.
In the latest in a series on corporate governance, Joan Withers talks to James Miller about modern leadership and the challenge facing capital markets.
Q: As a New Zealand European middle-aged male are you finding it harder to gain significant board roles as the push for diversity increases?
A: I haven't, but I'm not looking for any additional work. I mentor a lot of young directors, both male and female, and I think a better way to consider the question is, given that there is a massive oversupply of directors wanting a start in the industry, that the best way to solve this is to increase the number of listings on the NZX, thereby increasing the supply of roles for all!
From a gender diversity perspective, I have had the privilege and experience of working on Boards alongside some truly transformational female leaders. Diversity, while not compromising "merit", is a key focus for both NZX and the organisations which I'm associated with.
NZX recently partnered with MinterEllisonRuddWatts on an event focused on transformational women in the capital markets industry.
Q: You have chaired the Audit and Risk committees of some very large organisations. How do you gain confidence that information and reports you are relying on, which are provided by management are accurate, complete and fit for purpose?
A: I take the reporting process of reporting to shareholders very seriously. So much of the integrity of capital markets hangs on the Audit and Risk Committee executing their job perfectly, every time, without fail. The only way to do this is to have good structure and processes in place, and to surround yourself with the best professionals, in particular the CFO, external auditor and the internal auditor.
Q: Appointing the CEO is arguably the most important job a board has to do. Explain what process you use and how you gain confidence that your preferred candidate is right for the role?
A: As a general rule, when the company is generating Total Shareholder Return (TSR) greater than the cost of capital, I prefer to recruit internally. This sends the right message to shareholders and staff. If TSR is lower than the cost of capital it is time to do a global search for the best candidate. For probity reasons, either way, I recommend hiring a top recruitment agent who has the courage to challenge the board and truly understands the business.
Q: In dealing with a CEO, as a director how do you address overconfidence and/or arrogance issues if they arise?
A: This can be intimidating for a new director. As a general rule CEOs are not short of self-belief. I prepare well, argue a coherent logical argument and try to mentor the CEO! If it is important enough, I just stand my ground. At the end of the day the directors are the shareholders representatives and they "bat last".
Q: What is your view on over-boarding?
A: General guidance is that a director should have no more than five roles, with a chair counting for two. However, I will note this is complicated, some directors are more productive and capable than others. Work tends to find the competent. On the other side of things I would say that if you are in the middle of a hostile takeover then one directorship is probably a maximum.
Q: What do you do to further your professional development as a director?
A: I look at the skills matrix and formulate strategies to lift my personal expertise across a wider range of skills the board requires. The best method is to sit with first class directors, such as the late Lloyd Morrison, Joan Withers, Tony Frankham, Dame Paula Rebstock and Sir Henry van der Heyden, to name just a few, and then learn very quickly.
I have been privileged to be able to attend Harvard Business School in Boston on two occasions which has further enhanced my strategy analysis skills and helps to provide a benchmark to your performance on an international basis.
I also sit on the Board of St Cuthberts' ColIege based in Auckland.
Q: Shareholder activism is gaining momentum globally. How do you believe this is impacting corporate governance in New Zealand?
A: It has a significant influence, but, in general, it is highly aligned to shareholder wealth creation, and therefore is not a concern to a well performing board. However, it can unintentionally risk becoming a pseudo regulator without the legal and public accountability.
Q: As chair of NZX you are leading the current 150 year celebration of NZ's exchange. What achievement are you most proud of during your tenure on that board?
A: The chair role at NZX is like no other chair role. You have your normal chair duties, which are complex and varied, plus, as an extra bonus, you have to ensure the capital markets 'parish' has a common purpose and vision to ensure New Zealand capital markets are sustainable and successful.
It is no secret that I have a huge passion for ensuring the future success of New Zealand's Capital Markets. We identified the 150th as being a unique opportunity to bring the markets together, and hopefully unite the market behind a common purpose and vision.
The NZX and the Financial Markets Authority have commissioned an "industry led and government supported" independent review of the industry and regulatory settings of the wider capital market, aptly branded Capital Markets 2029.
The genesis of Capital Markets 2029 is the Xero decision to delist from the NZX. They say one should never waste a good crisis and I could write another book on the machinations of getting it off the ground.
So, in terms of my proudest moment, I have mixed views on this, except to say I just want to leave the industry and the company in a better place than I found it.
Q: Commentators have highlighted the lack of IPOs since 2017 [At press time Napier Port had just priced its share offer]. What are you doing to address the drought?
A: There is always a lot of focus on equity IPOs, but, in this day and age, developing healthy capital markets is much broader than this. The NZX has to align its product set to the requirements of the savers of New Zealand. We are also focused on continuing to promote and develop the debt market, which has been performing exceptionally well, as well as developing a listed funds market and supporting strong capital raising on all of our markets.
We were delighted to welcome the listing of eight new Exchange Traded Funds last month, together with the IPO of Cannasouth. We have also had a number of other companies list on NZX, in the past two years, via compliance listings. It was nice to break the drought and the pipeline, at this early stage, is looking the best it has done in years.
While there are less companies on the bourse, the New Zealand story for investors since the GFC has been nothing short of spectacular. Consistently ranking in the top three globally and one of New Zealand's best kept secrets.
Q: You have sat on the board of a number of large listed companies. What is the most difficult situation you have encountered as a director?
A: Dealing with the CEO brings both the most enjoyable moments but also the most difficult moments on a board. Given what is involved for both parties both financially and reputationally, this is not surprising. Expectations from shareholders and proxy groups are increasing significantly in this area driven by the traditional agency theory arguments plus rising public concern on income and equality.
Another equally challenging situation was dealing with the consequences of the finance company fallout, when I was on the FMA. This was intellectually challenging and extremely sad for those involved. Each case required the Directors to work through complex financial numbers and combine this with the relevant law to conclude a decision.
Lastly, it is challenging to approve decisions which the CEO feels passionate and very strongly about but are marginal whether or not they will add shareholder value in the short-term, albeit "purportedly" will add value in the longer term. At the time these decisions are made the discussions can be very passionate and heated. A Board's ability to allocate capital wisely and to achieve returns above WACC [Weighted Average Cost of Capital] is a core expectation of all investors.
James Miller is also director of ACC, Mercury NZ Ltd and Refining NZ. His career background in capital markets included Head of Equities and Head of Research positions in leading investment banks. He has specialist knowledge of infrastructure assets.
NZ is one of the first jurisdictions in world to clear the way for OMG and IPG to merge.