In the third of a monthly series on corporate governance, Joan Withers talks to Dame Alison Paterson about the standards of governance over the past 20 years.
Q: As one of New Zealand's most experienced directors, have you seen an improvement or deterioration in standards of governance over the past 20 years?
My lens is longer - from 1976 following appointment to the NZ Apple and Pear Marketing Board and a few years later to listed company McKenzies Ltd. In director selection, there is increased clarity about skills and attributes required, utilisation of an independent selection process, regular independent board evaluations, focus on appropriate terms of tenure.
On the part of individual directors, there is increased professionalism, focus on continuing education, clarity about the role and responsibilities and appreciation of the emerging exposures - responsibilities under Health and Safety legislation, the emerging requirements regarding Conduct and Culture following the Australian Banking Commission inquiry and the social licence to operate (Environment, Social and Governance).
There is now case history of action against recalcitrant directors which together with the emergence of Litigation Funders (once not lawful) tends to focus the minds of directors.
Q: What worries you most as a director?
The two main risks which spring to mind are:
• the big exposures such as cyber security and the need not only to protect but also to anticipate from which direction the attacks will come
• the responsibility to act in the best interests of the company and thus its shareholders (grow and protect the capital investment, provide a dividend return). Damage to reputation (resulting in loss of confidence on the part of shareholders) impacts and once reputation is lost, it is hard to regain
Q: Appointing a chief executive is one of, if not the most important job a board has to do. How as chair do you go about that process?
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The assumption is that the departure of the existing CEO has been well handled/managed. Determination of the skills and attributes required in the position, selection of a search firm and agreement regarding the extent of the search (internal, national, international?), completion of a long list, short list, interview process including the number of interviews with the preferred candidates.
I wouldn't be bound by a tick-box process if there is an obvious frontrunner and care should be taken to treat internal candidates well (ie, all should be interviewed).
Q: Are compliance processes crowding out the strategic agenda for boards today?
Not if chair/board are careful. These are responsibilities which can't be ignored and there must be appropriate reporting right through to board level so as to provide evidence of compliance. Some matters are reported by exception but it is important not to under-report health and safety.
Q: ESG (Environmental, Social and Governance) matters are being championed by many shareholder groups. What changes have you seen in this area?
The Business and Sustainable Development Commission report released in January 2017 has focused international attention on how business can contribute to the 17 goals promoted including the economic rationale for them.
The climate of opinion in society is heavily supportive and businesses are responding to the requirements of shareholders and stakeholders.
Q: What is your view on directors' ownership of shares in companies they govern?
In respect of listed issuers, I am neutral. Whether or not I have a shareholding is irrelevant to my attitude as to my responsibilities as a director. It is very unlikely there will be a conflict of interest.
It is a rather different matter for SMEs and careful consideration of potential governance conflicts is necessary. Conflicts of interest are easy enough to manage as long as they are not all-pervading, in which case, governance is compromised.
Q: Do you have a preference for being the chair of a board as opposed to being one of the directors?
The chair has added responsibility and workload however, I prefer the chair's role since I can better influence conduct and culture. My style is collaborative and about building consensus but it is good to have the required authority when it is necessary. Having said that, I have served under chairs of significant intellect and ability who were better qualified for the role than I and I have benefited.
Q: How would you advise new or aspirant directors wishing to establish a governance portfolio?
Don't rush into a governance career since you have more to offer with solid career experience. What is the motivation? Do understand that it is an insecure way of earning a living.
Directorships can have limited terms, are not necessarily well paid and supply exceeds demand by a long way. If you want to influence the direction of the company, you can often achieve this better as a member of the senior leadership team. Finally, can you articulate exactly what value you will add at board level.
Q: What is the most difficult governance issue you have had to deal with?
Big egos are difficult to deal with at governance level - the result is failure to listen to or respect the views of others. Equally difficult to deal with are those inexperienced directors who do not understand or respect the governance/management role differences.
Finally, a person with authority on the board who can create A and B teams exposes/disadvantages those B team members who are not fully aware of what is going on.
Q: What is your view on the current percentage of women directors on NZ boards and of women CEOs on large listed companies?
The percentage will continue to improve with the acceptance that child-rearing is shared, with increased understanding that parenting and career can be combined, enabling women to gain the career experience to qualify for governance roles. I expect to identify the best person for the role and if there is a choice to be made would select the women with the intention of achieving gender balance if relevant. Having said that, I am aware that some males can now rightly claim discrimination against them.
Q: How many hours reading/preparation would you do for the average board meeting?
Depends upon the focus of the meeting - strategy takes more time and thought. I have one CEO who thoughtfully provides links to relevant thought pieces and it takes time to read and digest them.
Since I chair four of the five boards I am on, and because there is interaction throughout the month, I am well briefed on both BAU and strategic issues and direction.
As a rule of thumb, I would expect that directors would spend at least the same amount of time in preparation as in the meeting.
Q: How do you supplement your economic/industry/board knowledge. What do you find are the best sources of this information?
I read widely. My focus is strategic. The obvious sources are The Economist and other media sources. In addition, in the current year reading has included:
• The Square and The Tower: Networks and Hierarchies: The Struggle for Global Power: Niall Ferguson. From the early centuries, networks have been more effective a means of influence and communication than hierarchies.
• 1914-1918: The Pity of War: Niall Ferguson. Economics dictate the result.
• The Death of Truth: Michiko Kakutani: "We must rescue the truth before it is buried under a regime of lies."
• The Silk Roads: A new history of the World: Peter Frankopan: "A major reassessment of world history" or seeing something from a different lens brings a different perspective.
• Fascism: A Warning: Madeleine Albright. All dictatorships do damage.