Small business: The need for a board - EROAD's Steven Newman

Steven Newman, CEO and a shareholder of the tech business EROAD. Photo / Supplied

Steven Newman is CEO and a shareholder of the tech business EROAD, which has developed a GPS/cellular system for collecting road user charges both in New Zealand and overseas. It is planning a stock exchange listing in the next 24 months once its US and Australian subsidiaries have been established. Newman trained as a board director at the Institute of Directors and did extra training in chairing a board before joining EROAD.

Why have a board?

For a company which is growing extremely quickly, like EROAD, good governance is critical. From day one we had a board with external directors and prepared audited accounts. These things go together.
Directors bring with them the validation that they want to be associated with the company. They also have different skill sets from the executive and bring their own networks plus they have an important role to play in challenging decisions and things like setting remuneration.

EROAD has 55 shareholders, many of them employees. The shareholders appoint the board, and management is responsible to the board via the CEO. Shareholders need to be confident that there is good governance in place. In terms of fast growing businesses and governance, it's critical. It comes down to: Can you afford not to?
A board also provides validation to potential investors, giving them confidence that the company has the necessary governance and processes in place.

Some New Zealand companies see bringing in a board to provide oversight as a dilution of their control as opposed to making better decisions. Not having a board is one of the reasons companies like that stay small.

Describe your board

We have three independent directors and two executive directors, all of whom are shareholders. Two of the independent directors became shareholders after joining the board. Our chairman is Michael Bushby, who is Leighton Contractors' executive general manager in Australia and former CEO of the Roads and Traffic Authority in New South Wales.

Then we have Tony Gibson who has an extensive background in transport logistics and is CEO of Ports of Auckland. Our most recent appointment is Sean Keane who has about 30 years' experience in global capital markets as an independent director of NZ First Capital. Our other executive director is EROAD's founder responsible for global business development, Brian Michie, who is an economist with a background in infrastructure and government.

What is your board doing for you?

With a board comes a lot of extra work for management as you try to keep the directors informed. Their contribution is invaluable, though, because it encourages constructive discussion and forces management to validate their strategies and business plans or rethink them. Having a strong board also provides comfort to our regulatory stakeholders NZTA and MOT. Because the company currently collects $160m of road user charges for NZTA, these agencies need validation that we are a reputable business. Having a strong board is crucial and this will only become more important as we expand internationally and collect road charges in more jurisdictions.

How often do you meet?

We have quarterly meetings but I am also in contact with the directors outside of that. Our business is expanding quickly in a whitespace area. We don't have reference points for much of what we do, and we need to make decisions quickly so we can't involve the board in everything.

However going back to the board for validation that we're running the business against an approved plan is essential. We'll go to the board to discuss where we've corrected plans and why we've done that. The board needs to be involved in the bigger picture stuff. You want to talk to them about the capabilities for the company to ensure continued growth and their role is to challenge management to ensure there good risk management in place.

On what other occasions do you call on your board for advice?

I will call on the board when I want advice on bringing in a new senior member to the team or anyone who is reporting to the CEO. Our board will also meet on an ad hoc basis if there's a significant strategic initiative that needs discussion, such as capital expenditure, significant new business opportunities, or funding.

What is your relationship with the chair?

I have a great relationship with our chair, Michael Bushby and he is my sounding board. A high-performing partnership between the CEO and chair is pivotal - if you don't have it, the business is not in a good place.

Why do directors do it?

Directors are not in it for the money. Typically a small business will pay its board directors around $30,000 per annum and for that they are getting six meetings a year and a number of conversations and emails outside of that. In terms of hours and legal responsibilities, it's not very well paid.

We are paying more but we have the expectation that the business is going to be a very significant one and good governance is necessary to support that growth.

What is the effect of a board on enterprise value?

If your aim is to grow a business and potentially bring in more investors and maximise the long term value, then having a board to support governance is the only way to do it. A board provides confidence and as a significant shareholder and contributor to the business, it helps to support maximising value on exit. If you have built a business with no governance then potentially all that value goes when you leave.

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