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Politicians and diversity on corporate boards

  • November 29th, 2013

Sir Roderick Deane's website reflects on corporate governance.

He notes that our top companies face political and regulatory risks that may dwarf their normal business risks:

"Think of how many companies face actual or implied political regulatory threats today and you will encompass many of the top companies in New Zealand: Meridian, Mighty River, Contact, Genesis, Telecom, Vodafone, Chorus, Sky City, Sky TV, Auckland International Airport, Fletcher Building, and so the list goes on. Their directors live in a world that is hugely demanding commercially without the need for all the additional and burdensome regulatory uncertainty".

Commentators ooze smug criticism of directors who accept appointments to boards without specialist expertise in the relevant lines of business. They howl for the blood of directors caught short for lack of understanding of arcane accounting points. Yet most of these top companies, which now sadly may require political sensitivity as much as business 'excellence', leave themselves without instinctive appreciation of it. There is no substitute for experience at the sharp end of voters' conflicting demands and expectations. Knowing how those pressures are likely to be reconciled with reason and duty requires the judgment of Gladwell's 10,000 hours.

In my experience most big company directors feel they can, or will be able to schmooze politicians when necessary. But their body language gives them away. From experience I think they feel superior in abstract to most politicians, morally and intellectually. They are indifferent to very senior public servants who could supply the same insights.

 In reality directors and senior executives alternate between obsequious greasing, and letting slip their underlying contempt. Some can hardly bear the company of politicians.

For a sample of the popular attitude, recall the gleeful vilification in comments on Lombard directors Sir Douglas Graham and Bill Jeffries, and the criticism of Dame Jenny Shipley's role for Genesis.

The political and regulatory risks have crystallised for Chorus, A respected analyst tells me all the equity of that company has gone, for the present. If so they've lost far more than Lombard.

Yet the shareholders of Chorus entrusted their wealth to a board bereft of anyone with an insider experience of democracy. A company with such political and regulatory exposure should have a former minister on the board. There is not even a  former senior official, or parliamentarian to ensure the board grasps the realities of politics and not some group stereotype.

I do not blame the Chorus directors for this gap. The Telecom board was similarly bereft when the Cunliffe bomb hit them seven years ago. Most of the companies listed by Sir Roderick are no better equipped.

The IOD and the senior director network are terribly anxious to show themselves respectable on 'diversity' and opportunity and training and evaluation.

They've lost sight of what I think Sir Roderick was saying in his paper – that directors should be people who watch and speak with the natural mana of experience, of having done their 10,000 hours, of having walked in the shoes of management.and made mistakes, but shown their worth by results.

Instead our board tables are carefully put together like dinner parties, designed to show interesting diversity, making sure the mix would photograph well, but above all excluding anyone who might be tough enough and uncouth enough to make the rest uncomfortable.

Comments

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  • Barry
  • November 30th, 2013
  • 9:52 am

In contrast to you Stephen, I do blame the chorus directors for the gap in their collective brainpower.

We often hear about the claimed difference between governance and management. But it is so often forgotten that management is simply the responsibility of directors, delegated to a group called ‘management’.

It is actually the directors responsibility to run the company. Yes they can delegate various jobs but at the end of the day its their final responsibility – and liability. Its also their responsibility to ensure that they do have people of the required knowledge and skills.

Consequently it is the directors responsibility to make sure that within the company somewhere is someone who has specialist knowledge in all areas that the company operates. In the case of Chorus they should have known that their prices for broadband could be set by the commission (that would seem to be obvious but apparently they didn’t appreciate this) and that there was a risk that a minority government may not be able to bypass a commissions ruling – as has happened. Further they had an agreement at a known price to do the job they had willingly taken on. Maybe they had planned from day 1 to renege on the deal. Now that sounds a bit shonky to me and reeks of reckless management – which of course carries various liability risks………

It seems incredible that the Chorus board really didn’t – seriously – understand this. It is similar to the Air NZ board that blundered into buying Ansett. They didn’t understand anything about the setup of ANSETT or its challenges (it didn’t seem to have any positives..) and really all of them that voted to buy the outfit should have gone to prison.
The Chorus board are in the same position. Its them who should be held liable should Chorus fail.

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  • Jim
  • December 7th, 2013
  • 7:38 am

Barry and Stephen: neither of you have shown that the Chorus directors had a gap in their collective brainpower. It seems ridiculous to think they were unaware of the political risk, even though it seemed a lot smaller at the time.
I wasn’t there, but it seems to me that accepting the pricing risk was a bad idea, but not as bad as not participating in the UFB build. The primary political risk was that they would be faced with that choice and they had no control over that.
The UFB was a dumb idea. If the deal falls apart I hope that Chorus can find a way to make shitloads of money from their copper network by undercutting the UFB pricing. Right now customers want low prices not higher speeds.

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