So Called Governance Best Practice... Investors Report-Card Demands Better

A Case to Answer: - The New York Stock Exchange requires boards of all publicly traded corporations to conduct Board evaluations at least annually to determine whether they are functioning effectively.

The purpose of the exercise is to ensure that boards are staffed and led appropriately, that board members are effective in fulfilling their obligations, and that reliable processes are in place to satisfy important oversight requirements.

Leading by example has seen the York Stock Exchange require regulatory Board evaluations!   Why therefore do we not have anything close to regulatory Board evaluations in New Zealand?  Does our laissez faire approach resemble the ambulance at the bottom of the cliff?

Our companies have been failing at an alarming rate with spectacular self-implosions driven by some Board’s and their Directors incompetence

The result of recent high-profile failures of Boards, could be the catalyst for fast tracked change, including.

1) Increased demands for no surprise investment risk, more transparency in financials, independent analysis, strategic direction and social reporting.

2) Shareholder activism for greater rigor assessing and appointing board Chair’s and Directors based on proven performance, and importantly capability, Strategic Leadership and genuine responsiveness to social issues.

3) Events of the recent past could be firing the temper thrust of shareholder, creditor, victim activists to take legal action, applying pressure on audit, risk, remuneration committees and board Chairs. There could be in-waiting “class actions” prompted by destruction of shareholder value and the prevalent cavalier naive attitudes, characteristic of some boards.

Why. It’s a compelling case. Consider this.....

● Fletcher Building destroyed up to $2.7 billion in wealth over the past nine years.

● Ebert destruction of value claim of about $100m.

● Mainzeal About $117 million in claims filed against the company following its collapse.

● Wynyard. $177m of shareholders' equity destroyed in just three years.

● Feltex Carpets, Solid Energy, CBL Group, Pike River, Sinorama, Pumpkin Patch, Fonterra, Maven, Corbel Construction all guilty of destroying stakeholder value.

Simply put, bad corporate governance leads to bad strategy formulation implementation and inevitable business failure.

Basic Principles of Governance?

Originally, corporate governance was put in place to stop entrepreneurs and owners acting abusively or even criminally on behalf of a company.

This is still a key objective today. The concept evolved to include ways a company should behave in order to foster trust of investors the community and all stakeholders. The message has been left off some board agendas arguably shunned in fact.

Some of the key aims of corporate governance include: -

Giving stakeholders confidence absolute, that the business is being run in accordance with best board standards and important legal standards so that it never violates applicable laws or regulations, including unwritten rules of good ethical behavior.

Providing transparency in the company's decision-making processes both in good and bad times.

Ensuring the company exercises duty of care prudence.

Advocating for compelling, effective Strategic Leadership processes imbedded in the boards psyche. Board composition, succession, capability profiles in harmony with delivering long term value and decision-making in the best interests of all stakeholders. Ensuring the company is geared toward consistent returns, while simultaneously long-term value creation, not just short-term gains.

If strategy is about matching the business internal resources and capabilities with opportunities from the external environment, then corporate governance should ask the following questions…

1) Do we have the right strategy, given our resources and what we do well?

2) Is our strategy matched to the external environment (economy, market, social, investment expectations, etc.)?

3) Is the strategy, “doable, believable & bankable”.

4) What is our Board composition and validated assessment capability “Gaps”? How do we know? What corrective actions are in place?

5) Do we have the right top management team?

6) If the answer to one or more of these questions is “NO”, then what do we need to change?

Bad strategic leadership makes it impossible for Business to fulfill its economic and ethical responsibilities to stakeholders, including shareholders and employees!

More and more boards are analyzing and future proofing Director & Chair capability profiles, annually, based on orchestrated board assessment, against strategic plan goal deliverables.

Carrying out the process of Board composition, evaluation and succession, by sourcing external third party professional counsel can bring objectivity that is the core of a high-performing board.

'Marsh Governance' specialises in board composition, assessment and succession. Confidential services provide an essential insight into how effectively the board functions as a group, as well as defining present future composition and capability 'gaps' - a critical issue that sometimes is given insufficient weight and action in internal evaluations.

High-performing individuals do not necessarily make for a high-performing board; it is how the sum of board Chair, Directors personalities, competencies and experiences around the table interact with each other that determine the board’s effectiveness. Weak board composition and capability is the anchor drag behind the company’s needs.

'Marsh Governance' - Facilitated professional Performance assessment, Board profiling, composition and succession constitute best governance practice and is the means by which governance issues and problems can be identified and resolved.

The end result being improved strategic leadership, decision making, accountability, balanced competencies, team work, clarity of roles, responsibilities, and Board Directors being an invaluable strategic asset.

Stakes are high when it comes to best practice board effectiveness — and are rising even higher in today’s dynamic complex demanding governance panorama.

Mounting stakeholders’ expectations, challenges faced by companies to operate under fluctuating political, economic climate, increased regulatory requirements are bringing the quality of performance of the Boards of Directors under greater scrutiny. Boards are increasingly becoming aware of the importance of continually assessing / validating how effectively they are performing against visionary goals they have set for themselves and espoused to stakeholders.

The perspective of 'Marsh Governance' can be particularly helpful in the complex task of identifying collective strengths and skills.

Strategic Leadership processes include, examining them against the company’s long-term strategic business goals, regulatory change, and the shifting competitive environment. 

The goal post is the board being a strategic asset in its oversight advocating and counseling role.

Annual independent analysis of board composition and its collective effectiveness highlights competency gaps early on, and a Board committee or Chair is then able to incorporate this insight in an ongoing way so that continuity and performance are not disrupted.

Boards that commit to a regular evaluation find benefits in terms of improved strategic leadership; shareholder support, increased clarity of roles and responsibilities; improved teamwork; increased accountability; better decision-making; enhanced communication; and more efficient board operations.

The solution: -

'Marsh Governance' will develop needs-based Board solutions for your company. Don't put off emailing me. I would be delighted to have a chat and arrange a confidential personal consultation.

I welcome your feedback and encourage debate regarding my article. “Lets start the Conversation”.....

Please ‘Comment, Like & Share’…

I’m Doug Marsh, a Wellington based Professional Chairman & Director, Inaugural President Business NZ and Hon.Consul.

I counsel clients on a full range of governance Best Practice Standards for the Board. My interest and expertise includes Board Composition, Assessment, Succession processes, assisting boards with director skills analysis and the dynamic excitement of Board Strategic Leadership,

To contact me, please email: -

[email protected]

Marsh Governance - Company Profile

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