Why have external Directors?

Business in New Zealand remains a challenging environment for many companies and despite the ‘rock star’ label that some commentators have attributed to our economy, companies need to be very focused to progress.

 Strong leadership is a vital part of companies exploiting their opportunities, being relevant and in touch to their markets together with understanding product cycles, competitor activities and emerging trends.

 Given the lack of depth in our economy, conditions can change quickly and leadership and well thought through strategy together with good risk management are the difference for many companies between success and failure.

 For many companies the leadership team are also part owners and Director’s. Further many companies are family owned with second or third generation management that represent wider family ownership interests. These combinations of leadership and ownership structures create many issues of a lack of balance and being able to extract a superior outcome for the wider stakeholder group.

 The inclusion of external non-executive Directors can significantly assist in balancing how these challenges and opportunities are best managed. Good governance is supportive, demanding and should assist the achievement of sustainable and prudent development of an enterprise.

 Boards should have a culture that celebrates debate, candour and openness between executive and non-executive directors where issues and opportunities can be treated as issues rather than personal matters. Strategy development and risk management generally benefit from an external perspective that challenges internal thinking.  We all at times get too close to issues and having external directors provides a useful sounding board to discuss opportunities and reach improved decisions.

External directors must be more than attendees at board meetings their role should create balance, perspective, challenge and support better outcomes for shareholders.

Using external directors for these reasons creates real value; well-chosen they offer external experience and another skill set around the Board table.

 Colin Theyers CA. GDip(Finance). CFInstD