Learning how to govern for high growth

The subject is even more poignant now as threats of a world recession are still very real, and our own elections are looming.
Statistics, however, are compelling; ranging from low savings and productivity to weak engagement with the world economy through poor growth in exports and outward direct investment.  As a nation of four million people we lack the domestic scale to build and sustain future levels of prosperity in line with the developed world. At its simplest New Zealand Inc needs to earn more and it needs to do this in a competitive and global marketplace by providing more goods and services that meet the needs and wants of discerning consumers worldwide.

Effective corporate governance can play two roles in this endeavour. First, corporate governance deals with how companies are managed and led (and how capital is applied within them and by them) and is therefore highly relevant because increased New Zealand engagement with the world economy must be characterised by more world-class New Zealand companies. These companies can only build strong commercial positions in targeted global markets where boards of directors have set the correct tone, incentives and performance parameters for management teams to operate effectively. Here is an observation from a respected commentator in this regard.

David Skilling, of the New Zealand Institute, has criticised what he terms the “tyranny of reasonableness”, an affliction born of the “think small” reaction to the “think big” follies of the Muldoon years.  Skilling argues that as a nation we need to be “unreasonable” in our endeavours. We need to set aspirational goals and pursue them with vigour, focus and concentrated effort.

Translated, this means that New Zealand boards of directors need to step up and set expectations for their companies which are challenging and globally focused. They need to grasp that the real role of a board is to add value to the company it serves, and in the context of this article this means the conscious assumption of calculated business risks (investment, research, product development and market establishment) on an expansionary and global scale.

A board sets the “tone at the top” – and such a tone needs to be set if we want more world-class New Zealand companies. However, to ensure this happens, we need more boards that back themselves, their management and their companies to provide superior performance in the global marketplace.

The second role for effective corporate governance is its capability to assist small or medium-sized companies (SMEs) to grow rapidly into larger companies. New Zealand is a nation of SMEs and their effective and transparent governance encourages greater investment in them. Furthermore, independence of thought at their board level, well-balanced skills around their board tables and effective decision making by their boards (all hallmarks of good governance) give them the best possible chance of future success.

The challenges for New Zealand as a small trading island nation are clear.  Equally clear are the challenges for New Zealand’s directors.