Richard Baker - Vector Resignations

TONY GIBBS, JOHN GOULTER AND GREG MUIR, DIRECTORS OF VECTOR, QUIT YESTERDAY AFTER A BOARD MEETING CITING CONCERNS OVER GOVERNANCE AND THE LEADERSHIP OF MICHAEL STIASSNY. RICHARD BAKER EXPLAINS THE ROLES OF A CHAIRMAN AND DIRECTORS WITHIN A COMPANY. SHAREHOLDERS PICK THE DIRECTORS AND HOLD THEM ACCOUNTABLE FOR THE RUNNING OF A COMPANY, IF THE DIRECTORS DISAGREE WITH THE RUNNING OF A COMPANY THEY SHOULD ONLY RESIGN AS A LAST RESORT. THERE HAS BEEN SOME PROBLEMS FOR SOME TIME AND IT HAS FINALLY COME TO AHEAD.

INTERVIEWEES: PETER ELLIOTT, ACTOR
JOHN BARNETT, PRODUCER
RICHARD BAKER, INSTITUTE OF DIRECTORS


WAYNE MOWAT: Well, let's see what Richard Baker, head of research and policy with the Institute for Directors, has to say. Hello there, Richard.
Can you answer that question for Peter?

RICHARD BAKER: Yes certainly. There are some minor requirements in the Companies Act, and subject to a company's constitution for a chairman to chair meetings of shareholders and meetings of the directors but apart from that, the role of the chairman isn't prescribed in legislation in greater detail.
In terms of who is ultimately accountable, in terms of a company's performance, it is the board. It starts and ends with the board. They appoint a CEO as their manager, as their delegate to run the management of a company, but it starts and ends with a board and so, therefore, a board, and how it manages its own affairs, how it conducts its own meetings and how it generates its own culture is very much its own master.

WAYNE MOWAT: So, the board and directors shouldn't be involved on the day-to-day running of the company at all?

RICHARD BAKER: Well, in this case, we're talking generally about a large widely held company.

WAYNE MOWAT: Yes.

RICHARD BAKER: Definitely not. I think the orthodox governance models are that a board of directors ensures that a good job is done. The manager, the CEO and the management team do the good job, to put it reasonably simply. An effective board will make sure that the strategy is understood, it will hold the management to account to effect that strategy and make sure that proper plans are in place to effect it. It'll make sure that processes are in place to ensure sound conformance and compliance with all relevant regulation. And most importantly, from current research, it'll do its best to make sure that it operates itself as a highly performing team, that it has a high performance culture.
It stands residually, when things go wrong, when you have a crisis, when you have poor performance, it ultimately is accountable and so, therefore, it can do things such as sack the CEO, take over control for a short term, appoint someone in there temporarily or on a permanent basis, get its hands much more tightly around the reins.
But generally, no, it stands back. It sees that a good job is done but it doesn't necessarily do the good job itself.

WAYNE MOWAT: But it can do all those things. I mean, if you are a director, and you're not happy with decisions or directions, those are your courses of action and must be spelled out.

RICHARD BAKER: Yes. Well, if you're a director, I think we say that there are, sort of, three steps on the way to resigning as a director. If you're sitting in a board meeting around a board table and there's disagreement and debate, your first and proper course of action is that you debate and you argue. You know, you use the force and power of superior logic, you illuminate choices, highlight trade-offs, discover risks, so on and so forth, and attempt to persuade your fellow board members to your point of view.
Now, if they don't agree, your next step is you vote no, and you get over it and you move on. There is as much value in disagreement, without being disagreeable, around a board table, as there is trying to push for constant consensus.
But if, over a period of time, you find that you personally, you come to believe that you can no longer add value to that board, and this could be for a variety of reasons, ranging from conflicts of interest on the one hand, to the ethical culture or the nature of decisions that the board may be taking, and all the things in between, if you ultimately come to the point of view that your principles as an individual are conflicting to such a degree with the operation and the principles of the board, then resignation is entirely appropriate.

WAYNE MOWAT: But isn't there a...

RICHARD BAKER: One thing, sorry. Just one final thing, just to round that off, at the same time - and again, governance here is seldom a matter of black and white, it's a matter of subtlety and nuance - but at the same time, directors are elected by shareholders to do the hard yards when things get tough. So, directors should never immediately cast around for resignation as an automatic choice. It should only ever be at the very last resort because you are ultimately accountable and shareholders are relying on you to do the work, make the best possible decisions, even when times are tough.

PETER ELLIOTT: I agree with all of that, but isn't there a different dynamic here in the sense that the trust owns 75% of the company?

RICHARD BAKER: Yes.

PETER ELLIOTT: And, therefore, it's different from a company that, you know, where the shareholding is very widely spread and where there isn't a concentration of a block of this size in one hand. And so, I think that what Michael Stiassny's been saying is that, you know, managing shareholder relationships very much requires him to deal with the 75% shareholder, which appoints two directors on its own. Shale Chambers and Karen Sherry are appointed by the trust, so the other shareholders don't have a say in them, which is also different from a lot of public companies where all shareholders are elected by, sorry, all directors are elected by all shareholders. So, you've got that kind of recipe for conflict, if you like, haven't you?

RICHARD BAKER: No. Well, I think those sorts of arguments, I think, can be overstated. First of all, New Zealand is full of companies that have majority shareholders. New Zealand has several companies, many companies, where majority shareholders make sure that they have representatives on the board.
At the same time, it's clearly a key role and duty of the chairman of the board, in particular, to liaise with key shareholders and keep them appraised of the state of their investment. But the fact of the matter is, I think that all directors on a board are under strict legal duties to act in good faith, and in what they perceive to be the best interests of the company.

PETER ELLIOTT: Yes, I agree.

RICHARD BAKER: Not the shareholders.

PETER ELLIOTT: Yes.

RICHARD BAKER: Now, there are exceptions with regard to wholly and partly owned subsidiaries but putting those to one side, the directors of a company act in the best interests of that company.
Now, a shareholder in a company doesn't run the company, it doesn't make the day-to-day decisions. It's invested in a vehicle which it perceives to be pursuing a specific fundamental purpose. The company is accountable, ultimately, through its board of directors and not by the shareholders. The shareholders are not accountable.
So, in terms of governance, I think the key point to realise there is, notwithstanding the presence of a majority shareholder, it is the board which is responsible for the company, it is the board which is charged with operating effectively and, therefore, a shareholder which - and I can't comment about the current case, because I simply don't know but at a level of principle, a shareholder which attempts to impose itself into the running of a company in a direct fashion, even worse, to the chagrin of some of the members of the board of that company, is doing a great disservice.
One of the reasons that we have independent directors is to protect the interests of minority shareholders. And, of course, there's a raft of legislation in place to protect their interests as well.
On the other side of the coin, yes, you have to realise that a majority shareholder has got the majority of capital at risk and has a large degree of interest in making sure that it's preserved and the return on it is optimised and that is usually represented by them being able to appoint some directors to the board.
But, having said that, once their representatives are on the board, their representatives must act in the interests of the company not the appointing shareholder.

JOHN BARNETT: Did the chairman get appointed by the government? Because I seem to remember Wayne Brown was chairman before Michael and I thought that it wasn't necessarily shareholders who made that decision.

RICHARD BAKER: I think, usually, a chairman is appointed by his fellow or her fellow directors. It's usually a person, I think, who has the trust and respect of all the other directors and is seen to provide a necessary ability to lead the board, to help fashion tone at the top and the appropriate culture.
In this case, I don't - I could be wrong but I assume that the chairman has been appointed with the consent of the fellow directors.

WAYNE MOWAT: Richard Baker, this resignation yesterday signals, surely, trouble at t'mill?

RICHARD BAKER: [Laughs] Well, life in business is not always happy families, to make an understatement. Directors always resign from companies. What distinguishes this, is that you've seen three go at once. It's a large, high profile company and there's been some explicit reasons given.
But I think the simple response here is that things do go wrong, in a perfect world they wouldn't but here they've gone wrong. There's been conflict, there's been dysfunction, which has happened for some time, and it's now reached a head.
Now, in the case where you have, for example, three independent directors who turn up at a board meeting and say, well, we want you to stand down and the chairman looks back and says, 'Well, I won't,' then OK, it's pistols at dawn and it's who's got the numbers and you have a winner and you have a loser, and life goes on.

Ultimately, of course, it's the shareholders who will then give a pass mark for this particular episode and say whether they've agreed with it, whether they can tolerate it or whether they think it reflects badly on one party or t'other. You know, that's business.

WAYNE MOWAT: Richard Baker, thank you very much for your time and for clearing up there the answers to a lot of those questions of yours, Peter, sort of put it pretty clearly didn't he?

PETER ELLIOTT: Well, it's clearer, isn't it? It's obvious that there's been some problems for some considerable time and it's come to a head. It's probably as clean an outcome as you could expect, isn't it?

WAYNE MOWAT: Richard Baker, head of research and policy with the Institute of Directors, with us then.

Courtesy: Radio New Zealand