Improve board performance – Suggestions from experienced directors

The Productivity Commission report New Zealand boards and frontier firms presents findings from in-depth interviews with 22 IoD members. The discussions explored the role of boards in firms’ decisions to scale-up, innovate and expand overseas. The directors made suggestions for improving the performance of boards and companies.

The suggestions which follow are relevant for boards and directors, management, the IoD and the government.

For directors and boards

• Spend more time on fewer boards. Directors should be highly engaged and passionate about the company.
• Carve out time for unstructured, forward-looking conversations that advance long-term value creation. Bringing in an external facilitator for a strategy session can help draw out the collective wisdom of the board.
• Be more courageous in going outside to appoint people – including those who haven’t been directors before.
• The risk appetite statement is a key document. But it’s not enough just to have one, it must be lived out in decision-making.
• Alongside calculated risk-taking, is a need to be more accepting of failure – embrace it and learn from it.
• Consider encouraging CEOs to take up a (paid) board position in another company. This would help them to understand what a board needs from its management, and improve the pipeline of directors.
• Re-consider recruitment approaches and director skills descriptions – focus more on commercial, industry and international experience (including Kiwis returning home) and less on specific skills.

For management

• Advisory boards can be a good “halfway house” option for early-stage firms, as a way of bringing in experience without moving to a formal board.
• Investigate ways to get more real-time reporting and information flows to the board – consider digital options, as well as more frequent, but shorter and more informal conversations. The Netflix governance model provides an example.
• Structure board agendas around key topics rather than the structure of the organisation.
• Give boards the “options” information they need to provide genuine challenge – don’t present them with fait accompli.

For the IoD

• Help support more entrepreneurial risk-taking, for example by encouraging experienced directors to take on a growth company.
• Consider ways to support more networking with peers in key trading markets (such as Australia and the US).
• Raise awareness of the risks of over-boarding (where directors sit on too many boards and so lack the time to adequately fulfil their duties to each company). This would need to acknowledge the incentives posed by directors’ fees structures – ie, modest fees may encourage over-boarding.

For government

• Policy makers should be aware that any increase in regulatory compliance burden can compromise these objectives by crowding out time and resource that could be spent on growing and developing the company. This is particularly the case for director liability, which should be used sparingly. While directors generally accept that liability for organisational health and safety appropriately rests with boards, some responsibilities would be better be placed with management, who are more likely to have the knowledge and levers to manage the risks.
• Provide policy leadership from the top – set the tone by telling businesses what government wants from New Zealand companies (eg, greater focus on growth and internationalisation). Consistency is important (policy flip-flops are unhelpful).
• Decide what New Zealand is good at and then make that attractive by providing concentrated support (eg, funding or tax breaks of significant enough scale to make a difference).
• Greater coordination is needed across the research community – CRIs and universities are not well-connected to industry needs. Firms need them to be better aligned, and more responsive and timely

Also see the report New Zealand frontier firms: A capabilities based perspective commissioned by the Productivity Commission.