New Zealand economy front of mind for Sir John Key

Key stood down from the National Party leadership abruptly in December 2016 and left Parliament the following April as the close-fought 2017 election campaign heated up. He led the party to three election victories in 2008, 2011 and 2014.

In September, he joined the board of Air New Zealand, and in October, he took the chair at ANZ (NZ).

The importance of these companies to the New Zealand economy was a factor in his decision to take the roles, he says.

“I considered very carefully whether the companies fitted with my perception that I could add value, that they were companies I wanted to be associated with and that they had a strong role to play in the New Zealand economy,” Key says.

“Clearly, the national carrier and the largest bank in New Zealand fit those criteria nicely.”

As the country’s largest bank, the ANZ carries nearly one in three of all banking transactions made here, so a significant problem there could have a flow-on effect to the wider economy.

“In Air New Zealand’s case, we are clearly the largest airline and, arguably, the most committed to New Zealand, given that it is our home territory. So they were considerations – and I reached a decision to accept the offers that were made to me in relation to these two companies.”

Political thinking

Directors are increasingly called on to consider the place of their organisations in society and the economy as well as steer business strategy. Environmental, social and governance (ESG) issues are impacting on business’s reputations and licence to operate through regulation, shareholder activism and consumer expectations.

None of this is new to Key. In politics, considering public opinion and the broad societal impact of decisions is second nature.

When leading a government, economic issues can never be the only issues that matter, Key says, and the need to balance social and business priorities offers parallels with the challenge directors face incorporating broader conscious thinking into their business strategy.

“I think for a company, clearly, making a profit and reaching the objectives set by the leadership team are very important. But of course companies that do that without any concern for the wider environmental and social issues can do so in a way where they can do tremendous damage to the company.

“You can see that where you have had organisations that have, while lawfully, minimised their tax liability in way that is perceived to be unfair – and that has had quite an impact on the perception of those companies – or, for example, the way United Airlines handled the passenger that they removed because of the overbooking issue. While that was beyond their control, in so much as the person was removed through a government agency, the way that they responded to that publicly had a significant impact on their brand.”

More complex thinking

Bringing ESG concerns into the board discussion can complicate already challenging business questions – not least where there are strong personalities and divergent views around the table. For Key, the ability to engage in robust debate and consider diverse opinions is integral to board functioning, and his time leading cabinet has taught him ways of maintaining team cohesion while allowing debate to flourish.

Some of those lessons learned leading the cabinet should prove valuable to him when chairing the ANZ board.

“It was quite often the case, when we as a cabinet had to consider issues that might have traversed both environmental and economic issues, that there was a divergence of views depending on what portfolio a particular minister held.

“One of the ways I have found can encourage that is to ensure I didn’t intervene in the debate too early on, saving my comments till the end. Otherwise, you tend to stifle debate. It is also important that people know their view is valued even if it is different because through that difference, or divergent views, can come a more thoughtful response in the end.”

Valuing different views starts before the board meeting – it is one of the factors that should influence decisions on board composition, he says.

“I think it is very important, obviously, to have diversity around the cabinet or board table – both gender and ethnic diversity. People bring their historical experiences to a debate or discussion, so the broader those differences are, in a way, the more likely you are to form a view that reflects the greater sense of the everyday community.”

But is it possible to have too much diversity in a leadership team?

“I think the answer to that, in general, is ‘no’ – as long as the reason you are picking the members of the team is that they bring value to the organisation and they are not being solely chosen on the basis of diversity. Because, like any team, it is the quality of thought they bring to the process and the skills that they have, not just that they tick a box that satisfies the diversity register.”

The business/government interface

Government and the business community can sometimes find themselves at loggerheads. In a career that has spanned business, politics and now governance, Key has seen debates from many sides, and he says there are ways the business community can engage government effectively and manage regulatory risk.

“I think it is very important that the business community is active in dialogue with the government. The business community has a genuine role to play in ensuring good public policy is developed. When the business community works

in sync with the government, that’s good for the economy and, therefore, good for everybody. Obviously a significant amount of tax revenue comes from corporate tax, and that is used for the wider community as well.

“I think business shouldn’t be afraid to speak its mind. There are times when they will have a different view, but it is also important that they are sometimes realistic – governments have to get re-elected.”

Sometimes the policy positions advocated by business reflect self-interest or, alternatively, are just politically unpalatable, he says.

“And while they might be the right thing economically to do, or to do from a business perspective, they don’t meet the test that they would be possible to implement. So it’s a matter of give and take.”

Communication matters

When asked about the importance of good communication with stakeholders, Key notes that it is not just vital to business success, it is actually legally required.

“Some of the most significant lawsuits these days in relation to directors are because of the failure by the board to meet its requirements in relation to continuous disclosure.

“There are situations where you can overcommunicate – where you don’t have enough information and you end up raising more questions than you can give answers and that you ultimately could do damage to the share price by building in high levels of uncertainty that are unwarranted. But as I noted earlier, always the test is ‘is disclosure required under the continuous disclosure laws’.

“Certainly as prime minister, I found that, the more we communicated fully

and openly with voters, even if they didn’t like the particular policies, they could understand the general direction we were trying to take the country in and the objectives that we had. And that made the implementation of those policies more palatable.”

“Like anything in life, if you communicate fully, people can understand the direction you are going in and that can help, particularly, shareholders who are interested in the long-term direction of the company and why the management are making the decisions they are making.”­­­

Published in Boardroom Feb Mar 2018 issue