Deloitte Top 200: Why good corporate governance matters

Succession planning is a key ingredient for board chairs. Photo / Supplied

One of the most disruptive things that can happen to a company is the sudden need to replace a leader.

We've seen it happen often in New Zealand, where it can be more difficult to find a replacement at short notice due this country's relatively small population and its isolation.

Planning for sudden change is therefore a vital component in a good chairperson's governance toolbox.

"What would you, and each of the board, take responsibility for if you had to do so suddenly?" said Forsyth Barr managing director Neil Paviour-Smith.

"The chair can play an important role in helping develop leadership capability from within".

Forsyth Barr is the sponsor of this year's Deloitte Top 200 Chairperson of the Year Award to be revealed on March 2.

This year's finalists are Infratil's Mark Tume, Patrick Strange from Auckland International Airport and Chorus, and Barbara Chapman from New Zealand Media and Entertainment (NZME) and Genesis Energy.

In recent years, the responsibilities and expectations of the board chair has changed dramatically, as it has for directors and management.

Fast changing business models, disruptive technology, diversity, equity and inclusion, and corporate social responsibility have moved the role well beyond financial oversight.

So what makes a great chairperson?

Paviour-Smith says those that stand out are those who can support, motivate and inspire the leadership team. They are also able to provide a firm hand when it's required, and, importantly, front up when there are issues.

"Someone who actively manages board dynamics, drawing out contributions from the wider board."

Basic principles such as being organised and operating efficiently can also make a big difference to the effectiveness of the group, he said.

"A great chairperson must be passionate about the business they chair."

Learning lessons from past governance failures is also a must.

A perfect example was the brutal Australian Royal Commission into Misconduct in Banking two years ago.

Commissioner Kenneth Hayne's final report highlighted "failings of organisational culture, governance arrangements and remunerations systems, lie at the heart of much of the misconduct".

The commission talked a lot about tone and culture, which comes for the top.

"Issues come when there is an imbalanced view of risk and return," Paviour-Smith says. "It's problematic when there is a lack of deep, relevant industry expertise represented on the board of a company."

Other problems can arise when a board forgets that it is not management.

"There is a real risk when governance becomes "best mates" with management."

How should boards work with the executive team?

The 'no surprises' commitment needs to exist both ways while constructive challenge should be welcomed and productive.

"Boards are ideally able to fill a role in offering support and advice – becoming a sounding board for the executive," Paviour-Smith says.

"Again, there is the importance of passion - governance must be passionate about the organisation. "It's also a problem when a board lacks focus, board members are otherwise occupied, or the group is insufficiently incentivised."

Meanwhile, the chairperson needs to give sufficient attention to poor performing or under-contributing directors.

Deloitte Top 200 Awards were established in 1990 and are held annually to recognise and applaud outstanding individual and management team performances among New Zealand's largest companies and trading organisations.

All the Deloitte Top 200 winners will be revealed on March 2.

Click here for a full list of finalists.