KEY POINTS:
Many New Zealand directors may be out of their depth, sitting on boards of companies that often demand a combination of deep experience as well as sharp strategic thinking as they seek to grow globally.
Finding good directors can be tough. At smaller companies, directors are often family members, while at bigger companies there can be an intense focus on getting "big names" on board, rather than people with the right skills.
While there is an obsession among boards to focus on governance issues, true leadership from directors goes beyond merely endorsing or rubber stamping projects or business plans proposed by executives.
A director's true value to the board is to be found in how much strategic insight and advice he or she can contribute. What is needed is mental fuel from directors, to stretch a company's ability to consistently outperform, to conquer new frontiers to boost shareholders' wealth.
When John Blackham, who is CEO of software company XSOL, was sitting on the board of New Zealand Trade and Enterprise, which is meant to spearhead export growth, he once asked who was responsible for the export performance of the country. "There was complete silence as no one knew the answer to the question," he says. "Such a situation reflects a vacuum in accountability and responsibility."
Blackham says: "What happens is there is this obsession among boards on accounting matters. My own board constantly challenges us with the question of, 'What's your strategy?' I may tell them, 'I don't know, so I need your help'. Sometimes they don't know either," he says.
In Blackham's view, true director education takes place when the board has the courage to admit its lack of knowledge.
"Only when there is such an admission can the board members collaborate to work out what the company's strategic direction needs to be."
One indicator of how small to medium-sized enterprises (SMEs) feel about their boards' performance can be found in ANZ's Privately Owned Business Barometer - an annual survey of companies in the $5 million to $150 million revenue range - that covers a broad range of issues including board performance. The latest survey shows that besides the shareholders, board members are the preferred source of advice for the growth of companies.
The ANZ report notes that while there is recognition that directors and independent advisers can bring fresh thinking, about 60 per cent of those surveyed were not interested in using outside sources to add value to their companies.
One-third of those surveyed had no boards (the same as last year's finding); and of those that have boards, only 66 per cent met regularly. What is more telling is that only 44 per cent of those surveyed thought their board members were truly independent.
The Institute of Directors' (IOD) Professional Development Manager, Richard Croad, believes SMEs face many challenges in understanding their weaknesses and strengths, their opportunities and constraints.
Owners of SMEs are also under pressure to have an exact understanding of what they are trying to achieve when they appoint their directors and to find skills to match these needs.
"A key piece of awareness is how their duties as directors differ from those of the owners and managers," Croad adds.
From the IOD's vantage point, its primary interest is to promote better governance and better directorship.
Croad says: "Better governance supports growth, thus directors in whatever number and capacity will probably follow. Good governance can occur before directors are present but this may not provide an environment of growth or sustainability, at which point good governance processes may identify the need for [specific] directors."
The IOD encourages all directors to commit to a philosophy of continuing professional development.
"Sadly, there are directors in all spheres who have never undergone any formal governance training," Croad says.
For others, such as the founder of software firm Orion Health, Ian McCrea, it is important that directors bring different skills to the table.
This means having someone who can help test "the sanity" of the company on compliance issues; someone with international marketing and product development knowledge; and someone who challenges the company into thinking about other possibilities and opportunities in the business.
New Zealand definitely lacks directors with depth and skills of global markets, says XSOL's Blackham. "We are weak in the area of strategy.
New Zealand directors are generally quite disjointed from the global markets because for most, that realm becomes just too difficult."
And as New Zealand increasingly strives to go global, finding directors with the relevant brainpower, depth in international marketing experience and technical knowledge will be key challenges for companies looking to their directors to test the efficacy of their strategic plans, he adds.
Getting help
The Institute of Directors offers a wide range of training programmes. Its flagship course is a five-day, six-night course for company directors which is run throughout the country, typically once a month.
For small to medium sized enterprises, the IOD also runs SME governance essentials courses and a "Rapid Growth" course.
Other places that offer programmes related to directors' development:
* NZ Institute of Management: www.nzim.co.nz
* Employers and Manufacturers' Association (Northern): www.ema.co.nz
* NZ Institute of Chartered Accountants: www.nzica.com
