KEY POINTS:
Shareholders Association chairman Bruce Sheppard has joined voices with Stock Exchange chief Mark Weldon in calling for companies not to cut their leaders any slack if they underperform in the face of economic crisis.
He describes the way some companies reward their chief executives as "a moral hazard that causes mayhem" rather than being likely to improve corporate performance.
The association has put a lot of effort into challenging boards on the way they remunerate themselves and their chief executives over the past five years, Sheppard says, but: "Boards are incredibly arrogant and don't believe they need to talk to anyone."
Many boards are populated by members who are "getting very close to being past their use-by date," he says.
With those serving on boards generally in their late 50s to early 70s, the big business challenge for the coming year is board rejuvenation.
"The reality is these people are going to fall off the perch, and unless they commit to growing their own replacements, business leadership in New Zealand will be under threat - as it will be globally."
The association has urged a major public company to take on "cadet" board members and commit to groom a new director every three years. Implementing this will make it a "bell tower" for others to flock to, says Sheppard - particularly if the company attracts good young candidates.
There are very few younger people serving on boards, he says - meaning those in the 40 to 50-year-old age bracket. There are some "stunning" older directors, he says, but also "an awful lot of seat fillers".
In the former category sits chairman of Fletcher Building, Roderick Deane; renowned for his grasp on succession and board quality issues.
Until 2006 Deane was chairman of three of the country's top companies: the ANZ National bank; Fletcher Building and Telecom.
The principles Deane sees underlying board succession stem from balancing renewal with experience.
When companies face demanding circumstances, you need boards to be vigorous in their requirements of management and to look after shareholders, he says. Board members who have worked together for a long time are less innovative and questioning of one another.
On the boards on which Deane has served, the members have agreed on a cycle for renewal; encompassing the term length for which they will sit and staggering their departures.
The members engage a consultant and instruct them on the criteria they seek in new board candidates; emphasising strategic thinking; industry knowledge; prior experience and desirable specialisations.
Under Deane's leadership, Fletcher Building's board has shortlisted potential candidates to succeed departing members and will announce new members this year.
Although boards can agree succession arrangements, ultimately shareholders elect directors and determine how long they serve - so consultation and investor relations programmes are also part of the process.
"You have to be conscious of what the shareholders are thinking and you can only really do that by chatting to them," says Deane. "I've always said to significant shareholders that if they want to talk to me about any issues, all they have to do is pick up the phone."
