"First of all, I should say we should welcome scrutiny because that is part of good governance and directors ought to be answerable for the fees that are proposed to be paid, so I don't shy away from that proposition." Arcus says a lack of visibility on the part of directors is possibly to blame, leading to their role not being well understood.
"Therefore questions are being raised about why we are paying this figure to this group we don't know." As well as using independent remuneration reviews to provide assurance to investors, he would like to see directors getting out and talking more with analysts, institutional investors and proxy voters, as is common overseas.
"It gets down to a number of forms of communication that boards could employ with more energy. We also need to better recognise who has the long-term interest of you as an investor or shareholder at heart, and ultimately that isn't management.
"That's not to say that management don't do a first-class job along the way, but who is encouraging management to say 'what's happening in five years time in this place?'"
Directors' pay is the focus of the institute's annual survey, which highlighted a gap between fees in the private and public sectors.
On average, a director of a listed company is earning $78,570 a year for about 141 hours of work, compared to a director of a council-owned or -controlled organisation, who is earning $35,500 for 165 hours.
Arcus says there is nothing new in the gap, which is generally accepted on the basis that there is a "slight discount" for roles contributing to the public good.
"But the divide for me has become a concern and really I think we need to know, if there is going to be much less attractive remuneration in the public sector, we need to know what the good reasons are for that." Arcus says the difference in hours worked is probably a result of the public sector's different compliance and governance requirements.
Nevertheless, he has been told by officials that there is no shortage of applicants for public-sector boards.
"That's not really about quality and that's what worries me, as the remuneration becomes less attractive, there's a quality paradigm that comes in." Private or public sector, the director's role is about looking beyond the short-term horizon of daily management, says Arcus.
"We want our decisions about public infrastructure and investment to be made from the best possible platforms and that means getting good directors in there."
People often perceive the liability risk to be low in the public sector, he says.
"I think that actually overlooks something that we would say at the Institute of Directors is uninsurable: that reputational damage." Political manoeuvring can see entire district health or state-owned enterprise boards sacked, leaving first-class directors with major reputational damage that is hard to come back from, says Arcus.
For someone who has built a solid reputation in public sector governance, he says, the risk is significant.
"It's fair to say a lot of directors accept that there is a public discount gratuity but on the other hand, at what point do we make sure we are sufficiently attractive to the really good directors to make New Zealand pump."
Top flight public-sector directors are often called on to provide impartial advice to ministers and it concerns Arcus that quality directors may be turned off public-sector roles if the downsides outweigh the benefits.
"If all our boards are filled with inexperienced directors who are largely there to be ambitious and build their careers, then the incentive to bend a little more might be greater.
"That's why we need that firm hand of experience on the tiller."
Directors' Pay
Listed companies: $78,570 a year / 141 hours of work
Council-owned or -controlled organisations: $35,500 a year / 165 hours of work
Source: Institute of Directors survey
