Avoiding monkey business

The New Zealand Post board brouhaha offers company directors some salutary lessons, writes JULIE MIDDLETON.

Ask company directors what they think of how the boardroom spat between New Zealand Post chairman Ross Armstrong and his deputy, Syd Bradley, was handled, and they come up with a wide range of damning descriptions.

"Disgusting," "appalling," an "aberration" and "badly handled" are the printable pronouncements.

Armstrong accused Bradley of leaking secrets about NZ Post's troubled South African operations by writing to State Owned Enterprises Minister Mark Burton rather than talking to Bradley and the board.

But it wasn't the first board blue. Its eight members had earlier, and unsuccessfully, taken Act MP Richard Prebble to court, accusing him of leaking its plan for its proposed People's Bank.

One thing on which onlookers agree is that the unseemly hissy-fits broke several basic rules in the company directors' handbook.

One: what happens in the boardroom stays in the boardroom. And that goes for any paper generated there - it's the property of the company.

Two: the chairman is responsible for ensuring a functioning board - hard to do when the chairman is at the centre of the storm.

Three: don't go tattling to mum - or as it was in Post's case, "dad" Mark Burton.

"There's no excuse for running directly to the shareholder," says Institute of Directors chief executive officer David Newman.

"Initial discussion [of any problems] should be between the chairman and the director.

"If that doesn't resolve the issue, it's then a meeting of the board so the issue can be discussed by the whole board," he says. "I'm not aware of any issue that has never been resolved this way."

Despite a board's role as a collaborative decision-making body far greater than the sum of its individuals, the chairman must be the identified leader, setting the style and standards and keeping a firm hand on the reins.

Says Jan Dawson, a KPMG partner and IoD council member: "A board is only as good as its chair."

But having said that, says Geoffrey Bowes, chief executive of the Commonwealth Association for Corporate Governance, "You can't have one person controlling the board. A good chairman is also seeking collective consensus."

It requires expert tightrope walking, but so pivotal is the role that if a board is dysfunctional, warns Newman, "you can usually look at the chairman and see why."

Rot sets in fast: squabbling boards can't give clear direction to their executives, whose morale deteriorates in direct proportion to the ferocity of the fighting and the amount of media coverage.

Share prices risk going into free-fall. Says Dawson: "Airing dirty linen in public is not creating value for shareholders."

Possibly the only positive thing to be said about the NZ Post problem is that it offers several lessons.

One, says Bowes, is that directors need to keep ears to the ground constantly. They need to keep up with the business press, ensure skills and understanding are up to date, and keep in contact with their fellows outside board meetings.

A crucial element is acting early to check out gossip - it may be crucial forewarning, no matter how apparently inconsequential.

Career understands that the NZ Post board had warnings from a reliable source of impending trouble over the contract its subsidiary, Transend, had with an unhappy South African post office, but did nothing to check them out.

Similarly, if board members witness back-biting or gossip, or any faction or individual is dominating board business, "you've got to put the issue on the table," says Bowes.

"If you're the chairman and you're aware of it, you should bring it straight out in the open, and put it on the agenda. If you're a director within the company, you should insist that it's on the agenda. When things are put under the table, you get problems."

If relationships are breaking down despite best efforts, there are two courses of action, says Bowes: a vote of no confidence, or the engagement of a facilitator to help board members to resolve the problem.

NZ Post board members are believed to be working with a facilitator, thought to be Strategic Governance's Michael Marris. The Aucklander won't confirm or deny that he is soothing furrowed brows on the board, citing "confidentiality of clients."

However, the cohesiveness of the NZ Post board - an inherently unstable entity trying to balance competing commercial and social imperatives - was always going to be compromised.

Some of its members were chosen primarily for the constituencies they represented - such as former Council of Trade Unions head Ken Douglas and Race Relations Conciliator Gregory Fortuin.

The Government appoints all SOE directors and nominates chairmen, rather than directors' electing one of their number.

Listed companies differ from SOEs in another aspect: although all evaluate their board's performance, listed company chairmen will generally also seek an annual vote of confidence from fellow directors, essentially a mandate to continue.

"I can't think of a company where that doesn't happen," says Bowes, "except a Government one."

The NZ Post fight, he says, adds fuel to a call for a binding code of best practice for all Kiwi company directors.

Although the IoD's code binds its 2400 members, they are a small slice of those managing the country's 100,000 businesses.

Even Uganda, says Bowes, has a directors' code - which makes one for this country long overdue.

October's elections for district health board members promise more dissection of how boards work.

The country's 21 DHBs must hold their meetings in public - "but you can't have full and frank discussion when the public is sitting around," says Newman. But banning the public and reporters by going "into committee" - which is legal - invites allegations of secrecy.

Catch 22. It appears that this year at least, no one acting as a director is going to be bored.