Magazine of the Institute of Directors in New Zealand

AUG/SEPboard 2017 room

THE RISE OF ARTIFICIAL INTELLIGENCE ELECTION SPECIAL BUILDING GREAT ORGANISATIONS STARTS AT THE TOP

Building a governance Slavery; a Building blocks for Gender pay gap is closing What’s your value add? pipeline modern problem? innovation A PARADIGM SHIFT IN WEB APP SECURITY

FORTIFY YOUR WEB APPS FAST If your business has failed a PCI compliance audit, a penetration test; or has out of date software or 3rd party applications that are leaving you vulnerable – you need RedShield. RedShield protects your mission-critical web apps fast, allowing you to remediate issues later. To learn more about how this innovative service can save your business time and money contact Kordia – the exclusive Australia and NZ agent for RedShield – on 0800 567 342 or visit Kordia.co.nz/redshield

SHIELD FIRST. THEN REMEDIATE.

KNZ0246_Boardroom_Fullpage_v4.indd 1 7/07/17 11:27 AM August/September 2017 BoardRoom | 3 A PARADIGM SHIFT IN WEB APP SECURITY 8 Building great Inside this organisations starts edition at the top 10 Walking the talk As we pass the year’s halfway 12 The rise of Artificial mark, and our annual general Intelligence meeting, BoardRoom is pleased 18 Building a governance to feature Liz Coutts our new pipeline President, and share more about 22 Slavery; a modern our Chief Executive Kirsten problem? Patterson, with a profile on each. 24 The building blocks Our cover story is thanks to a former for innovation New Zealand journalist who is now 28 Cyber resiliency for today based in Japan, who shares the and tomorrow rapid rise of artificial intelligence 30 What’s your value add? and its implications already seen 32 A glimpse into the over there. She looks at what’s mind of your CEO: KPMG happening in New Zealand and what New Zealand survey directors need to be thinking about. 34 Gender pay gap closing: IoD Directors’ Fees Report This issue also has a strong focus on 36 Election special diversity, with an introduction to the 41 GLC Update 24 new mentees of the Mentoring 8 Building great 42 Taking the plunge into for Diversity programme and talks formal governance to four leading directors on why organisations their boards have a Future Director. starts at INSIDE IoD We also put three questions 5 CEO Report to this year’s political parties. the top 6 Upfront Check out who responded and 44 Out & about what they want to say to you. 46 Events Diary

FORTIFY YOUR WEB APPS FAST Institute of Directors in If your business has failed a PCI compliance audit, a penetration test; or has out of date software or 3rd New Zealand (Inc) party applications that are leaving you vulnerable – you need RedShield. Mezzanine Floor, 50 Customhouse Quay RedShield protects your mission-critical web apps fast, allowing you to remediate issues later. PO Box 25253, Wellington 6146, New Zealand To learn more about how this innovative service can save your business time and money contact Kordia tel: 04 499 0076 10 Walking the talk 12 The rise of AI – the exclusive Australia and NZ agent for RedShield – on 0800 567 342 or visit Kordia.co.nz/redshield fax: 04 499 9488 For the benefit of Is AI on your agenda? email: [email protected] New Zealand www.iod.org.nz

SHIELD FIRST. THEN REMEDIATE. ISSN 0113-3004

KNZ0246_Boardroom_Fullpage_v4.indd 1 7/07/17 11:27 AM 4 | BoardRoom August/September 2017

BoardRoom is published six times a year by SENIOR LEADERSHIP TEAM COUNCIL 2017/18 the Institute of Directors in New Zealand Chief Executive Officer Liz Coutts, President; Alan Isaac, (IoD) and is free to all members. Subscription Kirsten Patterson Vice President; Dr Helen Anderson, for non-members is $155 per year. Wellington; Des Hammond, Bay of Manager, Membership, Marketing and Plenty; Julia Hoare, Auckland; Jackie BoardRoom is designed to inform and Communications Lloyd, Wellington; Simon Lockwood, stimulate discussion in the director Nikki Franklin Waikato; Vincent Pooch, Canterbury; community but opinions expressed in this Manager, Governance Leadership Centre Geoff Thomas, Otago Southland; Clayton magazine do not reflect IoD policy unless Felicity Caird Wakefield, Auckland; Sarah-Jane Weir, explicitly stated. Nelson Marlborough Corporate Services Manager Editor Chris Fox COMMERCIAL BOARD Emma Sturmfels, 027 536 8062 or email Catherine McDowell, Interim Chairman, General Manager Commercial [email protected] Alan Isaac, Liz Coutts, Kirsten Ralph Dr Alison Harrison, Rangimarie Hunia Contact the Editor for any advertising Branch Network Manager queries. Peter McLellan BoardRoom is designed by Strategy Creative, strategy.co.nz BRANCH MANAGERS Institute of Directors in New Zealand (Inc) Auckland Taranaki Mezzanine Floor, 50 Customhouse Quay, Shirley Hastings Julie Langford PO Box 25253, Wellington 6146, Bay of Plenty Waikato New Zealand Tel: 04 499 0076 Laura Gaveika Megan Beveridge Fax: 04 499 9488, Email: [email protected] www.iod.org.nz Canterbury Wellington Sharynn Johnson Pauline Prince

Nelson Marlborough The Institute of Directors has staff based at Karen Goodger the National Office in Wellington, an office in Auckland, and eight branch Otago Southland managers operating from their localities. Vivienne Seaton For National Office, telephone 04 499 0076.

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CEO REPORT As directors we play a significant role

Tēnā koutou Despite our position as a small island As directors we play a significant role nation down at the bottom of the world, in ensuring New Zealand’s reputation is IOD BY NUMBERS New Zealanders are well known as a nation maintained while offshore. We also must of travellers. For generations, much of take responsibility to help build trust our economic prosperity has come from in our economic systems. Whether it is sharing New Zealand with the world. ensuring transparency and fair value in our remuneration systems locally, or whether it You will be aware that that the Business 2436 is ensuring transparency and fairness in our Growth Agenda (BGA) is to increase members of the IoD supply chain overseas, good governance, exports from 30% to 40% of GDP by 2025. are women (28.9%) To quote the NZTE purpose: “to grow ethics, and integrity make the difference. companies internationally – bigger, better, While exciting from an innovation faster - for the benefit of New Zealand.” perspective, the rise of Artificial Intelligence (AI) is only going to increase the ethical Soon all members will receive a new 2017 debates at the boardroom table – how do 8428 edition of our cornerstone publication, we calculate and value the choices ahead? The Four Pillars of Governance Best IoD members Practice. The first significant update Given this edition of BoardRoom coincides since 2014, new sections on purpose, with election season, we asked all sustainability, and human rights in business, registered political parties how they are a reflection of the areas where the would address the 3Is – Innovation, directors of today are needing to exercise Infrastructure, and Inequality. Innovation 894 choices and leadership every day. and infrastructure are essential to Chartered Members achieving the BGA, for it to achieve its of the IoD New Zealand has an extremely attractive purpose of this growth being for the economic and business environment, and benefit of all New Zealand. We also need to yet we cannot afford to get complacent or ensure we all have an opportunity to share too comfortable here at home. Whether in the resulting prosperity. Nā tō rourou, established listed companies, or a new nā taku rourou ka ora ai te iwi - With your SME taking steps to implement it’s first 275 food basket and my food basket the people board to start exploring the export market, Chartered Fellows will thrive. of the IoD there is much that good governance can do to assist “New Zealand Inc.” grow in off- Ngā mihi shore markets. Kirsten (KP) Numbers correct as at 7 August 2017 6 | BoardRoom August/September 2017

Upfront

APPOINTMENTS 10-11 The IoD congratulates the following members on these board appointments:

April Chartered Fellow Ian Fitzgerald has been Dr Sally Davenport has been appointed

2018 appointed chair of Public Trust Board from as Commissioner of the Productivity September Commission

At SKYCITY Auckland Chartered Fellow Margaret Devlin and Teresa Ciprian has been appointed onto the Chartered Member Brenden Hall have been Food Safety board

SAVE THE DATE appointed to the Aurora board

Caren Rangi has been reappointed on the Chartered Fellow Nigel Gould has been Charities Registration board appointed chair of the Tertiary Education Commission Dr Paul Hutchison has been appointed to the Medical Council of New Zealand board Chartered Member Roger Wallis is on the Takeovers Panel until 2018 Jack Matthews joins the board of Chorus.

Chartered Member Carolyn Steele has Philip Ling joins the board of Stride Property been appointed to the board of Green Cross Health Anna Campbell joins the board of FAB Group

Chartered Member Des Brennan has been NZX Corporate appointed to the board of Basketball Landcare Research has appointed Ngarimu Governance New Zealand Blair and Hon. Kate Wilkinson to its board

Code 2017 Dame Therese Walsh has been appointed to Consistent and open reporting on the New Zealand Antarctic Institute board director remuneration helps build trust and confidence in corporate governance. We are pleased that the updated NZX Corporate Governance Code 2017 provides that director remuneration 2017 edition should be clearly disclosed and this should include a breakdown of Four Pillars of remuneration for committee Shortly members will receive their roles and for fees and benefits for own copy in the mail. The updated any other services. The IoD has version reflects legal and governance developed a Guide to Disclosing developments with a new section Director Remuneration in Annual on purpose, sustainability, state Reports to support transparent sector governance, internal audit, and consistent disclosure. This human rights in business and can be used by boards of all types directors’ duties. of entities. August/September 2017 BoardRoom | 7

Distinguished Fellow Awarded: John Palmer ONZ, DistFInstD services to the IoD or eminent or special director of other entities such as Trust contributions to the community or business. Bank Canterbury, Trustbank New Zealand, and Rabobank New Zealand. He has also John’s career as a director has been been a mentor for both IoD’s Mentoring highlighted by his tenure saving iconic New for Diversity programme, and Nelson Zealand companies including as Chairman of Marlborough branch Aspiring Director The New Zealand Kiwifruit Marketing Board, award winners. John has also given where he was instrumental in keeping the significant time as a professional presenter kiwifruit industry from collapse, and setting to high level courses and been the stage for its revival with the formation of a regular attendee at various senior Zespri, and as Chairman of Air New Zealand director courses and local branch events, after the bailout of the company by the New while his contributions to business include Zealand Government. as a regular participant to government John was also Chairman of Wrightson’s, forums, annual Trans-Tasman forums, John Palmer ONZM has been made Solid Energy, the Foundation Chair of and many other initiatives to further a Distinguished Fellow of Institute of Horticultural Research, which today is New Zealand trade credentials. John’s Directors in New Zealand. part of Plant & Food CRI, and later AMP in reputation as a skilled director is well The Distinguished Fellow Award is the IoD’s Australia. His directorships encompass recognised by his peers. highest accolade. Distinguished Fellow a range of entities from SME’s, to large John will be presented his certificate later Awards are awarded annually to members corporates, including Crown Owned this year. Congratulations John. who have sustained a prominent and Companies, and NZX listed companies. distinguished career as a director; or who John’s reputation as a strategic thinker have given outstanding participation and on boards has seen him appointed as a

FIRST AMONG EQUALS Amongst all the candidates one is right for the position. Finding that perfect leader for your business is what we do. It’s the best who get the shoulder tap.

STEPHEN LEAVY | PARTNER CARRIE HOBSON | PARTNER BA/LLB (Hons) BCom (Hons) [email protected] [email protected] 8 | BoardRoom August/September 2017

Building great organisations starts at the top The IoD’s first woman president is keenly aware of the wider role directors have to play in building successful organisations for the future. Liz Coutts is an accomplished businesswoman, an IoD Chartered Fellow, and was made an Officer of the New Zealand Order of Merit for services to governance in the 2016 Queens Birthday honours.

IoD President Liz Coutts ONZM, CFInstD “I champion the organisations I am involved with” August/September 2017 BoardRoom | 9

Extensive board experience includes her “I’ve been giving that a lot of thought,” “I feel very passionate about getting people current roles as Chair of Oceania Healthcare Coutts says. out there and getting them involved. Ltd, Ports of Auckland Ltd and Skellerup I’m fortunate to have been able to hit a Coutts refers to advice from Warren Holdings Ltd. She has directorships on EBOS ball around when I was young and then Buffett– ‘culture, more than rule books, Group Ltd, Yellow Pages Group, Sanford Ltd throughout life. I’m passionate about determines how an organisation works.’ It and Tennis Auckland, and is a member of making sure things like fundraising happen is with this in mind that Coutts hopes the the Marsh New Zealand Advisory Board. and unless people get involved, it won’t governance community can build greater Adding president of the IoD is more than a recognition of how they shape the culture happen.” feather to the cap; Coutts says taking the of their organisations. That sense of responsibility for making role is a privilege. things happen is noticeable in other areas First and foremost Coutts’ goal while “It all comes back to the of Coutts’ work. Taking responsibility is president is to continue the IoD’s vision something that directors must be prepared to be the world class professional culture of the company. to do, as part of securing New Zealand’s body at the heart of New Zealand’s Organisations will do well reputation internationally and building governance network. But sitting alongside if they’ve got a high energy strong organisations for the future. that is adapting to the challenges “It all comes back to the culture of the that emerging developments will and healthy culture, and company. Organisations will do well if present to the business community. this is what we have to they’ve got a high energy and healthy “There is a lot of uncertainty in the world. culture, and this is what we have to That makes our jobs that much more champion.” champion. It’s one of the elements of raising difficult. We would love to have certainty the bar. We take responsibility for that.” but we live in this very uncertain world, Understanding how people tick is something Coutts says it is about how organisations and that’s what we have to navigate. Coutts has worked on throughout her career, react at the best of times and also when noting the importance of getting in front of “That takes a lot of judgement, predicting the things go wrong, as they inevitably do. people and networking. future is hard but we’re expected to do that.” That’s where issues around the environment, “You have to put time into this area early planning for a workforce that might include Anticipating how sustainability will in your career. It’s about more than doing more and more AI and robotic technology shape the future is on Coutts’ radar. The the work; looking back on her early career can have an impact – how does your environments, the digital world and the Coutts says she often buried herself in organisation respond to these types of emergence of robotics will all challenge paperwork, not realising the importance of challenges, and how do directors take them the way we do business. networking. into consideration? How our businesses act The changes these developments represent “I should have been out there talking and is part and parcel with how New Zealand is means that a diverse workplace is listening. You have to just listen and talk to perceived, says Coutts. needed, Coutts says, so directors need people,” Coutts says. to obtain a better picture of the way their “It could be by your tax policies, regulation organisations operate at a people level. Asked about passions outside of work, and legislation but it’s more than that in Coutts says the work she takes on become terms of making sure that New Zealand’s “If I put all this together, what does it passions. “I champion the organisations I reputation is intact, and that we see that mean? It means that boards need to really am involved in.” we are ethical in the way we go about our understand their organisations‘ culture. operations.” We’ve got to be insightful and obtain a The role with Tennis Auckland for example clearer picture of organisational culture is not only about hosting great international Global political and economic volatility and help CEOs in leading that.” events in the city, but the flow on effects to will remain a constant Coutts says, it is the grassroots of the game. Coutts thinks the backdrop directors must work with. Coutts pays a lot of attention to what it is incredibly important to maintain the And the IoD will continue to support the is happening globally, considering profile of tennis as an accessible sport. New Zealand governance community and the repercussions for the governance encourage directors to gain strategic community in New Zealand. The “We have a saying – ”a child in sport, stays insight, innovate and look to the future. importance of culture is evident when out of court “ – if you can keep people busy looking at stories about companies such as they stay out of mischief. Uber and United Airlines. 10 | BoardRoom August/September 2017

Walking the talk The IoD’s new chief executive talks to the BoardRoom editor about starting out in law, what growing up as the daughter of funeral directors teaches you about people and what the IoD membership can do for New Zealand. August/September 2017 BoardRoom | 11

A copy of Being Digital by Nicholas What does a child learn, growing up with Reflecting on where her career began Negroponte is sitting on the coffee funeral directors as parents? Patterson and the decision not to follow the path to table leading me to ask – reading for considers the biggest learning was in funeral direction, Patterson thinks about work or pleasure? being exposed to governance and business how we value work in society and the kind growth issues at a young age as the child of contribution different types of work “It’s hard to separate work interests from of SME business owners, and the truly 24/7 make to society, including that of parents personal interest, which is great about nature of the job. in the workplace and the way we separate this type of role.” our home and work lives. “It was an interesting environment, Patterson’s interest in the IoD and the exposed to people at their best and worst. “I’m incredibly proud to be a mum – governance space began through her You develop a sense of empathy and EQ Meredith is 11 and Griffin is 8. One of the work with the Rugby Union, where as that hopefully makes you a better leader things I consciously do is talk about being general manager corporate services, her in other aspects of your life. My husband a parent as part of who I am in a work role included reporting to the board and still does it, he loves what he does and the context. I think we used to hide that away. attending board meetings. In the role contribution he can make.” This modern workforce wants to bring their Patterson worked closely with now senior whole self to work and if we’re serious directors, Chris Moller and Dame Therese Patterson moved into employment law, about leading the cultural change that Walsh, regarding both as mentors. because of the people side of the business, employees are telling us they want then we and took her first role with the Employers An IoD member since 2012, Patterson holds need to live that. So I consciously, actively and Manufacturers Association Central board roles with NZ Rugby Foundation and visibly parent. It’s one of those things, (now part of Business Central). and chairs both Hutt City Community it’s easy for people to say something or Facilities Trust, and the Wellington put it in a policy, but if people don’t see Homeless Women’s Trust. Immediately “The IoD has a really the leaders living that or using it then that prior to accepting the chief executive role doesn’t make it real.” with the IoD, Patterson held top roles impactful membership Those types of challenges and the actions with Chartered Accountants Australia and it’s a wonderful that leaders need to take to ‘walk the talk’ New Zealand, including having worked on issues that matter in their workplaces with the late Craig Norgate to navigate the organisation to be able is something Patterson believes that organisation through a merger with their to connect with business members of the IoD grapple with, especially Australian counterparts. leaders and be involved in knowing how the actions of leadership Patterson has a people and member- influence perceptions of business. focused outlook, and brings that focus to the conversation” “There are some interesting challenges and the role with IoD. “I’m a firm believer that I think we are seeing some push back in the the right role will come up at the right time, “As it is often where you begin your career shareholder community around how we the right season. This is probably the right that starts a fire or a passion in you, for me value work in the corporate arena. time for me with my particular skillset and my first role out of university kick-started a what the organisation needs. passion for cooperatives and membership “The IoD has a really impactful membership bodies and that has been a pattern through and it’s a wonderful organisation to be “I haven’t got the big 90 day plan already my career.” able to connect with business leaders and written. I didn’t want to come in with be involved in the conversation. The IoD I ‘here’s one I prepared earlier’. Actually The step into management roles came think is really well positioned to help lead the first thing I’m doing is listening; to the quite early on. Patterson moved to a role change and is at the forefront in terms of members, to the staff, to the stakeholders. with the bus company Stagecoach and conversations, trends and issues directors My role is to create an environment where worked with operations director Darryl are seeing worldwide. I think there’s a the specialists and the members can Bellamy, who Patterson recognises as a key real challenge that some of our society have those conversations about what’s influencer in the path her career took. has lost trust in public organisations and important and how we can help.” “He took a really big risk with me. He put governments. Patterson’s career began in quite a different me into a national, senior management “Overseas pressure is going on director place - studying law at Waikato University. role. He saw potential in me and pushed communities to deliver some of the social me further than I thought I could go and “I’m a hands-on, practical person and went change that previously we used to look to really as a result kick-started my career.” to university wanting to come out qualified our communities and government for. I’m to do something. I didn’t really know what Patterson was a little older than her mid- really interested in how the New Zealand I wanted to do. I had thought I would twenties at the time. director community is responding to that become a funeral director because that is challenge and getting involved in that “I was incredibly black and white when I what both of my parents did.” conversation.” started working with him and he helped Patterson completed her funeral directing me see shades of grey – particularly with qualifications while at law school, meeting people – and I learned so much about her husband at the same time. people and negotiation and shared value.” 12 | BoardRoom August/September 2017 August/September 2017 BoardRoom | 13

The rise of AI From virtual assistants to driverless cars, technology imitating human intelligence is on the rise. But at what ethical cost and how do boards future-proof their organisations in the face of rapid change? Tao Lin reports for BoardRoom from Japan.

Earlier this year, a Japanese insurance Robot nation Japan has a long history with robots, with company made headlines for doing the first in Japan thought to have been One nation famed for its technological something that company executives and built in 1928. Called Gakutensoku, which prowess is Japan. Sony Walkmans, pocket directors around the world have been means “learning from the laws of nature”, calculators and Playstations were all anticipating - and fearing - for years. the original creation used rubber tubes Japanese inventions that had a huge and air pressure to open and close its Fukoku Mutual Life Insurance made 34 impact on the world. But, the Japanese eyes, smile, move its appendages, puff out of its staff redundant and replaced them economy has been characterised by its cheeks and write Chinese characters. with artificial intelligence (AI) system IBM deflation for the past two decades and Fast forward to the present day and Watson. Japanese newspaper The Mainichi according to the World Economic Forum, the country’s aging population means it there are robots that greet customers in reported the company will be using stores and provide information at help Watson to determine payout amounts will lose 600,000 people a year by 2020, with a significant portion being of working desks. The robotics arm of Japanese and check customer cases against their age. It is in this context that AI is being telecommunications company SoftBank insurance contracts. Other Japanese developed in Japan. released its first humanoid robot, “Nao”, insurance companies have announced in 2006 and “Pepper”, a robot designed to they are looking at or are already using Makoto Shiono is an ethics committee read human emotions, in 2014. AI for similar purposes and The Japan member of The Japanese Society for Times reported in April that the country’s Artificial Intelligence and says because One of Japan’s biggest banks, Bank of Ministry of Economy, Trade and Industry Japan is suffering from an increasing labour Tokyo-Mitsubishi, started using Nao a was planning to trial AI to help government shortage, it has to find a way to use AI to few years ago as a robot bank teller and workers write draft answers for questions maintain economic growth. Pepper is used in SoftBank shops around put to Cabinet ministers. Japan to attract and greet customers and Shiono says while the Japanese keep them entertained in-store. Nestle government and universities are currently Evidently, the future of AI is already here Japan has also been using Pepper in its trying to catch up to the likes of the United and technology has been changing the stores since 2014 to attract customers, States in AI development, he believes the world at a dramatic pace. Like other encourage conversation and recommend country will come to lead in part due to its innovations before it though, AI brings the best coffee machines based on expertise in robotics. with it challenges and questions around their preferences. In 2015 Osaka and job automation, ethical issues and what “[The] AI world is currently shifting to Kyoto universities and the Advanced business leaders and company directors ‘real’ or ‘physical’ world, like robots. And Telecommunications Research Institute can do now to better future-proof their Japanese companies have long been the International released “Erica”, a humanoid organisations. number one in industrial robots,” he says. that uses AI to listen to and respond to 14 | BoardRoom August/September 2017

human interaction. Also in 2015 a hotel advantage of AI, instead of trying to create opened near Nagasaki that was named the next greatest AI engine, which it by Guinness World Records as the first probably can’t at this point,” he says. robot-staffed hotel in the world. Guests arriving at Henn na Hotel are greeted by What about a multilingual robot and a robotic arm helps them store their luggage. Last New Zealand? year, Japanese company Vinclu started Chairman of the recently established taking preorders for a holographic virtual Artificial Intelligence Forum of New Zealand assistant for the home called Gatebox. Stuart Christie says AI development in New Using projection and sensory technology, Zealand is still in its infancy and mostly users can communicate with a virtual focused around cost-reduction solutions. character inside a projection tube called However, there are some innovations in Azuma Hikari. For 298,000 Japanese yen improving customer service and quality (NZ$3800), users can get Azuma, who is of user experience, as well as good work meant to be 20 years old and likes donuts, leveraged off the back of the film industry, to do things like wake them up, welcome he says. them home from work, tell them the For example, Soul Machines is a Kiwi weather and turn on the television. This all company that has developed an avatar as Holographic virtual assistant for the works through wireless internet, bluetooth a customer service representative that can home Gatebox and infrared. read a person’s natural expressions and According to a statement provided by the address a customer’s concerns. Another company, the aim of Gatebox is to provide company Booktrack has a large digital a character who is “always with you” in library of ambient sounds and music that your daily life through technology. But it is is synchronised and overlaid onto digital not all futuristic robots and talking virtual books. AI allows Booktrack to reduce the assistants for Japan, one expert says. cost of production and to serve parts of the market that were too expensive to William Sato is an entrepreneur and part of serve before. a number of IT taskforces for the Japanese government. He says due to Japan being Christie says the real opportunities lie the first country in history to be both where big data is. a rapidly shrinking and aging nation, “That will be in all aspects of our economy, Japanese society will be reliant on AI and not only in the financial services industry and ancillary technologies like automated cars knowledge economy, but also in traditional and robotics in the future. But, he says businesses, like farming and horticulture the country is quite far behind in AI and and manufacturing,” Christie says. machine learning development due to a lack of software programming skills being University of Auckland computer science taught in schools and a lack of the big data lecturer Paul Ralph says New Zealand required to build AI. The government has has a great opportunity to become the only really just come onboard with the “Silicon Islands” that replace the Silicon measures required for furthering AI in the Valley of today. However, he says New AI Forum of NZ chairman Stuart Christie: country, Sato says. Could the world see Zealand needs to invest more money on the “AI development in New Zealand is still in the next big thing in AI come out of Japan, right things because countries like China, its infancy” then? Sato thinks this is besides the point. Singapore and South Korea are aggressively pursuing those Silicon Island goals. “It’s more advantageous for Japan to address its unique issues and focus on “The 21st century will not look kindly on a the value-added applications that take dairy-centric economy. Investing 4% of August/September 2017 BoardRoom | 15

There are a number of other subsets Otago associate professor of philosophy including cognitive computing, which James Maclaurin is part of this project involves a computer system using data and says the machine in the driverless car mining, pattern recognition and natural scenario must have an ethical dimension to language processing to copy the way the it in order to make such a decision. human brain works. Sensory computing is another subset and is more commonly seen in technology like autonomous cars and “Think back about 100 walking robots, where the computer sensors the environment around it in real-time. years ago. Do you think

Auckland University of Technology artificial people thought a plane intelligence research centre director Albert could fly in the sky?” Yeap says for him, AI is about figuring out how the mind works and then working out But, it is not as simple as placing the onus how to reproduce it on a computer. of making the right decision - whatever “Throughout our lives, we perceive and that may be - entirely on the creators of accumulate and possess and develop a lot the technology, which seems the most Entrepreneur William Sato says Japan of information in our heads. But then we obvious option. There is a famous business needs to address its own unique issues die and it’s all gone. ethics case involving car manufacturer Ford from the 1970s with its Pinto model, “But if we can understand how the human where the car failed national safety mind works, we just programme it and we standards on rear-end impact. Testing live forever.” GDP in research will vastly improve the showed the car was a serious fire hazard average New Zealander’s quality of life,” Yeap, who has been working on AI for 40 should it be rear-ended, even in low- Ralph says. years, believes his vision of reproducing speed situations. Rather than redesign the human mind on a computer will come the gas tank to make the car safer, Ford AI confusion true one day. went ahead with the original design for the next six years because the company While AI is very much present already - “Think back about 100 years ago. Do you calculated it was more cost-beneficial than think of Apple’s Siri, facial recognition think people thought a plane could fly in redesigning the gas tanks. As a result of technology, medical imaging and diagnosis the sky? this decision, the Pinto was responsible for - it is also still very much emerging, “Everything is possible. If it’s not possible, a number of fire-related deaths, including meaning even the definition of AI can be then it’s only because of our imagination.” those of three teenagers whose Pinto gas confusing. Christie says AI is the capability tank exploded after a van crashed into the of a machine to imitate intelligent human back of the car. behaviour, specifically computer systems No right answer that can perform tasks requiring human With the increasing sophistication of AI has Maclaurin says based on this example, intelligence. come some ethical issues. One of the most it becomes problematic to place all liability discussed issues right now is the moral on the creators of AI technology because A subset of that is machine learning, where dilemma of a driverless car. Who lives and there might be instances where a cost- computers are given the ability to learn who dies if such a car were to head into a benefit calculation is made and less effort without being explicitly programmed. serious accident? is put into training the technology and An example of this is Google Translate, ensuring it works well. Training a machine where Google puts all translated text In an effort to understand and figure to make ethical and moral decisions is available into a machine and uses pattern out some of these complex issues, the also tricky because it is not a recognition to translate a fresh piece of University of Otago announced a three- straightforward equation. language based on what is already in the year project earlier this year with support database. The computer learns to optimise from the Law Foundation, with the aim of “People roughly use theories… but we the programme by repeating this pattern looking into the possible implications of also use cognitive architecture, including recognition with new data sets as they arise. AI for law and public policy. University of our emotions, as part of making moral 16 | BoardRoom August/September 2017

decisions. We don’t sit down and do tool and how can we reassure people the calculations,” Maclaurin says. tool is accurate?” McClintock says.

Researchers at the Massachusetts Institute Ralph says insurance companies are of Technology released a report last year starting to use AI and genetic data to that showed respondents to a research predict diseases and mortality, which survey generally preferred autonomous effectively discriminates people who are vehicles to minimise casualties, meaning prone to certain diseases. they would prefer the car to choose to “Ever seen the movie Gattaca? This is how harm the least number of people, even it starts,” he says. if that meant hurting its passengers. But, they also found that people were less In Gattaca, the protagonist lives in a likely to use a car that was programmed world that is ruled by eugenics, where this way. The researchers noted that there babies are conceived using genetic appeared to be no easy way right now to engineering and genetic discrimination design an algorithm that could reconcile dictates people’s futures. Facebook uses moral values and self-interest in the way AI to decide which stories are shared evidenced by the research results. widely, but Ralph says the tech and media giant fails to identify and stop Chapman Tripp partner Bruce McClintock propaganda, which undermines democracy. says where factors like safety, human judgement and transparency are required, ethical issues can be profound. He says “You can hear a pin drop there are clear ethical challenges where AI University of Auckland Computer Science is used as a recruitment screening tool, an when you talk about what Lecturer Paul Ralph says we have great aid to judges in sentencing, an aggregator jobs are going to be around opportunities of personal information or as an employee or citizen surveillance tool. in 10 years’ time”

About five years ago the Chicago Police been widespread lay-offs in the fashion Department started using a computer- “I don’t think people appreciate how of Japan’s Fukoku Mutual Life Insurance. generated list that marked certain incredibly dangerous that is. Russia A widely cited 2013 study, “The Future residents, who had not done anything allegedly meddling in the American of Employment: How susceptible are wrong, as likely to be involved in a future elections is just the beginning.” jobs to computerisation?”, showed jobs crime. Police visited these people to tell in transportation, logistics and office/ them that officers would be keeping an eye The fourth administration support were at high risk on them, effectively pointing them out for of automation. The study found most industrial management, business and finance jobs crimes they have not committed. revolution and roles that required social intelligence In 2013 American man Eric Loomis was As someone who works in a university, were largely low risk, as were jobs in sentenced to six years’ imprisonment Maclaurin deals with young people all the education, healthcare, engineering, after he was found driving a car that had time and he says one of the topics that science, the arts and media. been used in a shooting. His sentence was always gets their attention is the future A 2016 study by Chartered Accountants determined in part by AI software COMPAS of work. Australia and New Zealand found 46% of that is meant to predict someone’s risk of “You can hear a pin drop when you talk New Zealand jobs were at risk of automation reoffending. The judge used the software about what jobs are going to be around in over the next 20 years, with about 12 per to determine that Loomis was at a high risk 10 years’ time,” he says. cent of professional roles at risk. to the community. The effect of AI on jobs has been a constant A report from earlier this year by “Companies who implement or use such AI source of speculation, fear and debate in McKinsey Global Institute found that tools for screening may need to ask: what recent years, although there have not yet almost all occupations had the potential sort of cognitive biases are built into the August/September 2017 BoardRoom | 17

Maclaurin says just like in the past, we Partner with universities, get the might like what technology gives us if we go smartest people you can find working forward enough into the future. In the short on the company’s long term problems, term, it could mean a lot of social dislocation. he says. For smaller companies, Ralph says it costs nothing to do joint research “There certainly will be a big change in with universities. Call departments and the marketplace and one that’s going ask if anyone is interested in specific to require a lot of negotiation between AI topics and talk to them. There countries and businesses and governments are also joint grants available from about how we cope,” Maclaurin says. the Ministry of Business, Innovation Towards the future and Employment and elsewhere. “One thing I love about New Zealand As for what company directors can do now is the pervasive attitude that to better future-proof their organisations, we're all in this together. That there is no one answer. McClintock says collaborative mentality gives us an diversity of thought and perspectives on edge over many other countries.” boards will increasingly be a competitive advantage for companies. Tao Lin is a Kiwi journalist based in Japan.

With plummeting costs of usable AI, directors should be encouraging experimentation and ensure that they and senior leadership teams are learning about University of Otago Associate Professor of new technologies, he says. Philosophy James Maclaurin says AI needs an ethical dimension The World Economic Forum’s The Future of Jobs report indicated that an immediate focus for organisations should be on creating and supporting diverse to be partially automated, but that workforces. It states that businesses will automation would take years to eventuate need to put talent development and future fully. Researchers estimated that half of workforce strategy first and foremost today’s work could be automated by 2055, in their quest for growth. Organisations but that could happen 20 years earlier or cannot be “passive consumers of ready- later depending on a number of factors made human capital”. including development of technology, FURTHER READING: cost of technology, performance benefits Support for innovation in businesses is Last year the IoD with Chapman and social and regulatory acceptance. important and Christie says the three Tripp developed a call to The institute also found that people will important elements that need addressing action paper highlighting the need to keep working alongside machines in this respect are investment, company opportunities and challenges in order to keep up growth and it expects culture and governance support. Instead AI presents. business processes and workers to of putting innovation on the backburner, change. This idea is not entirely foreign it needs to be a priority. To read this visit: considering the magnitude of change https://www.iod.org.nz/ “Have that big goal,” he says. the developed world went through when Governance-Resources/ it shifted away from agriculture and Ralph says companies need to invest in Publications/Artificial-Intelligence towards industry. research and development (R&D) and overcome the short-sightedness that Sometimes called the “Fourth Industrial sometimes plagues corporations. Revolution”, the digital revolution will, like the previous industrial revolution, have “R&D is unpopular in the short term because both good and bad effects. it takes time to produce results,” he says. 18 | BoardRoom August/September 2017 Building a governance pipeline

Founded by Michael Stiassny, Des Hunt and Sir Stephen Tindall, the Future Directors programme has been running for five years now. BoardRoom spoke to four chairs who are involved with the programme about the governance pipeline in New Zealand and why bringing on a future director is a powerful step to take when walking the talk on diversity in boardrooms.

“It started out with helping people to be on 31 future directors. The benefits of the International Airport for more than ten seen and get experience,” Michael Stiassny programme are two-fold, both for those years, stepping down from the role in late says, “but I think the biggest benefit is that gaining placements and the boards taking 2013. These three boards have hosted a it allows current directors to understand them on, however with only one future total of eleven future directors – three by and have contributions from a different director per board there are many more the Warehouse Group, two by Mercury cohort. The ones that I have worked with, I future directors looking for opportunities and four by Auckland International Airport, learned more from them than I think I’ve and more boards needed as hosts. including the very first future director - taught them which is great. They’ve given Sheridan Broadbent. me insights into things that I otherwise “I think it’s fair to say every one of the might not have been over.” founders would be frustrated at how A firm believer in the mutual benefits slow we have been in getting take up,” of having a future director on the board, New Zealand’s board diversity statistics Stiassny says. Withers was an early supporter of the still leave much to be desired – despite an programme, working closely with founders “But Rome wasn’t built in a day. The best, increased focus on diversity at board level Sir Stephen Tindall, Michael Stiassny and kindest and most positive thing is that we the shift is taking time. IoD research showed Des Hunt to place Sheridan on the board know those who have had a future director 74% of the top 123 NZX companies have in 2012. less than 30% of women directors on their seem to continually want to do it again boards, with 39 having no women at all. and have enjoyed exactly what we thought “It makes enormous sense; we’re all looking they would.” to find out how to improve diversity or Future Directors aims to give young gender and age,” Withers says. talented people the opportunity to observe Speaking to top board chairs Joan Withers, and participate on a company board for a James Miller and Sir Henry van der Heyden, Van der Heyden agrees, noting that large year while giving the company exposure to all are in agreement that the Future boards have a responsibility to help this talent and the benefits a young mind Directors programme is one that has much improve the governance pipeline in can bring. to offer boards in New Zealand. New Zealand.

The Future Directors programme began in Joan Withers is currently chair of Mercury “Auckland Airport is one of the largest listed 2012, since then 18 private sector companies and the Warehouse Group, and served companies in New Zealand. We recognise and four public sector boards have taken as chair and a director of Auckland that having strong governance is incredibly August/September 2017 BoardRoom | 19

Michael Stiassny CFInstD NZX Chairman James Miller Mercury and The Warehouse Sir Henry van der Heyden says there is immense talent CMInstD says actions are Chairman Joan Withers CFInstD says boards have a out there. concrete. CFInstD says it makes responsibility. enormous sense.

important to the success of entities, so “From an NZX perspective, given who we dairy, which used to be called the cowshed, that’s our starting point. The second is are, we felt it was important that we were to a boardroom.” developing future directors to actually supportive of this initiative – words are easy, Miller too remembers his first role, where achieve that outcome. Further you are it’s about action. Actions are concrete.” aside from the Company Directors’ Course seeing more that there’s a lot of literature Every director starts somewhere and there was not a lot of support for a move to support diversity leading to better Withers says a board role is something you into governance decision making. often learn on the job. “One day you’re not there and the next you “I think it’s the duty of the “I remember my first role and you sort of have full accountability.” have to learn what’s appropriate, what’s Taking on your very first directorship is board to develop future not, how you approach things, what’s the challenging, and Withers says it can be risky expectation around reading papers, what directors for companies in too depending on the type of organisation the expectation is of asking questions, and the governance set up in place. While New Zealand.” challenging management – you learn on the listed company boards are complex job to a certain extent. I’ve done an MBA, environments they are high-performing and “I think it’s the duty of the board to develop been a CEO and been exposed to boards, I should have solid governance structures future directors for companies in New wasn’t a rookie but it’s still very different in place, which Withers considers a good Zealand. It’s one of those things, you can when you are sitting around the table.” send people on courses but nothing beats place for up and coming directors to learn experience at the end of the day. It’s a safe The others agree, and see the Future about how things work. environment for someone to learn and Directors programme as an excellent “On the sorts of boards where the Future develop but also to contribute too.” stepping stone that means those directors Directors roles are being offered they are who take part are in a position to hit the 2017 marks the first year of NZX’s surrounded by a high performing CEO, high ground running when they take on their first involvement in the programme, and chair performing CFO, and there are appropriate board position. James Miller says their involvement is about risk mitigations in place rather than stepping up and showing leadership to Van der Heyden was just 33 when he took on potentially going into a small organisation support diversity of the governance pipeline. his first board role – “I went straight from where the governance protocols may not be 20 | BoardRoom August/September 2017

so strong. That would be the risk. Hopefully new at the table you don’t just keep on “The talent when you ask a consultant to they are also sitting around the table with marching, you bring them in.” come up with CVs, is just amazing, just directors they can learn from.” phenomenally talented people who are Withers says that bringing in a diverse interested in doing this. It’s not hard to get Placing a Future Director on the board voice reminds directors about the involved, once you have gone through the is not a one-way street – the benefit to importance of challenging one another. framework it lowers the barriers for entry the boards who host Future Directors is “Most boards in New Zealand I think are for other companies to do it,” Miller argues. evident to those involved. While Miller is almost too polite to each other, that is the chair of NZX, he also sits on the boards feedback we get from formal reviews on of Mercury and Auckland International some of the boards I sit on, that we should Airport and has seen what a future director “It’s always enjoyable constructively challenge each other as can bring to the board setting. having someone at the directors more. I think having someone “I’ve seen how future directors at others come in from the outside and perhaps table from a different boards could help the dynamic of the apply a little more pressure to the technical perspective, it makes you board, it’s not just a one-way street of experts around the table is no bad thing.” providing a training ground for them. If think even more. There’s you get the right future director they bring Host boards consider the skillset that a dynamism that is new, and may well would be most beneficial to the board nothing to be scared of and specialise in a subject area and there are when looking for future directors to a lot to be gained.” new opportunities they could bring.” appoint, to ensure that the future director is able to contribute to the board. Stiassny believes the programme offers “There is some immense talent out there, experienced directors an opportunity to For Auckland Airport setting the selection it’s really satisfying to see the talent that play their part in building the pipeline, but criteria for the Future Director the board is is available in the New Zealand business does the important job of bringing a voice looking to take on has evolved into an all of market,” Stiassny says. with something new to say to the table. board discussion because the whole board recognises the value the new person can “It’s always enjoyable having someone “It creates a larger pool for directors on bring van der Heyden explains. Building at the table from a different perspective, various companies to be visible to the criteria around what someone will be able it makes you think even more. There’s director market who otherwise might not to offer the board means their time with nothing to be scared of and a lot to be. And, most importantly in my view, it the board is that much more valuable for be gained.” allows current directors to appreciate all parties. “We’ve had a phenomenal longlist,” Withers what they probably don’t know because adds; “and when you get down to a short these people are providing insights into “When you look at it through the eyes of list of three or four any one of those people things that directors are missing out on,” a future director they get to be part of a would make an excellent contribution. It is Stiassny says. board for 12 to 18 months, and they learn enormously value enhancing.” a lot but we actually look for some skillset New blood also changes the way the they’ll bring to the board. I think the value The message for other boards considering board operates, creating an environment is added when they contribute to the board getting involved in the programme is where people stop to bring them into the themselves. simple enough, says Withers. conversation. “They get treated the same as every “Just do it. I can’t understand why any large “That’s really critical. In the beginning you other director. They’re there to learn, but New Zealand company would not do it.” are going back and revisiting what you’ve contributing makes you feel really good.” done, thinking about why you did it and Interested in becoming a host board? visit allowing those people to understand how All chairs agree that talent isn’t the www.futuredirectors.co.nz/HostBoards.aspx you got to a certain point. It’s a period of issue where the pool of future directors reflection, there’s no harm in that. People is concerned, and more boards should are generous of nature, if there’s someone consider getting involved. CPD keeps you ahead, but are you on track?

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LEADING GOVERNANCE 22 | BoardRoom August/September 2017 $lavery; a modern problem? Human trafficking and slavery are not remnants of another time, as IoD Governance Leadership Centre Research Analyst Amanda Reid explains.

In 2015 the United Nations agency, the • and closer to home, New Zealand’s first Targeting global International Labour Organization, human trafficking conviction in 2016 estimated that 21 million people globally where several Fijian migrant workers supply chains were victims of forced labour, with were exploited and unpaid. The United Kingdom’s Modern Slavery annual profits of US$150 billion. Entire Act 2015 (the Act) is the world’s most communities are trapped in illegal Bali Process far-reaching legislation in eliminating physical coercion, threat of harm, slavery and human trafficking in global New Zealand is a member of the Bali restriction of movement, and debt supply chains. The Act introduces Process on People Smuggling, Trafficking in bondage, as part of global supply chains, a number of requirements and Persons and Related Transnational Crime appearing in commodity production, measures to protect victims, including (Bali Process), a forum for governmental low-skilled manufacturing, and new criminal offences, powers of policy dialogue, information sharing and subcontracted service sectors across enforcement, and reporting obligations. practical cooperation across 48 member developed and developing countries. countries. Regulation of migration and Section 54 of the Act applies to all In an environment of closer public labour is a key focus as these are strongly businesses (companies, partnerships, or scrutiny of operational and supply chain connected to workplace exploitation part of a group structure) supplying goods practices, there is real reputational risk vulnerability. Australian ministers have and/or services within the UK, regardless for businesses who do not apply adequate previously criticised the Bali Process for of where they are incorporated, and due diligence to worker exploitation and not including businesses in discussions, have an annual turnover of more than who do not develop an anti-modern slavery something that will be remedied in 24-25 £36 million. This section of the Act, the culture. Media interest in “brands behaving August with the next meeting of the forum “Transparency in Supply Chains” clause, badly”, including consumer reactions on including international private sector is of particular interest for New Zealand social media, can be extremely dangerous representatives, such as Wal-Mart. Rob businesses or subsidiaries which may and companies need to manage these risk. Fyfe, Icebreaker chairman, will represent operate in the UK, as the Act has wide New Zealand. extraterritorial implications, and gives the Stories of inhumane working conditions, UK a broad international jurisdiction in the use of child labour, and bonded or much the same way as Section 7 of the UK forced labour, include: Bribery Act 2010 (Failure of Commercial • the 2013 Rana Plaza tragedy in The Crimes Act 1961 was amended Organisations to Prevent Bribery). Bangladesh, where more than 1,300 in 2015 to include domestic human garment workers died in the building trafficking. Convicted traffickers may be Businesses subject to the Act are now collapse imprisoned for up to 20 years and/or required to engage in significant due • allegations of trafficked and forced fined up to NZ $500,000. Under diligence to find slavery and exploitation labour in Andaman and Irish sea prawn employment legislation, directors and risks in their operations and supply chains, fishing fleets, with reports of labourers officers who exploit migrants can be and to publish robust anti-slavery and kept in cages, subject to regular imprisoned for up to seven years and/or human trafficking statements on the steps beatings or deprived of sleep fined up to NZ $100,000. they have taken to eradicate modern • the endemic use of child labour in Indian slavery and trafficking. The statements mica mines must be prominent and accessible from August/September 2017 BoardRoom | 23

the homepage of the company’s website, • Minerals: The US Department of Justice Hyland. Roundtable participants and updated annually. They must also lists diamonds, granite and numerous represented a range of organisations be approved and signed by company other mined products from several and industry sectors such as Countdown, boards, demanding buy-in and proactivity African nations in its “list of goods and Foodstuffs, Z Energy, NZ Post, Horticulture throughout the business. their source countries which it has NZ, Inshore Fisheries, NZ Wine, Kiwifruit reason to believe are produced by child Growers, Zespri, Air New Zealand, The Act is deliberately intended to labour or forced labour in violation of encourage business transparency and the Sustainable Business Network, international standards”. Progress on accountability, and to use consumer and Transparency International, Pipfruit cleaning up the mica supply chain in investor pressure to drive change. It is New Zealand and the Institute of Directors. India has been slow, with corruption and expected that non-compliance with the lack of local capacity marring the validity Three of the roundtable participants, legislation will have adverse consequences of supply chain traceability schemes. Z Energy, Air New Zealand and NZ Post, for company reputations. already require their suppliers to adhere to One of the key provisions of the UK Act basic human and labour rights, and publish Risk exists in any business where there are: was establishing the role of Independent supplier Codes of Conduct on their websites. • complex supply chains Anti-Slavery Commissioner. Kevin Hyland, Air New Zealand is also affected by the UK • low margin the first person to occupy the role, has Modern Slavery Act and has published a • labour-intensive goods or services, or led a successful international effort to statement on their website accordingly. • where levels of labour protection are low secure an explicit target in the United or non-existent. Nation’s Sustainable Development Goals The roundtable discussion was moderated Industry sectors with elevated risk of to take immediate and effective measures by MBIE’s international trafficking expert, modern slavery include: to eradicate modern slavery and human Rebecca Miller, and supported by the • Garment and footwear: antislavery.org trafficking. The work of Commissioner Labour Inspectorate’s Assurance and reports that Uzbekistan, the world- Hyland affects businesses across the world, Sector Engagement team, who engage with and his priority areas include international leading exporter of cotton, is “one of the industry sectors to improve compliance collaboration, and building private sector few countries in the world where the use with labour legislation. of forced labour in the cotton industry is engagement and partnerships. WHAT DOES THIS MEAN FOR DIRECTORS? systematically organised by the state”. Working conditions in South East Asia Across the Tasman – The Australian Directors have a key role in enabling trust garment and footwear industry have also government is currently conducting a and confidence in business. Slavery is a come under scrutiny. parliamentary inquiry into establishing modern problem. Increasing transparency • Hospitality and tourism: High staff legislation on modern slavery and supply and scrutiny on human rights and supply chain transparency, considering a broad turnover, seasonal work, the use of chains means directors need to be engaged range of issues relating to the extent of migrant workers, and low wages make and informed to ensure they’re part of the modern slavery in domestic and global this a vulnerable sector for exploitation. solution not the problem. supply chains, and which UK legislation • Food processing and production: High provisions have proven effective. For more information: use of seasonal migrant workers and www.antislaverycommissioner.co.uk/about- placement agencies also create higher the-commissioner/the-commissioner/ levels of risk. In New Zealand, 1,600 growers, labour hire contractors and pack- At home Anyone with concerns about human houses will be audited on labour/human The Ministry of Business, Innovation and trafficking or exploitation in New Zealand rights issues to comply with German food Employment (MBIE) held a roundtable should contact Immigration New Zealand or wholesaler and retailer requirements. discussion in early June with Commissioner the Labour Inspectorate on 0800 209 020.

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The building blocks for innovation When you think about innovation what comes to mind? Adapting? Doing something differently? Dr Toby Heap of H2 Ventures simplifies it even more.

“Innovation is just change and change is not new.”

Perhaps the reason innovation has become overused can be partially explained by the rapid pace of change society is experiencing. The environment business operates within for example – online, digital, globally- connected, allowing anyone with an internet connection to find a way to compete with the big guns – is a vastly different environment to that in which many big businesses evolved. And it changes every day. Moore’s Law helps to explain why but there are some who predict that even Moore’s Law, which has arguably provided the blueprint for digital growth, will not last forever and a new theory will soon emerge. August/September 2017 BoardRoom | 25

H2 Ventures Toby Heap: “Remember everything Who can keep up? it has been.” The idea is simple enough; And how? doing it is another matter. was the future once”. Heap says the problem is that our brains The companies that currently appear are not wired to think exponentially. capable of keeping ahead of the curve are firmly embedded in the tech space “Linear curves and linear growth appears – Google, Amazon, Facebook, Uber, better in the initial years. That means that Microsoft. Whether they remain ahead is in a big organisation [deciding] between yet to be seen. Take Kodak for example, spending on this or that you are likely to once a highly trusted and powerful brand, go for the thing that looks to have good but they missed the digital photography growth in the next few years. There is a wave and fell away to obscurity. trough of disillusion.”

“My view is that innovation comes down to As an example, UberX initially looked one thing – long-termism. Too many of our disappointing in comparison to Uber organisations are set up to think only two, Black. If you were on the board in the early three years in advance,” Heaps says. years of Uber X, Heap asks, would you have the insight to back it as an area of “Remember everything was the future once.” exponential growth? Or would you avoid Heap explains the future in stages, there taking that risk in case it doesn’t pay off? is the now, anything ahead of now is ‘tech’ Does the idea sound too farfetched, or and ahead of that is leading edge science maybe you think it will only concern a which isn’t commercially viable yet, after small part of the market and therefore that exist ideas Heap labels ‘April Fools’ not present a risk to your business? (“because a good joke needs to be almost These are questions business leaders have believable”) and then sci-fi. been asking for years. Risky business Clayton Christensen – of the Innovator’s Dilemma fame – theorises that a new It might seem ridiculous now to consider service at the bottom of the market sci-fi type technology as a part of your doesn’t need to be as good as the major business, but give it a few years and it player. The major player will see the new might have become far-fetched ‘April entry as taking the low-end and posing Fool’s’ type technology, before moving to little threat to the profitable high-end. So leading edge science, then ‘tech’. Soon you they let the new entrant take the low-end. are competing against a business using A pattern begins which eventually sees the technology that once seemed farfetched. market entrant competing directly with or How many business leaders and directors overtaking the major player. at the board table are thinking that way? How many people can see the potential and, Profiling Christensen for The New Yorker, more importantly, foster a culture that can Larissa MacFarquhar writes “without the actually provide your organisation the time, benefit of hindsight, how could you tell the space and investment to grow new ideas? difference between a bad product poised to take over the nation and just a bad product? “Directors and other business leaders need You couldn’t invest in every dumb thing to practice thinking about what is coming,” that came along – you’d go bankrupt. The Heap says. sensible thing for big companies to do was It perhaps isn’t surprising that Wayne to pursue the higher margins, or wait until Gretzky’s hockey puck quote is referenced a new product’s market became visible frequently by business leaders: “I skate to enough to be analysed and large enough to where the puck is going to be, not where be interesting – but by then it was too late.” 26 | BoardRoom August/September 2017

Therein lays the risk with betting on new Timing is the number one factor for “There have been lots of newspaper ideas. If you do it might not pay off, if investment performance in startups, examples saying ‘what a disaster, no one you don’t you might have shot yourself in Heap says, and just sometimes you are trusts anyone anymore’. But there was a the foot. Worst case scenario you weren’t lucky enough to hit the sweet spot when line in this report that didn’t get as much paying attention and didn’t even see technology and an idea converge. attention: that six out of 10 people trust it coming. the results of a search engine more than Technology in the finance industry is not a person. “Companies who have not acted at the start new, but the environment businesses can’t jump on board once they see that operate in is different. Technology and “Technology is taking the place of people something is exponential,” Heap says, changing attitudes towards sharing and the reason people trust technology is information means startups can compete that we know technology will get it wrong “The underwhelming start of the curve with big financial players; selling their sometimes but our assumption is that means it is hard to take the exponential services direct to customers rather than technology isn’t biased, it isn’t corrupt the route rather than the linear one. Large going through the banks. The market is way we fear people might be.” organisations have momentum, which can much larger - USD$3 trillion plus rather be powerful, but startups are agile and will Heap argues this kind of finding impacts than USD$54 billion in the b2b space. take risk – they have nothing to lose.” the way business functions. He considers “In Australia this is really important. It brands in particular are affected by failing Seizing an is a huge opportunity and a huge risk trust in business and the growing trust in because the finance industry is such a technology. This allows innovative new opportunity large part of our economy. We have a really businesses to pop up in the gaps that large Heap and his brother founded H2 Ventures strong financial services economy, and organisations perhaps don’t realise they in 2014, to dive into a market Heap there is also a great export opportunity left open. believed had big growth opportunity through Asia. We also have a very large How does the 90-year old Marriott hotel but hadn’t been properly nurtured. The superannuation industry, depending on chain feel about Airbnb taking only four financial technology market – or Fintech the time we have the third or fourth largest years to build a customer base of the same – wasn’t well resourced in Australia at the private savings pool in the world.” scale? What about the Uber model and the time. Heap says when they began talking taxi industry? Heap calls this the Post-Trust more about Fintech “people thought we Heap uses the example of mobile payment economy and thinks banks, insurers and were talking about surfboards.” app Venmo to illustrate the services startups can offer that draw on changes universities too are ripe for the picking as But they had tapped into something. H2 in technology use and attitudes to sharing the entry barriers are lowered in what were Ventures is an accelerator designed information. The app allows users to previously seen as high-trust industries. In specifically for Fintech startups that aims publically display where their money New Zealand forward-thinking individuals to help overcome the barriers to entry into is going and for what purpose and has would tend to agree – earlier in the the market. The investment is paying off, become popular enough that like Google, year, in conversation with BoardRoom, with a 49.6% year on year return from the the company name has become a verb – Sue Suckling and Victoria Crone both startups they have worked with. Heap says ‘I’ll Venmo you the money’. mentioned the work of Francis Valintine in H2 Ventures gives more time and capital shaking up the education sector. to the startups than other accelerators do, “In my household I was taught money in recognition of the complexity and cost isn’t something you discuss openly. This Take a breath involved in getting off the ground in the generation has a different attitude to finance industry. It was as much an excellent money and services,” Heap says. Directors find space business opportunity as it was addressing a will already be aware of another change “After I finished my PhD I took a year off and risk faced in the Australian financial market. impacting business – trust. went camping around Australia. I bring this up because something that is very The prevalence of financial services in The Edelman Trust Survey has been important for innovation is that you need the ASX100 (the industry accounts for highlighted by many recently; the 2016 to give yourself space.” 40% of the index) should raise some results show trends like trust in government alarm bells says Heap. Bluntly speaking dropping 6%, in board directors by 10% Heap sits on the board of a number of he says, if the services do not disrupt and CEOs by 12%. Heap also notes that not for profit organisations, and says he themselves, they will be disrupted. And ‘trust in a person like you’ has gone down noticed how he could take something he some of the startups he works with three points, but the area he is particularly had experienced in his role with a dance are well placed to be the disruptors. interested in hasn’t been widely mentioned. company and use it in his work with the August/September 2017 BoardRoom | 27

cancer foundation. Inspiration comes from Collaboration with a startup is possible, The major challenges came down to four unexpected places and takes time, space says Heap, but you need to understand the key areas – prioritisation, speed, culture and exposure to different things. difference in mind set. and responsibility.

Heaps says while there is no silver bullet Learn to fail is another piece of advice How can a large organisation really take the to encourage innovation, there are some given by those in the business of doing same approach to innovation as a startup? things not to do. things differently. Heap himself comes ‘Innovators Dilemma’ author Clayton from a scientific background and values Christensen proposed creating an offshoot Creating an innovation-arm that the lessons gained through his work at of a business that runs separately from effectively silos innovative practice into PhD level around what ‘failed’ experiments the parent company, but found in practice one area of the organisation will not have really are – as Edison is rumoured to have very few businesses had the ability to do the desired impact. Innovation cannot be said, I didn’t fail 10,000 times, I found so. Why? Because those ‘in charge’ had an pushed onto the organisation from one 10,000 ways that didn’t work. inability to let go, so the offshoot didn’t get corner of the business. to really do things differently. Larger organisations lose this approach Who does your organisation empower to Heap says, developing a fear of failure Dr Toby Heap was a speaker at IoD’s come up with new ideas? Heap argues that that hinders their ambitions to try new Leadership Conference in May 2017 the people closest to the coal face see the approaches. flaws in the existing way of things and are most likely to come up with an innovative And New Zealand business leaders know solution. Does your board enable this – a report by consultancy group management to empower and incentivise Previously Unavailable spoke to 44 chief innovation on the coalface? executives about the barriers to innovation.

When it comes to redefining your approach in a digital world, where do you start? Get everyone Listen to your Kevin Fitzsimons of Element Digital paddling in the customers Consulting offers a New Zealand It barely needs saying, but remind yourself perspective with his tips on how to make same direction regularly anyway – digital is a customer- progress quickly. Research proves that successful digital centric medium. Everything you do as a initiatives depend on leadership from business needs to be done with a view to Board and senior management but they the customer’s needs and expectations. can also be a leap for middle management. Get used to The biggest shift for businesses when it A lot of initiatives die when middle working without comes to communication is the change management doesn’t get on board. the full picture from a broadcast model to a conversation If your internal culture is not geared to model. It is no longer acceptable to simply Things move fast in the digital world. While delivering good digital, the outputs are push messages out. you need to work strategically, taking too not going to be great. It may be that your long to develop a strategy risks it being out first priority is to focus on getting your of date before you even start executing. Above all – internal processes right – encouraging To paraphrase Amazon CEO Jeff Bezos, you collaboration by establishing internal do something need to learn to work with 70 percent of centres of digital excellence and cross- A recent US survey indicated 83% of the information. Being wrong may be less functional teams that work together on executives realise the need for digital costly than you think, he says, but being solving problems. transformation in their businesses but only slow will definitely be expensive. 23% are actively doing something about it. The rules of evolution apply – adapt or die. The key question is: “What is the minimum we need to know to move forward?” Not all businesses are comfortable taking this approach but the ones who make progress will ultimately be those who learn to live with a little uncertainty. 28 | BoardRoom August/September 2017

Cyber Resiliency for Today and Tomorrow

As companies around the world deal with the impacts

The cyber challenge – A perspective of a number of major cyber-attacks, this article from on, and tough questions, for global Marsh provides a reminder of what should be at the leaders facing emerging cyber threats. forefront of every board’s cyber agenda.

Business today revolves around cyber- • Cyber risk and cyber threats can no physical systems, the Internet of Things, longer be regarded as localised to and the Internet of Services. Our hyper- cybercrime. As the extent of criminal connectivity in this new digital world has networks, foreign government- been a boon for productivity— connecting sponsored hackers, and cyber terrorism and executing tasks with a speed that was increases, cybercrime has extended previously inconceivable. the perceptions of business, corporate and organisational susceptibilities to the KEY POINTS FOR ALL BOARDS AND resultant effects which can range from C-SUITES TO CONSIDER AS THE CYBER severe or total disruption of services, RESILIENCE CHALLENGE CONTINUES ARE: corruption or destruction of data, and • All organisations, no matter the size, are corporate extortion (data for ransom). being faced with the realities of a cyber- The tangible and intangible costs to Marsh Head of Specialities Frédéric attack, data compromise and the people, successful attacks can be daunting, a Boles: a combination of strategic advice technology and process challenges corporate reality check and a true test of and innovative solutions are needed to faced as a result. Almost inevitably, an corporate cyber resilience management manage risk organisation’s efforts to prevent attacks strategy and planning. will eventually fail. Cyber resilience • Cybersecurity has traditionally been depends on an organisation’s ability focused on keeping organisations to respond to a significant breach and “secure”, but “vigilance” and a mind-set continue operating effectively. of continuous planning, monitoring and • Global markets, customers, and strategic accountability has tended investors are now more than ever to take a back seat. Organisations challenging Boards on their strategic must shift from a strategy of commitment to cyber defence and cyber “respond and recover” to one of threat reduction. The technologies and “identify” and protect”. Enhancing attack methods of the adversary are or establishing risk-prioritised ever increasing in sophistication and controls to protect against known speed to release, the success of many of and emerging threats while complying which are increasingly targeted at social with industry cyber standards and behaviours and human susceptibilities. regulations will be imperative. August/September 2017 BoardRoom | 29

A potential inventory of assets

FINANCIAL CORPORATE IP THIRD-PARTY TECHNOLOGY RELATIONSHIP CYBER-EXPOSED ASSETS • Confidential data/ DATA INFRASTRUCTURE CAPITAL PHYSICAL ASSETS • Proprietary financial trade secrets • B2B-confidential • Core information • B3C-brand and • Medical devices information data systems reputation • General corporate • Production lines data • B2C-personal data • General information • B2B-commercial • Transportation systems relationships controls • Outsourced systems • Robotics

• Doing business within the current potential loss cannot be controlled and a third party, and not the organisation cyber threat landscape must force the managed. itself. What matters here is corporate incorporation of information security • Do we have defined and managed ability to respond. and cyber risk into the corporate risk processes for gathering, acting upon, • Do we actively and continuously evaluate framework. Cyber risk decisions must and continuously evaluating our cyber third party cyber risk exposure? - Cyber be integral to business risk appetite and risk and cyber threat landscape? - This concerns and risks extend far beyond business continuity/recovery strategies. question centers on understanding your business parameters and reach. the bad actors, and if a mature and Aligning your cyber response strategy TO DEMONSTRATE EFFECTIVE CYBER disciplined cyber security threat and framework with your partners RESILIENCE AND GOVERNANCE, THE programme based on internal analysis (vendors and contractors) is essential. BOARD AND C-SUITE SHOULD CONSIDER and effective use of available third party What risks and exposures are we blindly AND CHALLENGE THEMSELVES WITH (corporate and government) intelligence accepting without challenge? THESE QUESTIONS: is being promoted? In today’s environment, it takes a • Do we demonstrate due diligence, • Do we benchmark our cyber resilient combination of strategic advice and ownership and management of cyber strategy? - How does the Board and innovative solutions to manage risk risk – Are we demonstrating leadership C- Suite benchmark themselves against and ensure business resiliency. Marsh and implementing a cyber-governance other organisation within their industry uses a team approach to address our framework? vertical? If the Board or C-Suite are not clients’ risk management and insurance • Do we know what we need to protect spearheading the challenge, who is? needs. This includes working with expert and can we identify our corporate asset • Has an appropriate cyber risk escalation partners, such as the IoD’s National footprint (tangible and intangible)? - framework been established to include Cyber Security partner Aura Information What do you have that is most valuable corporate risk appetites and thresholds? Security, to help clients manage and to others? All data is not created equal. • Do we have and promote a cyber-aware mitigate risk. For more information Yet, the traditional approach to cyber and conscious culture organisation wide? contact your Marsh Client Executive. defence is to construct a perimeter and • Do we actively test our cyber resilience treat all assets in a similar fashion. This and adapt our security risk and method can lead to inefficiencies and governance programmes accordingly? misalignment of resources. - On average, it takes an organisation • Have we classified our assets, data and more than 146 days to realise its systems information based on risk of loss? This have been breached. While more than is a fundamental control, without which 65% of cyber-attacks are identified by 30 | BoardRoom August/September 2017

Some of the 2017 mentees, in the IoD’s Mentoring for Diversity programme Kathy Meads, Kim Gordon, Natasha Harvey, Toni Grant, Daniel Shore, Digna Toresen, Katherine Sandford, Monique Cairns, Kim Skelton, Mary Gardiner, Mere Kingi, Suneil Connor, Nettles Lamont, Rachel Afeaki-Taumoepeau. August/September 2017 BoardRoom | 31 What’s your value add? Each year applications are sought from members who believe their diversity can contribute to board performance. Meet this year’s Mentoring for Diversity intake.

”Be clear what value you add. It’s not so “Since the programme started one of our Gardiner says the opportunity to work with much about your experience. It’s about long-term hopes was that it would broaden a mentor will help her better prepare for what value you add,” Vikki Brannagan the pool of talent at the large company the next step in her governance career. shares her mentee experience to this year’s end by providing mentoring guidance from “I also think that my participation in the IoD IoD’s Mentoring with Diversity cohort in senior directors who know what it takes Mentoring for Diversity programme signals Auckland recently. to be successful in those environments. to my network and recruiters that I have Success can be measured not only in the As a 2014 mentee graduate, Brannagan worthy skills and an ability to add value.” number of mentees like Brannagan who continues: “Know what inspires you to get have gone on to secure appointments but Currently CFO at Instant Finance, Chairman up in the morning. Be patient. Don’t settle in the personal development mentees of Auckland Netball Centre and a board for second best and focus on opportunities have gained through rigorous questioning, member of Badminton New Zealand, where you know you can genuinely add feedback and discussion with their mentor,” Gardiner says even at this early stage of value and where you will enjoy doing so.” Franklin says. the programme she feels a sense of pride Twenty-four mentees have been offered and confidence at being selected. a place on this year’s programme, where “If there are a larger “If there are a larger number of diverse they will be paired with some of the people with skills and competence putting country’s leading directors over the next number of diverse themselves forward for board roles it has 12 months, in the hope it propels their people with skills and to be a good thing.” directorship careers. competence putting For Brannagan, she was paired with Since the programme was established Air New Zealand and Fisher & Paykel in 2012, 110 mentees have gone through themselves forward for Healthcare Chairman Tony Carter, in what Mentoring for Diversity programme, which board roles it has to be she dubbed a “natural fit”. was once focused solely on supporting women get into the boardrooms of large a good thing.” “We had rapport right from the beginning,” New Zealand companies. In 2015 the Brannagan said. “Tony was very open in “Another measure of success of the programme widened its approach with sharing his own learnings and failures as programme is the endorsement of our applicants now sought from members who much as successes. mentors who give their time so generously believe their diversity of age, ethnicity, as a mentor year after year. This year we “Tony arranged introductions to colleagues skillset or gender can contribute to board have some of the country’s top directors and recruiters and I got some very performance. again giving up their time to mentor, while honest feedback; affronting at times, but Potential mentees must also have a solid others have seen and heard about the absolutely invaluable.” track record in executive management plus programme’s success and have joined Her final words of wisdom to all directors board experience and have the capability as mentors for the first time. It is really wanting to take that next step: to be successful in an NZX or large a partnership being led from the top to company environment. improve diversity in our boardrooms.” “Invest in professional development – continuously. Be structured and diligent Institute of Directors Manager Membership, “The calibre of mentors is exceptional. about this. Governance is a profession and Marketing and Communications Nikki Name a prominent New Zealand chair or you must be on your game to ensure you Franklin, who developed the programme director and it is likely that they are or have contribute effectively.” six years ago, says research has shown that been part of the programme,” Franklin a board of directors who can offer different says, with 40 mentors having committed perspectives are more likely to consider a for multiple years and several being wider range of alternatives. involved in all six years. 2017 mentee Mary 32 | BoardRoom August/September 2017

A glimpse into the mind of your CEO: KPMG New Zealand survey KPMG CEO, Godfrey Boyce

What’s on the mind of your CEO? And how does their thinking compare to their global counterparts?

Results from a recent KPMG survey show their career. And they feel a greater sense that New Zealand CEOs are leading the of responsibility towards their customers The inaugural 2017 KPMG New Zealand way in several respects. They are more than do their international peers. CEO Outlook Survey is drawn from confident about their company’s growth KPMG’s Chief Executive, Godfrey Boyce, a global KPMG survey of more than prospects over the next three years. reflects below on some of the survey 2,000 CEOs across 52 countries. Of They’re more open to new influences and findings; as well as providing some take- these CEOs, 51 were from New Zealand. collaborations than at any other point in out messages for boards and directors.

96% of New so Kiwi CEOs are bucking the trend in our 98% of New part of the world. New Zealand is a growth Zealand CEOs are environment; so we’re fundamentally Zealand CEOs confident about starting from a better place. I also think agree that they’re their growth it’s a function of size. In a country like ours, more open to new where there’s less optimisation of volume at prospects over the the expense of margin, it’s a little easier to influences and next 3 years. (cfd step up and try new things.” collaborations than 83% of global CEOs) The governance take-out: “I think our at any other point “This is a very encouraging metric – it Boards should be applauded for supporting in their career. (cfd shows our organisations have strong our CEOs to have this proactive, searching levels of optimism and appetite for future mindset. We can contrast this with some 70% of global CEOs) opportunities. Given the geo-political cultures where failure only has one “This is definitely reflected in our own upheaval they’ve witnessed in the past year, result – and that’s resignation or forced journey at KPMG over the past three we couldn’t blame them for feeling a little departure. Culturally, we don’t have the years. We’ve become more open to new uncertain. The global survey showed that big disincentives around failure that make technologies and ways of doing business, confidence had declined in the ASPAC region, us unduly risk-averse.” collaborative alliances and investment in August/September 2017 BoardRoom | 33

98% 72% of New Zealand CEOs agree of global CEOs agree that that they correlate being a more they correlate being a more empathetic organisation with empathetic organisation with higher earnings higher earnings 100% 70% Anticipate of NZ CEOs feel an increase in of global CEOs feel an increase responsibility to represent the in responsibility to represent the best interests of the customer best interests of the customer tomorrow. 98% 70% of New Zealand CEOs agree that of global CEOs agree that they’re they’re more open to new influences more open to new influences Deliver today. and new collaborations than at any and new collaborations than at other point in their career any other point in their career 96% 83% of New Zealand CEOs are of global CEOs are confident confident about their growth about their growth prospects prospects over the next 3 years over the next 3 years

new growth initiatives. We’re first to admit getting the right answer for the customer. living up to the promises – both explicit that we’ve tried some things that haven’t As an overall ethos, that is hugely powerful. and implicit – that you make to your teams, worked. But we learn from those, and it stakeholders and customers. “However the survey also found that a only helps to refine and improve our game- lack of quality data is a problem in New “We all remember the Gold Coast theme plan. What’s more important is that we’ve Zealand…and it’s hindering the depth of park tragedy, and the awful way the definitely stayed the course in terms of our customer insights our organisations can company responded in the immediate over-arching strategy for growth – which obtain. So there’s a bit of a disconnect aftermath. That set a course that made it is to understand the markets in front of us, there – we passionately want to almost impossible for them to come back and deliver on what those markets want. understand our customers better, but we in terms of trust, with both their customers And that’s seen us grow revenue year-on- don’t necessarily have the tools to do so.” and the wider public. Being able to year and increase our headcount by 20%.” respond to failure – and respond in a way The governance take-out: “Considering that shows you care about the impact on The governance take-out: “Being open to all board decisions through a customer- others – is fundamentally important.” new ideas is not about chasing the latest centric lens will support the CEO in this shiny bauble. The role of the Board is to approach. Secondly, looking at ways to The governance take-out: “Building hold a steady course against the strategy improve your quality of data should be a trust is all about tone from the top. When and make sure each new opportunity is key consideration at governance level.” the board is seen to live and breathe the judiciously assessed. That means being company’s values and never compromise very clear around three things before 98% of New them when under pressure; that will stepping into a new investment – what is permeate right through the organisation.” the benchmark return? How will return be Zealand CEOs measured post-investment? And what is agree that they the timeframe for meeting the threshold?” correlate being a 100% of NZ CEOs more empathetic LIKE TO KNOW MORE? feel an increase in organisation with You can download a copy of the 2017 higher earnings.” KPMG New Zealand CEO Outlook responsibility to Survey report, as well as the 2017 represent the best (cfd 72% of global KPMG Global CEO Outlook Survey CEOs) report from kpmg.com/nz. We are interests of the also happy to share further insights “Again, it’s great to see our CEOs are ahead – including benchmarked data by customer. (cfd 70% of the curve in recognising this. To put it industry sector – with interested of global CEOs) bluntly, a business that tries to operate parties. Please feel free to contact us “It’s heartening to see Kiwi CEOs so behind closed doors will no longer be via our website. committed to their customers. A business is sustainable long-term. So what does it truly customer-centric when their strategic mean to be an empathetic organisation? focus and business metrics are all about It’s about having clear ethical values and 34 | BoardRoom August/September 2017

Gender pay gap closing: IoD Directors’ Fees Report Greater strides are being made for gender equality in the boardroom, according to the IoD’s latest Director’s Fees report which shows the non-executive director pay gap is continuing to close.

What this means is that we are starting having different people working cohesively, Patterson says there is a need for directors to see more female directors coming exploring the same issues and bringing who are well connected to shareholders through onto the larger and higher paying richness and variety to the board table.” and stakeholders, who continually scan commercial boards, not just focussed on the environment and consider geopolitical Although there is no legislation on this the not-for-profit and lower-paying end of issues and consumer trends. “The best in New Zealand, moves are being made the market. In 2017 the gap was just 9.9% directors are collectors, are curious and towards improving the sobering number compared to a 21.6% gap two years ago are curators,” says Patterson. “They are of women on boards and improving and 10.6% in the intervening year. out collecting information, are interested transparency around remuneration. about what is happening and are curious “There are good economic arguments for Earlier this year the NZX release its about a range of topics, and are able to getting the right skill mix, and gender, Corporate Governance Code which curate that information really well.” onto boards,” IoD Chief Executive Kirsten included recommendations on board Patterson says. “The challenges of the composition and performance - to Businesses need to ensure remuneration modern world call for modern and diverse ensure an effective board, there should levels attract, retain and motivate boardrooms. Research shows even be a balance of independence, skills, good quality directors. The IoD says one woman on a board can enhance its knowledge, experience and perspectives New Zealand needs highly skilled, fairly performance, so it’s pleasing to see the – and remuneration – the remuneration remunerated directors, with the focus gender pay gap improve.” of directors and executives should be being on quality not quantity. transparent, fair and reasonable. The annual fees report, done in partnership Overall non-executive directors’ fees with EY, is a key source of information on The code said if a particular increased 2.3% to $44,000 from $42,994 director remuneration trends in the New recommendation is not appropriate in 2016. For non-executive chairs there Zealand market. for an issuer given its size or stage of was just a 1.8% increase to $55,000 from development an explanation must be Male non-executive director fees were $54,000 in 2016. given as to why it has chosen not to adopt $44,165 up from $44,585 in 2016 (1.3%), the recommendation and the alternative Annual time commitment from directors while female non-executive director fees measures it has in place. continues to level out, following sharp were up 2% to $40,583 from $39,800 rises seen in preparation to changes in 2016. For non-executive chairman the to health and safety legislation. Time remuneration pay gap is even closer, a According to IoD’s 2016 Director spent on director duties was 106 hours, trend that has continued to decrease over Sentiment Report diversity remains a compared to 117 in 2016. In 2015 time the last couple of years. In 2017 the gap was key consideration when making board increase 41% on the previous year to 6.8%, while in 2016 there was a 9% gap. appointments at 70% up from 60% in 2015. 124 hours. Female non-executive chairman fees in 2017 Boards need to continue to lift their were $51,500 up 3% from $50,000 in 2016. This year our annual directors’ fees survey, game as board gender diversity is Male non-executive chairman fees only rose attracted more IoD member participants critical to maintaining a competitive 0.9% to $55,000 from $54,500 last year. than ever before. The IoD would like those and vibrant economy. who participated, these are directors who New Zealand directors are performing have taken time to contribute data for the “We encourage companies to continue in an increasingly volatile and uncertain good of the director profession. Without their gender diversity journey as we want political and economic environment; this input, we would not be able produce the ultimate aim to achieve diversity of coupled with this is rising shareholder such an extensive and valuable report. thought around the board tables of New activism and demands from customers for Zealand,” Patterson says. “This means increased transparency and openness. August/September 2017 BoardRoom | 35

MEDIAN FEES FOR NON-EXECUTIVE DIRECTORS

Median fee growth

$36,000 $36,000 $40,000 $41,610 $42,994 $44,000

2017 2016 2015 2014

2012 2013

Not for profit Female Male Māori owned entities Median Average

$25,000 $40,583 $44,585 $26,188 38.9% 2.0% 1.3% 4.6%

DIRECTORS SATISFIED AVERAGE NUMBER OF AVERAGE LENGTH OF GENDER PAY GAP - 2017 WITH THEIR REMUNERATION BOARD MEETINGS A YEAR A DIRECTORSHIP SERVICE In 2016 it was 10.6% and in 2015 21.6% 5 58% 9 YEARS 9.9%

HOW DO I PURCHASE THE SURVEY? You can purchase a full copy of the latest report from our survey partner EY, as follows:

• Complete the online pre-order form on the IoD website • Email [email protected] • Call EY on +64 9 308 9499 36 | BoardRoom August/September 2017

Election special Ahead of September’s General Election BoardRoom reached out to the political parties and asked them all three questions. Read below who responded, and what they had to say:

Innovation is an important part of driving diversifying our economy to build resilience and to ensure future growth sectors. We growth and supporting businesses to adapt want ICT to become our second largest for the long-term. What is one area of focus contributor to GDP by 2025 and will reform to support business innovation? government procurement to support Kiwi firms find sustainable markets. Labour will invest in basic science and research, years of National have not significantly encourage better collaboration between N NATIONAL PARTY lifted innovation levels in our economy government and private sector, and forge and our investment in R&D remains half a shared vision for how we harness the Finance Minister Steven Joyce: The the OECD average. The Green Party in Government is committed to lifting the level government will ramp up our investment opportunities of the new economy to of Business R&D to at least 1% of GDP. Our in innovation and broaden the way firms create decent work. main tool to achieve that is the Innovative can access R&D funding through a mix of New Zealand programme which invests in grants and tax credits. We will sharpen science, innovation, and skills for our high competition throughout the economy by U UNITEDFUTURE technology industries. In Budgets 16 and 17 strengthening the Commerce Commission’s we have invested heavily in this programme, competition law toolbox. We will also Leader Peter Dunne: We would seek growing Callaghan Innovation’s growth enhance the incentives to study and teach to have a portion of Kiwisaver funds grant programme, investing in applied engineering, mathematics, computer and re-invested in NZ innovation and science through the Endeavour Fund, and physical sciences. Finally, we will address infrastructure assets, Invest in significant investing in Engineering and ICT skills. the tax advantages of property investment NZ inventions of new sustainable energy Encouraging business R&D helps high- and speculation by implementing a forms to ensure the innovation is not tech, innovative Kiwi companies bring comprehensive tax on capital gains lost to NZ and is implemented as soon freeing up valuable capital to flow into the products and ideas to the market sooner. as practicable and Support a national productive sector. Our approach is working. Between 2014 and expo and awards event for science and 2016, business spending on R&D grew 29%, technology, to celebrate achievement, and Callaghan Innovation grant recipients LABOUR attract investment in innovation, and lifted their own spending by 42%. The level L raise the profile of science and technology of Business R&D across the economy grew in New Zealand. All to make sure that from 0.54 to 0.65 per cent of GDP. We need To support the aspiration of future innovation is encouraged and supported so to maintain that rate of growth over the generations New Zealand needs to we can all benefit from it. next several years. substantially lift our game in science, research and innovation, so Labour will support research and development G GREEN PARTY tax credits to boost innovation and lift business R&D rates. These credits were Co-leader James Shaw: Innovation lies removed by National when they came to at the heart of a smart, green economy. office, against the advice of Treasury at the Economies that innovate do better over time. They were recently recommended the long term, creating good jobs that pay by the OCED for NZ as part of their review well and add value to our exports. Nine of the NZ economy. These would focus on August/September 2017 BoardRoom | 37

and curricula content, and “blue sky” university projects, are just a few of the A ACT PARTY M MĀORI PARTY things that would be financially supported by a Social Credit style government. Leader David Seymour: ACT believes that Innovation in the financing of such research, Currently New Zealand’s economy depends all Kiwi businesses should keep more of and of the developments flowing from that on a number of sectors which are unlikely the money they earn, so they can grow, research, is critical. The Democrats for to be sustainable and may not be fit for employ new workers, and spend more on Social Credit are the only political party purpose in a rapidly changing world. innovation. As a proportion of GDP, New proposing innovative concepts to use the New Zealand will require a more diverse Zealand has the fourth highest corporate country’s financial resources for these economy that incentivises innovation tax rate in the OECD. New Zealand needs tasks, rather than extracting more money and new technology, and supports to be attracting more business and from taxpayers. The power of our publicly new business models and high-value investment, but we’re currently at risk owned Reserve Bank, currently unused, services. We would support research of losing capital overseas. National, which would be harnessed, as recommended and development to support business brands itself as a business-friendly party, in the 2012 International Monetary Fund innovation that would manage for the has failed to cut company tax since 2010. report “The Chicago Plan Revisited”. effects of climate change and a low carbon Only ACT is willing to make the case for economy, assist in the creation of networks company tax cuts and only a stronger of expertise and tackling financial and ACT will force the Government to cut O THE OPPORTUNITIES PARTY human capital constraints, which will be the company tax rate after the election. vital for the future of successful businesses Company tax should be cut from 28% New Zealand is mired in poor productivity, and their growth. to 25% immediately, with a long-term we have been getting richer by focussing plan to cut it even further. ACT also on increasing volume rather than adding supports the exchange of ideas via free value. As a result we are working longer trade and migration. and have stuffed our environment to boot. The major driver of this malaise is down DEMOCRATS FOR to our lack of investment in business D SOCIAL CREDIT generally, particularly R&D. The greatest barrier to investment in business is our Research and development is key to the obsession with investing in housing, which future of New Zealand. This should not is perfectly rational given the huge tax be restricted to just new products and breaks that exist around it. We need to production and distribution methods to close the tax loopholes on housing to put improve our production performance, but it on a level footing with other assets. The should aim to conserve valuable natural Opportunities Party (TOP) would do that resources, minimise waste, and protect by ensuring that all assets pay a minimum our natural environment. Research into level of tax equivalent to a bank deposit. new (particularly niche) markets, improved We would recycle the revenue raised by agricultural production, alternative cutting income taxes, making 80% of sources of energy, advanced waste product people better off. There would be massive separation and recycling methods, new shift in investment towards business away industries, education teaching methods from housing as a result. 38 | BoardRoom August/September 2017

What is your top priority for future proofing refused to consider it, we’ll build light rail to Auckland Airport within a decade, New Zealand’s infrastructure to enable we’ll build light rail down Dominion business growth and development? Road and we’ll target increased revenue from Auckland’s population growth into better transport infrastructure including as well as raise public awareness of busways and rapid transit. Our regions will THE OPPORTUNITIES PARTY what is required. This strategic approach O flourish through Labour’s $200m Regional would also assist in the delivery of an Growth Fund, identifying opportunities infrastructure system that is aligned The most important thing is to stop wasting like the CODE centre in Dunedin to boost nationally, regionally and locally. money on infrastructure with a low return. the gaming industry, Whanganui’s Port Transport infrastructure spending needs redevelopment, and a prefabricated timber DEMOCRATS FOR to be on the basis of return on investment. D plant in Gisborne to supply house-building In our cities investing in the projects with SOCIAL CREDIT materials instead of shipping our logs the best return would likely see a shift in The infrastructure deficit in New Zealand offshore. focus from private road transport to rail is staggering. As a result, business and public transport. Commercial water growth and development, particularly in users should also pay for the water that NATIONAL PARTY our regions, is being seriously hampered. N they use. This would ensure the water Infrastructure funding methods employed goes to the highest economic use, while by government and local government Finance Minister Steven Joyce: Our top generating revenue that can be reinvested are restricted to borrowing or overseas priority is to deliver on our record $32.5 in improving water infrastructure. Finally, investment, both of which incur costs billion infrastructure spend over the next if we made NZ Super sustainable as TOP (interest or returns on investment and four years, which is a 40% programme proposes (through partial means testing) loss of sovereignty) that are borne by than the last four years and around double then the country would have a balance businesses, individual taxpayers, and what it was a decade ago. This includes sheet required to invest in a massive ratepayers. The government of Iceland is record levels of investment in new roading, infrastructure upgrade and a boost for R&D. exploring methods of using the country’s schools, rail, hospitals, defence and central bank to finance such necessary housing. Our infrastructure spending will expenditure, at no cost to taxpayers. This boost productivity and help provide the UNITEDFUTURE U concept was used in New Zealand by public services we need for a growing the government elected in 1935, which country. The most transformational Leader Peter Dunne: We support built 30,000 houses and financed other change is our ongoing commitment to Improving transport infrastructure, giving development from that source. The deliver ultra-fast broadband to regions priority to areas where ports, roading and Democrats for Social Credit are the only and towns around the country. More than rail investment constraints are holding political party in New Zealand proposing 1.1 million households and businesses now back economic growth and development. such innovative concepts. The mechanisms have access to fibre across 22 cities and When we have well maintained and fit for and the legislation are in place. All that is towns around New Zealand. In fact, New purpose infrastructure, our businesses needed is a change in government policy. Zealand now ranks alongside other global thrive and we want to make sure that connectivity leaders such as Japan and happens. South Korea. The vast majority of New L LABOUR Zealand’s commercial services exports are traded over the internet so our investment M MĀORI PARTY We must unlock the congestion in Auckland is providing them with a massive boost. that is stifling the efficient movement of Our top priority for future proofing goods. Aucklanders know that rail to the New Zealand’s infrastructure to enable airport is needed much earlier than 2035 A ACT PARTY business growth and development would on current Government timelines, and that be to support the establishment of an we need to invest in better public transport Leader David Seymour: Funding independent body to identify the long-term and shift more freight onto rail, so trucks infrastructure is a vital role of Government infrastructure needs and also monitor can deliver their loads more efficiently. as it enables business growth and performance against these needs. This Labour will do this. Labour backed the development. A stronger ACT will let would encourage a strategic approach Central Rail Link when the Government councils collect half the GST from August/September 2017 BoardRoom | 39

construction in their area, for use on What is the one thing your party will do to vital infrastructure. This means March’s $2 billion in new consents would have support reducing the inequality gap? signalled an extra $150 million for roads, public transport, stormwater, and so GST and introduce a universal basic on. ACT also supports the introduction income. In its place, a transactions tax, of a world-leading road pricing system A ACT PARTY at less than half a percent on all bank – we should use recent and emerging account withdrawals, would particularly technologies including GPS tracking of Leader David Seymour: Two of the target financial speculation and aim to traffic to effectively price roads in real time, greatest drivers of inequality are housing direct investment into production. These so pricing is self-regulating and booth- affordability and education. The high cost measures would produce a significant lift in free. ACT also supports the continued use of housing is widening the gap between disposable income, particularly for those of Public Private Partnerships to fund and people who own houses, and those who on low incomes, put businesses competing maintain infrastructure. don’t. The housing crisis is not a market failure, it’s a government failure. People with overseas on-line traders on an even want to build and buy homes but they face footing, and reduce business accounting requirements. G GREEN PARTY a wall of rules that choke the creation of new housing supply. Governments both local and central artificially restrict the Co-leader James Shaw: With a growing G GREEN PARTY population and a low cost of borrowing, supply of land, and they monopolise the provision of infrastructure and the we have an historic opportunity to invest Co-leader David Shaw: National have consenting process. ACT would remove for the long term, building the key public, had nine years to lift our most vulnerable New Zealand’s large cities from the social, and natural infrastructure we children out of poverty, yet over 200,000 Resource Management Act, and create need to secure our future prosperity and children still live in poverty – the same separate urban development legislation shift our economy onto a low-carbon number as in 2008. No child in Aotearoa that prioritises land supply and reduces pathway. National have invested heavily New Zealand should live in poverty. We’re red tape on developers. New Zealand also in motorways with low benefits and going to fix that. According to UNICEF, New has one of the most unequal education failed to build the housing infrastructure Zealand has some of the best and worst systems in the Western World. To solve this, needed to match our growing population, educational outcomes in the developed ACT’s successful Partnership Schools Policy especially in Auckland. The Green Party in world. And our underperformance is not allows communities, iwi, philanthropists government would reprioritise transport improving. Kids from poorer families and business organisations to partner with infrastructure spending towards more have less of a chance of escaping poverty educators to open new innovative schools. sustainable alternatives to motorways. We through education than they did in 2008. would co-invest with Auckland to complete The Green Party in government will seek to the rail network there, building rail to DEMOCRATS FOR D turn this around with the introduction of the North Shore and rail to the Auckland SOCIAL CREDIT school hubs, which cluster health, welfare, airport. We have committed to building Former Prime Minister, Jim Bolger, said and other support services in our low decile tens-of-thousands more affordable, energy publicly recently that the neo-liberal schools to mitigate the impact of poverty efficient homes to help address the supply economic policies of privatisation, labour and inequality on a child's learning. This shortage and enable families to buy their market deregulation, welfare cuts, and is not the silver bullet to solve inequality, way progressively into their first home. In tax reductions for higher income earners, however. How we address inequality addition, we would continue to invest in the which he imagined would make all New further is going to be one of our significant highly effective home insulation scheme Zealanders prosperous, have absolutely policy announcements in the run-up to the we pioneered with National in its first FAILED. He regretted the inequality 2017 election, so watch this space. term. In the energy sector, we’d set the they have caused. Excessive levels of goal of achieving 100% renewable energy immigration have only made the problem production by 2030. We’d also investigate worse. Innovation and future proofing ways to co-fund local government New Zealand’s infrastructure, dealt with infrastructure to increasingly make it above, will provide more employment, earthquake and climate resilient. reduce business costs, and expand productivity. Additionally, a Democrats for Social Credit government would scrap 40 | BoardRoom August/September 2017

M MĀORI PARTY U UNITEDFUTURE O THE OPPORTUNITIES PARTY

The Māori Party is born of the dreams Leader Peter Dunne: We support ensuring Housing is a key driver of the growing and aspirations of tangata whenua to that everyone has opportunity to succeed inequality gap. It is providing massive tax achieve self-determination for whānau, and increase the quality of their life, that’s breaks and lifting the wealth of those that hapū and iwi within their own land. Māori why we support a return to fees-free own them. Rising housing costs (through are at the bottom of every disparity tertiary education, so that it is no longer higher mortgages and rents) are also and statistic. We will continue to tackle out of the reach of many individuals driving down the disposable income of the barriers to employment, increase and entrenching inequality. For too long people at the bottom end. Our Fair Tax innovative and efficient health-care, people are locked out of higher education Reform package would close the loopholes provide more opportunities for education because of the high costs and that results on housing and use the money to reduce and sustainable employment, and enable in them not being able to earn as much, income taxes, making 80% better off. better accessibility to housing for those entrenching and perpetuating New Poverty is greatest amongst families with who need it most. Zealand’s inequality problem. young children. TOP would use the money from means testing NZ Super to invest in a $3b package for families with children L LABOUR under 5. This includes $200 per week for N NATIONAL PARTY families with children under 3, free full time The best route out of poverty is through Finance Minister Steven Joyce: Our early childhood education for 3-5 year olds work. It’s in Labour’s DNA to ensure biggest priority is to boost family incomes and more help for families on low incomes. Kiwis have the best employment through the tax and transfer system. From opportunities, which is why our Future 1 April next year, Kiwis will benefit from of Work programme is so important. This All political parties were approached for the $2 billion Family Incomes Package in is our plan to build an economy fit for comment. Those not included chose not to Budget 2017 which increases take-home purpose for the 21st century, delivering participate. pay and provides additional income- fulfilling work, supporting an adaptable related support, especially to low income and resilient workforce and transitioning families. The four elements of the Family to a low carbon future. Our world of Incomes Package, when taken together, are work is changing more rapidly than ever expected to reduce the number of children before. Ten years ago we didn’t have app living in families receiving less than half developers, cloud computing analysts or of the median income by around 50,000 social media managers. Many workers are or almost one-third from April next year. doing jobs now that won’t exist in 20 years This year’s Budget builds on Budget 2015’s – around half of all jobs, according to some $790 million package to reduce hardship estimates. Higher quality jobs combined among children in New Zealand’s poorest with high quality public investment are families by, among other things, boosting essential to ensure that no New Zealander main benefit rates for families with children is left behind by economic growth. The by $25 a week – the first increase in 40 measurement of living standards and years. We are committed to maintaining our overall well-being will be our yardstick of strong economic plan so that we can deliver success, not just GDP numbers. another similar Family Incomes Package over time, when we have the room to do so. August/September 2017 BoardRoom | 41

GOVERNANCE LEADERSHIP CENTRE Update

The release of a refreshed Four Pillars of Governance

Best Practice has been at the top of the team’s Governance Leadership Centre Manager agenda ahead of its release this month. Felicity Caird is advocating for Companies Register changes.

The Governance Leadership Centre has We advocated for this change including LEGAL SYMPOSIUM ON had a major focus this year on updating the through our recent submission on DINs. SUSTAINABILITY CONSIDERS KEY Four Pillars of Governance Best Practice. QUESTIONS KEEPING MEMBERS UP TO DATE A copy is being sent to all members, who What is the purpose of a corporation The first GovernanceUpdate for members can also access an enhanced digital under law? What impact will the UN in 2017 was emailed to members recently version anywhere anytime. Other areas of Sustainable Development Goals and to keep you up to date on legislative and focus, says Felicity Caird, includes the first the 2008 framework on business and regulatory developments, emerging issues GovernanceUpdate for 2017 and advocating human rights (to protect, respect and recent court decisions relating to for change on issues, such as removing and remedy) framework have on director responsibilities. the requirement for directors to register corporate law? What is the purpose of a residential address on the Companies All submissions and governance resources the company and what do we mean by Register and to be able to provide a service can be viewed at www.iod.org.nz long-term interests of the company? address instead. THE NEW FOUR PILLARS OF GOVERNANCE There were no simple answers but there INTRODUCING DIRECTOR BEST PRACTICE – 2017 EDITION was a lot of discussion at a forward- IDENTIFICATION NUMBERS AND This new edition is a significant update on looking symposium on Corporate PUSHING FOR CHANGE ON DIRECTORS’ the 2014 edition. Focused on underpinning Sustainability and the Long Term RESIDENTIAL ADDRESSES governance excellence, using it will Interests of the Company, hosted by The Ministry for Business, Innovation and help members maximise their value and Auckland University’s Law School in Employment is considering introducing performance. The enhanced digital version partnership with the Deakin Law School, director identification numbers (DINs) provides links to key governance resources, and attended by the GLC in June. to improve directors’ information on the tools and templates, and will be updated Global and national developments, such Companies Register. Having DINs would periodically to reflect the latest legal and as the new NZX Corporate Governance make it easier for directors to update their governance developments. Code, prompted debate about the details on the Register and would also help impact of corporate governance the public when searching directors (giving codes, the rise of stewardship codes, them a more accurate picture of a person’s the role of stakeholders, shareholder directorships). primacy and a new model of the Directors must disclose their residential corporation as a sustainable entity. address to the Companies Office under the Irrespective of differing views on such Companies Act 1993. The Register makes issues there was general consensus this address available to the public and this on the need to maintain a focus on can cause problems, for example, directors improving corporate accountability and their families being put at risk from and transparency. We can expect customers, staff, and other stakeholders ongoing discussion and debate in the approaching them at home. The Four Pillars focuses on the role of governance community and academia directors in determining purpose and as the focus on long-term sustainability The IoD considers that directors should setting strategic direction, leading an of organisations increases in a complex be able to publish a service address on effective culture, holding management to and constantly changing environment. the Register as an alternative to their account and ensuring effective compliance. residential address. This would allow directors to protect their privacy while Feedback on the new edition is welcome to ensuring they can still be contacted. [email protected]. 42 | BoardRoom August/September 2017

Case study Taking the plunge into formal governance Appointing a formal board of directors for the first time can be a daunting move but it is often a crucial step to ensure organisations can safely scale up and attract good Acting Chairman David Clearwater talent and investment.

BoardRoom talks to David Clearwater While we constantly gathered knowledge But in saying that, our lack of experience acting chairman of start-up Conscious from advisors, we had to work out a lot also had advantages. We filled a lot Consumers Ltd, a social enterprise ourselves. Initially I was quite intimidated of knowledge gaps by canvassing technology business based in Wellington, by the thought of chairing a board but have our networks, which broadened our along with his co-directors, on how they since learned that you don’t need to know understanding of how different boards learnt about the trials and tribulations of everything straight away. But what you do operate, pushed us to discuss how we governance - through starting their own need is to have a good support network, be wanted to work, and ultimately led to us board from scratch. hungry to learn, and be prepared to put in picking approaches that best fit our needs. the hard work. This gave us confidence to hack traditional Conscious governance processes to better reflect the I’ve relied heavily on a lot of online research way we wanted our board to operate. Consumers combined with advice from experienced Conscious Consumers was formed in directors. I’ve also spent far more time Some of the more innovative processes we May 2016 after it transitioned from reading the Companies Act than I ever used included co-editing minutes online being under the umbrella of registered would have guessed. with Google docs, using Loomio to progress charity, 42Collective, into a registered It has worked out very well so far – better issues and discussions online between non-charitable company and commercial than I expected actually. I’m far more meetings, and using a meeting check-in enterprise. The transition resulted from comfortable now with being a board chair protocol that builds trust and connection Conscious Consumers raising $600,000 as than 12 months ago. I have learned that within the board. All of this reduces admin, part of its first capital raising round. there are few ‘right’ answers in governance, raises our productivity in meetings, and Clearwater joined with 42Collective and and what matters is running a good process greatly increases the overall workload our Conscious Consumers co-founder and CEO in a team with healthy dynamics. And board can get through in a month. Ben Gleisner, (executive director) and Mike Conscious Consumers is in great shape; We have since had some experienced de Lange (non-executive director) to form we’ve quadrupled our revenue over the last directors successfully implement these the brand new Conscious Consumers Ltd year, and are now raising money to expand processes in their boards. Others say ‘we board. Here David shares his experiences into the UK market. wish we had the guts to do it like that’. And over the past year or so, what he has learned then others say ‘wait until you grow and and his advice for other SMEs looking to take the step to formal governance. Carving out see how well your Google docs work out for a new way you then’. The early days One thing that would have saved us a I’m aware that we are a small board and as Our plan was to start out as small as lot of time would have been to appoint such can easily use Google docs in real time. possible to work out what we needed. We someone to the board who had more formal This process might not scale up to a bigger gave ourselves an initial three-month governance experience. We had to learn a organisation with a bigger board as the risk establishment period where we met weekly lot for ourselves so it took us considerably profile is different but it’s certainly working to get the basics in place, and produce a longer as we didn’t have someone to say ‘no, for us now. plan for our board and our business. don’t do it that way, as this way is better’. August/September 2017 BoardRoom | 43

How existing a greater number and wider diversity of helpful resource. It sets out roles and new directors would benefit everyone. responsibilities very clearly. The Institute boards can support of Directors website also has a lot of newbies Advice for SMEs resources. Conscious Consumers Ltd runs an informal • Seek wisdom: governance is complex director exchange programme to encourage thinking of moving stuff, and it’s easy to get overwhelmed people to come to their board meetings to governance by everything you don’t know. Nurturing and vice versa to get a sense of what • It is all worth the hard work: having a relationships with those who have been governance entails. board of directors is crucial for scaling there and explicitly carving out time for up growth. A board helps secure good learning are great antidotes for anxiety A lot of our learning in governance strategic talent, strengthens the around “pretender syndrome”. comes from seeing different directors decision-making process, makes the • Appoint people that fit the culture: and processes in action. I urge more business safer, can help build the profile You need relationships with a healthy organisations to open up their board of your business, and gives investors and balance of support and challenge. The meetings to others so they can gain executives peace of mind. It can also help dynamic between the chair and CEO is governance knowledge. Guests can secure finance particular crucial and when that works, always leave for commercially sensitive • Appointing an advisory board as a first it makes everything else easier. discussions. The more governance step: I would encourage any organisation knowledge that is shared, especially among to put in an advisory board if they are those who are starting out, the better For more information for organisations not ready for a formal board of directors. governance standards will become. looking to set up their first board and An advisory board can challenge you others who aren’t yet sure that a board Governance has this mythical status that as a leader and help you manage your is their answer visit: doesn’t do the profession any good. growing risks. www.iod.org.nz/FirstBoards I think giving others a look at governance in • Do research: read widely for a range practice will help more people understand of perspectives on what matters. The and recognise good governance. Attracting Companies Act was a surprisingly

Appointing new non-executive directors (NED) to an existing board

Kelly McGregor, board services advisor for is difficult and isolating to be the only remuneration. There are cost-effective the Institute of Directors, assists clients to independent NED on a board, especially systems available, including the add to their existing SME board framework when it is a family board. DirectorRem service offered by the IoD, (often made up family members). She has that benchmark the particular director’s HOW DO ORGANISATIONS GO ABOUT some specific advice for those thinking of role against similar organisations in terms FINDING A NEW NED? appointing their first independent director. of size, industry type, risk factors and An organisation needs to decide what other business elements. WHAT ARE THE SIGNS THAT AN SME particular skill and experience gaps they SHOULD APPOINT INDEPENDENT NEDS? have in line with their strategic goals and HOW LONG CAN THIS TRANSITION TAKE? When an organisation is moving into new then search for new directors based on I advise people to take it slow. The markets, into a new phase and/or into a those criteria. There are services, such as process to appoint an outside NED can be rapid pace of growth and doesn’t have the that offered by the IoD, that can provide daunting, especially for family members. I right skills or experience on its existing a long list of candidates. Best practice recognise that it is a scary step, as it can board. Often SME boards, especially family stipulates that organisations go outside be perceived as a loss of control over the boards, have relied on their accountant their networks to find independent NEDs. business. People really need take time to or lawyer for professional advice but This enables organisations to get a reality get to know the potential new directors; then reach the stage where they need to check on where they may sit out in the invite them for coffee or dinner. The go wider to get the right experience and market. Existing executives and board informal get-togethers are as important or knowledge. members often don't know what they more important than a formal interview. A don’t know. good cultural fit is crucial so due diligence HOW MANY NEDS DOES AN SME BOARD is required. REQUIRE? HOW DO YOU DECIDE ON REMUNERATION Usually SMEs appoint just one independent FOR BOARD MEMBERS? director, often the chair. I sometimes I always recommend that organisations advise them to appoint two because it use an objective service to determine 44 | BoardRoom August/September 2017

Out & about

1 CANTERBURY MENTORING FOR DIVERSITY Mike Hannah, Head of Communications Some of the new mentees, part of the 2017 and Board Secretary for the Reserve intake for Mentoring for Diversity join the Bank of New Zealand, shared with us the 2016 graduates in Auckland. framework used to survey the Reserve Bank’s various stakeholder groups. The framework was based on Familiarity, Favourability, Trust and Advocacy. This principle is equally applicable at the board 2 3 table. The more familiar your stakeholders are with the vision goals and objectives of the entity the more likely they are to trust and advocate for the organisation.

6

4 NELSON MARLBOROUGH The branch hosted a What Matters in board dynamics lunch in Blenheim John Palmer provided insights and learnings from his various roles. Some attendees described it as the best governance address they had ever heard. 7

OTAGO SOUTHLAND WELLINGTON The branch was pleased to award the 2017 Wellington Branch members have had Otago Southland Emerging Director Award the opportunity to attend events such as to Jeffrey Broughton. understanding and logging CPD points with IoD Membership Team Leader Lisa 5 McRae. Mark Waller and Rick Christie discussed the chair and CEO relationship as part of the What Matters in board TARANAKI dynamics campaign. Taranaki Branch members heard from IoD CE Kirsten Patterson (KP) during a lunch event in July. KP spoke about board dynamics from a CEO perspective as part of the What Matters in board dynamics campaign. August/September 2017 BoardRoom | 45

1 | Nettles Lamont, Kylie Van Heerden and Vikki Brannagan 2 | Ana Morrison and Mere Kingi 6 | Neill Price, Paul Rhodes, Dr Robin Mann 3 | Daniel Shore, Rachel Afeaki-Taumoepeau, IoD (Canterbury) 10 | Waikato Branch and Waikato Chamber of President Liz Coutts, Stana Pezic, Agnieszka 7 | Nikki Vryenhoek, Tracey Mitchell (Canterbury) Commerce members enjoying networking before Grudzinska 8 | Lions Tour Manager John Spencer (Auckland) breakfast with Hon. Steven Joyce 4 | Sarah-Jane Weir with John Palmer, ONZM, DistFInstD 9 | Prime Minister Bill English, IoD President 11 | Tony Carter 5 | Anna Campbell presents Emerging Director Award Liz Coutts and Auckland branch chairman 12 | The board’s role in setting organisational culture, to Jeffrey Broughton Clayton Wakefield with Tony Carter (Waikato)

8 9 AUCKLAND The branch hosted the Prime Minister on 23 June with more than 200 guests in attendance. They also had the Lions Tour manager speak and a breakfast function with KPMG’s Ross Buckley.

WAIKATO The branch hosted a number of lunch events including with Chartered Fellow Tony Carter, Hon Steven Joyce and Colin Groves on overseas mergers and acquisitions.

10 11 12

Company Directors’ Course AUCKLAND 11 JUNE 2017 Back Row: Angela Leslie, Matt Boggs, Phil Heatley Charles Kaka, Deb Cane, Robert Battlers, Wendy Kerr, Ron Peake, Nick Simcocl, Stan Scorringe, Bernie Hankey, Steve Hallett, Peter Oskam, Duncan Roy

Front Row: Katherine Sandford, Karin Thomas, Kerry Friend, Steven Cooper, Chris Seu, Meng Foon, Geoff Angus, Geoff Lewis, Llori Valenzuela 46 | BoardRoom August/September 2017

INSTITUTE OF DIRECTORS Events Diary

For more information visit www.iod.org.nz, or contact the director development team or your local branch office

Self-paced study 14 OCTOBER Taranaki Online modules can be completed anytime, Company Directors’ Course 12 SEPTEMBER anywhere and at your own pace. 17 OCTOBER Quadruple bottom line for sustainable • Directors’ and Officers’ Insurance Next generation director workshop, prosperity • Ethics – How directors do business Chairing the Board • Health and Safety Governance 3 OCTOBER • Not-for-Profit Finance Fundamentals 24 OCTOBER After work function with Peter Tinholt Breakfast panel on business sustainability Hot topics for SME directors webcast 30 OCTOBER Wellington

Governance Essentials 6 SEPTEMBER Breakfast with Steve Graham Auckland 31 OCTOBER 29 AUGUST Digital Essentials 13 SEPTEMBER Welcome cocktails and 2017 Emerging Company Directors’ Course Refresher Director Award Waikato 27 SEPTEMBER 05 SEPTEMBER 4 SEPTEMBER Reporting to the Board Evening panel on not for profit governance Women’s Governance Network lunch 3 OCTOBER and board dynamics, South Auckland function - Maori Governance Panel Senior Directors’ Dinner with Chris Moller discussion 11 SEPTEMBER 10 OCTOBER Breakfast with Adrian Little 19 SEPTEMBER Governance Essentials The role of directors in innovation: How do 12 SEPTEMBER we lead in disruptive times? With Melissa 11 OCTOBER • Public Company Directorship Clark-Reynolds Finance Essentials • Lunch at Orākei Marae with John Tamihere and Prof Paul Moon 12 OCTOBER Bay of Plenty Strategy Essentials 13 SEPTEMBER 14 SEPTEMBER Finance Essentials Fellows Dinner with John Storey Canterbury 19 SEPTEMBER 21 SEPTEMBER 5 SEPTEMBER FirstBreak evening panel and networking Relationship between CEO and the chair, Presentation of Emerging Director Award – the Tech Team Rotorua 12 SEPTEMBER 20 SEPTEMBER 12 OCTOBER Company Directors Course, Christchurch • Director Accelerator lunch Tips to make your governance CV work • Finance Essentials 13 SEPTEMBER • Strategy Essentials 19 OCTOBER Finance Essentials Annual awards dinner with Sir Henry van 24 SEPTEMBER 14 SEPTEMBER der Heyden Company Directors’ Course Strategy Essentials 25 OCTOBER 5 OCTOBER 22 SEPTEMBER Introduction to finance in governance, Breakfast with Colin MacDonald Sponsors breakfast with BDO Christchurch Taupo

Red = IoD courses August/September 2017 BoardRoom | 47

Now you’ve Director read me Vacancies log me

DirectorVacancies is a cost-effective way Applications will remain open until to reach IoD members – New Zealand’s position is filled: largest pool of director talent. FRANKLIN HOSPICE CHARITABLE CPD points We will list your vacancy until the TRUST application deadline closes or until you Role: Trustees/Board Members (2) find a suitable candidate. Location: Pukekohe

DIABETES NEW ZEALAND DEMENTIA CANTERBURY Role: Independent Board Member Role: Executive Committee/ Board Chair 29 SEPTEMBER Location: Meetings held in our National Location: Christchurch, Canterbury New members lunch Office in Wellington ASPIRE CANTERBURY 16 OCTOBER Closes: 18 August 2017 Role: Chairperson and Treasurer Evening function followed by Fellows TENNIS SOUTH CANTERBURY Location: Christchurch dinner Role: Board Members, and Chair Person THE ORPHEUS CHOIR OF WELLINGTON Location: Timaru INC Otago Southland Closes: 25 August 2017 Role: Board members (2) 3 SEPTEMBER NEW ZEALAND RED CROSS Location: Wellington Company Directors’ Course, Queenstown Role: Chair of Audit & Risk Committee, ALZHEIMERS WELLINGTON 17 SEPTEMBER Foundation Trustee & Full National Board Role: Board Members (2 ) Company Directors’ Course, Queenstown Membership Location: Petone, Lower Hutt Location: National, meetings are mostly 18 SEPTEMBER held in Wellington FAMILY ACTION Governance wisdom breakfast Closes: 31 August 2017 Role: Board Member 1 OCTOBER Location: Henderson CHEFS FOR COMPASSION TRUST Company Directors’ Course, Queenstown Role: Board of Trustees Member EPILEPSY FOUNDATION OF 4 OCTOBER Location: Birkenhead, North Shore NEW ZEALAND INCORPORATED Governance Development Program, Auckland Role: Governance Board Members Invercargill Closes: 16 September 2017 Location: Auckland meetings

29 OCTOBER SHOW ME SHORTS FILM FESTIVAL Company Directors’ Course, Queenstown TRUST Role: Trust Board member Nelson/ Location: Auckland Marlborough ROYAL NEW ZEALAND COASTGUARD Role: Board Member (2) 14 SEPTEMBER Location: Auckland Branch networking lunch with IoD CE Kirsten Patterson (KP) RUTHERFORD ST KINDERGARTEN Role: Board member Location: Nelson

THE HOME OF ST BARNABAS TRUST Role: Board Members (2-3) Location: St Clair, Dunedin

AUCKLAND FOUNDATION Role: Board members (3) Location: Auckland Level One, Huddart Parker Building, 1 Post Office Square Wellington 6011, New Zealand +64 (0)4 894 1856 REPORTING TO THE BOARD [email protected] HALF DAY COURSE

Client “It’s a balancing Institute of Directors Contact act to know Andrea Coulston Project what to tell Reporting to the Board Execution my board. Full Page Press Ad Artwork Size 210mm x 297mm How much info + 3mm bleed Scale is too much?” 100% Output Size 210mm x 297mm

Date 17.07.17

Studio Communicating the right way Zelle Discover what makes you effective in working Notes with your board and how it is essential for your career progression. Register for ‘Reporting to the Board’ now at iod.org.nz/reporting or 0800 846 369.

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