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A note from the editor

This issue looks at what keeps directors awake at night, and what should be keeping directors awake at night. The Agenda Don’t panic, but there are a few things DEC / JAN 2019 you might like to think about. Our annual Director Sentiment Survey, conducted in association with INSIDE IoD the ASB, finds labour force capability and availability are top of mind. It also revealed BoardRoom details business confidence among directors is 01 down, reflecting a similar view across the 05 02 CEO letter business community. Confidence was near 10-year lows (almost as bad as just 03 UpFront after the GFC) in October, according to the NZIER. This is out of step with world 35 GLC update business confidence, as measured by the OECD, which is near 10-year highs. 45 Out and about Is business confidence little more than a political talking point or is it an indicator 48 Events of deep truths about an economy? ASB Chief Economist Nick Tuffley explores the issues for us in a thought-provoking TOP FIVE ISSUES FOR FEATURES opinion piece. DIRECTORS IN 2019 05 Top five issues for Looking forward to 2019, Felicity Caird directors in 2019 from the Governance Leadership Centre reviews the top five issues that are likely 09 Director Sentiment to confront boards in the new year – and Survey offers a few guidance points. Culture and 19 conduct, climate change, the future of 13 Weak business work, mental health and wellbeing in the confidence: should workplace, and appropriate compliance we worry? make up the five. These are issues on which boards need to ensure they get 15 Runs on the board the right information in order to make good decisions on strategy. 19 From old boys club Geoffrey Bowes, our first chief to professional body executive, gives a good-humoured FROM OLD BOYS CLUB Building a better board account of the establishment of the TO PROFESSIONAL BODY 23 Institute of Directors in New Zealand Geoffrey Bowes (left) gives Boards must lead change as an independent body, and the an insight into the early 25 establishment of a governance culture. days of IoD 29 Lexus LC500 review – As the organisation moves towards its Second date 30th anniversary next year it is timely to reflect on our beginnings and consider 38 Meet our Emerging what type of organisation members Directors will need in the future. 25 Aaron Watson FROM OUR PARTNERS BoardRoom editor 31 Natural disasters dominate risk thinking / Marsh 33 Taxing time for boards / KPMG

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1 Dec/Jan 2019 BOARDROOM CEO LETTER

that directly affect business, What can business do to to harness the expertise of enhance services in rural the private sector to inform and provincial towns? government policy, and to build closer relationships How can government and between government and business work together business. The four priority to unleash the potential areas are: building tomorrow’s of New Zealand’s Agritech skills, accelerating our industry? KIRSTEN PATTERSON regions, attracting high quality How can government and CEO, INSTITUTE OF DIRECTORS investment and unleashing business work together our SMEs. to solve regional skills shortages? Questions the council is debating: The best spot in New Looking forward Zealand to spend the How can business summer holidays while practically demonstrate pondering the above. to turning 30 their commitment to (Oops, that may have been ensuring workers in New one of mine I added later…) Zealand are supported A milestone birthday is usually of your own about the year to gain new skills and We’d be interested in your a time to reflect, and the IoD passed, and the challenges transition into new jobs answers and ideas, and there is no different; in 2019 the and opportunities ahead as the nature of work are a number of IoD members IoD will celebrate 30 years. in 2019. We know that IoD changes? on the business council with Although there was previously members will be thinking whom we can share your a New Zealand branch of the about wider issues beyond How can business support comments and responses. UK IoD operating for a number just the individual firms the operationalising of Send your answers in to of years, it was in 1989 that they support. micro-crediting and the [email protected] IoD as we know it today was Results from the inaugural fees-free learning policy? The first five answers formed as an independent Global Network of Directors How can our tertiary received will receive a body. Institutes Survey showed institutions support this copy of a book of essays, During 2019 we will take New Zealand directors are in a practical way, learning The Big Questions – What the opportunity to reflect significantly more concerned from best-practice models is New Zealand’s Future? on governance over the past about social and economic overseas? A “birth date” of 1989 30 years and what the next 30 issues than their global peers. technically makes the IoD a years may hold, starting in this Eighty percent of New Zealand How can business support millennial, but I wonder how edition with an interview with directors identified housing SMEs and others within many would see us as the our first Executive Director/ as our most significant social the business community digitally-connected, socially- Chief Executive of the IoD, and economic issue compared to realise the opportunities minded, globally-focused, and Geoffrey Bowes. Respecting to only 34% globally. Poverty provided by R&D tax entrepreneurial typecast of and honouring our heritage and income inequality was credits? that generation? is an important part of rated second highest at 67% Much also for us to ensuring strong foundations contrasting with 45% globally. How can New Zealand contemplate as we lead into for the future. We are merely In the event that you have grow its base of investment the new year – for us a year the guardians of today and depleted your reading pile and capital and ensure Kiwi of digital transformation – we have all benefitted from you are looking for inspiration firms realise their potential? a new CRM, finance system, the foresight of the early for quiet reflection or to kick- How can NZ attract quality website and refreshed brand, IoD champions. As Warren off a debate at the summer foreign investment in a to ensure we remain relevant Buffet said: “Someone’s sitting BBQ, you might like to consider seamless way? to the needs of the governance in the shade today because the questions that the Prime community for the next someone planted a tree Minister’s Business Council Could the government’s 30 years. a long time ago.” will be contemplating. investment funds play As you’re sitting in the The purpose of the council a more prominent Ngā mihi, shade over the summer is to provide high-level free role in investing in NZ holidays, you will no doubt and frank advice to the infrastructure projects Kirsten (KP) be doing some reflecting Prime Minister on policies and businesses?

2 Dec/Jan 2019 BOARDROOM UPFRONT UpFront

Director Q: When are directors required to keep board discussions and Vacancies information confidential?

DirectorVacancies is a cost-effective way to reach our extensive A: Under section 145 of the Companies Act membership pool of director talent. We will list your vacancy until 1993, a director who has information in their the application deadline closes or until you find a suitable candidate. capacity as a company director (that they Contact us on 0800 846 369. would not have otherwise had) must not use or disclose it except: Unless otherwise stated, the following positions will remain open until filled. • for the company’s purposes • as required by law SPORT NORTHLAND LIFE EDUCATION TRUST • disclosure to a person whose interests Role: Centrally-held list Role: Trustee (2) the director represents of Directors/Director pool Location: Christchurch • disclosure to a person in accordance Location: Northland Closing date: 6 January with whose directions/instructions the director is ARTSPACE AOTEAROA TRUST NZ ST JOHN required or accustomed to act (whose name Role: Trustees Role: Patient Representative must be entered on the interests register) Location: Auckland Location: Auckland • use or disclosure: Closing date: 14 January – which is authorised by the board EQUESTRIAN SPORTS – the particulars of which are entered NEW ZEALAND – EVENTING SOUTHERN ROWING in the interests register, and Role: Appointed Board Member PERFORMANCE CENTRE – which will not be likely to prejudice Location: National Role: Independent Chair the company. Closing date: 15 December Location: National Closing date: 15 January NAPIER PORT Role: Non-Executive Directors (3) THE ORPHEUS CHOIR Location: Hawke’s Bay OF WELLINGTON INC Closing date: 1 January Role: Board Member Location: Wellington Closing date: 17 February

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3 Dec/Jan 2019 BOARDROOM UPFRONT

APPOINTMENTS

Renata Blair Barbara Chapman Michelle Hollands Member, has been appointed Chartered Member, has been appointed Chartered Member, has been appointed to the Eden Park Trust Board. to the Prime Minister’s Business Advisory via the IoD’s DirectorSearch service as Council. a trustee to the Waipa Community Facilities Trust. Sara Brownlie Chartered Member, has been appointed Kyle Christensen to the board of Research and Education Member, has been appointed to the board Miles Hurrell Advanced Network New Zealand of Utilities Disputes. Member, has been appointed to the (REANNZ). Prime Minister’s Business Advisory Council.

Jacqui Coombes Fiona Carrick Member, has been appointed to the David McLean Member, has been appointed via the Prime Minister’s Business Advisory Council. Member, has been appointed to the IoD’s DirectorSearch service as a trustee Prime Minister’s Business Advisory Council. to the Waipa Community Facilities Trust. Jo Coughlan Member, has been appointed to the board Maurice Noone of DairyNZ. Member, has been appointed to the board of CP Wool.

During his lifetime he received numerous In memoriam awards including the Sir Peter Blake Medal for Leadership Excellence (2005), SIR JOHN ANDERSON, Halberg award for Leadership Excellence KBE DISTFINSTD in Sporting Organisations (2010) and the Inaugural Distinguished Fellowship award Respected business leader and from INFINZ (2016). He was appointed Distinguished Fellow of the Institute of a Knight Commander of the Order of the Directors Sir John Anderson passed away British Empire for services to business at his home in Wellington in November. management, banking and the community The former ANZ National Bank chief in the 1995 New Year Honours. executive was known for his strong “Sir John was a well-respected leader personal values and being a driving force and always very supportive of the Institute behind the Banking Ombudsman Scheme. of Directors,” said IoD Chief Executive His corporate governance career Kirsten Patterson. spanned industries from financial services “His contribution to our Institute was to health, sport and entertainment. recognised last year when he became a Significant leadership roles included being Distinguished Fellow, the highest accolade chair of Television New Zealand, WWF the IoD can bestow.” for Nature, NZ Sports Foundation, the IoD President Liz Coutts, who last New Zealand Cricket board, NZME, Capital year presented the Distinguished Fellow Coast Health DHB and Commissioner Award to Sir John, said: “It was an honour of Hawke’s Bay District Health Board. to recognise Sir John’s significant contribution to governance over many years. He was highly respected and an inspiration to many.”

4 Dec/Jan 2019 BOARDROOM FEATURE

Top five issues for directors in 2019 Felicity Caird, GM Governance Leadership Centre, looks at five issues that should be top of mind for directors in 2019.

irectors are organisations’ 1. CULTURE AND CONDUCT that needed to be addressed immediately. stewards for the future and long- The FMA/RBNZ recommendations are term value creation. The boards Ethical behaviour and a healthy good reminders for all boards to: of today and tomorrow need to organisational culture should be Dbe adaptive to be able to lead in a complex a priority for all boards. take ownership and accountability for and dynamic environment and oversee conduct and culture and drive changes disruptive risks. Unethical behaviour, poor conduct, people These are risks that are often behaving badly – whatever you call it be proactive and prioritise the interconnected and generally have high there have been numerous cases recently, identification and remediation of issues speed impact and occur at scale. Geo- globally and in New Zealand, causing strengthen processes and controls political volatility, cyber, disruption to significant harm to employees, customers to prevent, detect and manage conduct business models and climate change, and investors. Corporate governance has and culture issues can all have significant economic, come under intense scrutiny and been operational, and/or reputation impact. found wanting. ensure employees know what good Adaptive governance is dependent on To show the breadth of cases, think conduct and culture looks like and boards getting the right information about the Volkswagen emissions scandal, that there are effective mechanisms for decision-making, and on balancing the Facebook/Cambridge Analytica data for employees to report issues compliance with strategy and scandal, the #MeToo movement exposing stewardship. widespread sexual harassment in the ensure incentive and remuneration workplace, and the exposure of a bullying policies and practices support good culture in the NZ Football Ferns. conduct. In the Australian Royal Commission into misconduct in the financial sector, Boards are ultimately accountable Commissioner Hayne found there were for what goes on in their organisations. financial motivations at the expense They have a core role in overseeing of basic standards of honesty and corporate culture, conduct risk and misconduct that fell below community setting high standards of ethical standards and expectations. Questions behaviour. It means thinking beyond were raised about core governance compliance, taking the lead, being issues such as remuneration, culture, committed and responsible and accountability and risk management. setting the tone and standards The recent report on bank culture for the organisation. and conduct by the Financial Markets Proactive engagement with the Authority and Reserve Bank of community and stakeholders helps New Zealand didn’t find widespread build (or rebuild) trust and business misconduct but did identify weaknesses legitimacy and licence to operate. >>

5 Dec/Jan 2019 BOARDROOM FEATURE

A good indicator of an effective culture 2. CLIMATE CHANGE However, in the 2018 Director Sentiment and systems that are working is when the Survey, although 66% of boards board hears about incidents, including bad Understand business risks relating considered environmental and social news. Decisive leadership in following up to climate change and how to adapt issues to be very important to their on incidents and potential risks is critical. to a low-emissions economy. organisation, only 29% said they were We have seen a steady increase engaged and proactive on climate through the Director Sentiment Survey The increasing occurrence of extreme change issues. (since 2016) in the number of boards weather events, monster storms, severe Directors have fiduciary obligations receiving comprehensive reporting from temperatures, floods and wildfires across in respect of climate-related risks management about ethical matters and the world are reminders of the impact including physical risks (eg to assets), conduct incidents. But in 2018 more than of climate change. economic transition risks and liability risks half of the boards still aren’t getting this The UN Intergovernmental Panel on if boards fail to mitigate, adapt or disclose. information. This poses a significant risk Climate Change’s (IPCC) 2018 report Legal action is already being taken against for those boards and their organisations. demands greater urgency and highlights companies and directors in the US, Europe Again, despite an increase, from 32% the disastrous effects of failing to limit and Australia. It is important that New in 2017 to 44% in 2018, in the number global warming to 1.5°C, rather than 2°C, Zealand directors and leaders prioritise of boards discussing whistleblowing and above pre-industrial levels. The next consideration of climate change risks how the organisation can make speak-up 15 to 20 years are critical. The world’s through mitigation and adaptation, and provisions effective, there is still a way infrastructure is predicted to double in pursue opportunities while transitioning to go in embedding this regularly into size over the next 15 years, and the world to a low-emissions economy. boardroom discussions. economy to double over the next 20 years. At the Global Climate Action Summit Pointers for 2019: Pointers for 2019: (September 2018) Lord Stern strengthened his 2006 position “that the costs of inaction Identify the material risks relating Set the tone – promote, inspire exceed the costs of action” and described to climate change that can impact and embody organisational values the transition to the zero-carbon economy your organisation. Run scenarios and expected behaviours. as the inclusive growth story of the 21st with management about how things century – with direct economic benefits. may change. Embed oversight of culture and The Productivity Commission’s integrate into discussions on Low-emissions Economy report (August Think about the risks and opportunities performance, strategy and risk. 2018) recommended immediate action in how your business can adapt Probe how success is being to ensure an effective transition, in relation to a low-emissions economy. achieved and challenge assumptions. to stronger emissions pricing, establishing Focus on meaningful reporting and Ensure the board is getting stable laws and institutions and increasing disclosures (eg what’s material and comprehensive and timely reporting investment in innovation. Following impactful) for stakeholders, including consultation on policy development earlier (good and bad news) from investors, consumers and regulators. >> management (and other sources), this year, the introduction of a Zero Carbon with good measures covering Bill is imminent. We can also expect the organisational culture, conduct risks establishment of an independent Climate and incidences. Use internal audit and Change Commission and a revamp of the board-only time to support robust Emissions Trading Scheme. scrutiny. Businesses have already taken a lead with the launch of the Climate Leaders Coalition to drive the reduction of emissions and help lead New Zealand’s transition to a low-emissions economy. Seventy CEOs have joined the coalition, representing around 50% of New Zealand’s emissions.

6 Dec/Jan 2019 BOARDROOM FEATURE

3. FUTURE OF WORK The challenge for boards is ensuring The Act requires organisations to manage that management is looking ahead, risks to workers and that includes risks Labour shortages, changing ways of keeping an eye on how to maximise the to their health – including mental health. working and the impact of technology potential of changing ways of working According to WorkSafe NZ, 600 – 900 require adaptive talent strategies. and the impact of technology, while people die from work-related diseases looking after their workers through every year, and 30,000 people suffer from Labour quality and capability has again the change, and assessing the potential work-related health conditions. rated as the top risk for businesses, risks that disruption will bring to A 2017 Wellness in the Workplace and a major impediment to economic organisational culture. Survey by Southern Cross and Business performance, in the Director Sentiment NZ showed wellness had a sizeable Survey. Boards need to ensure that Questions for directors to consider impact on the productivity of most management have appropriate talent as we enter the New Year: enterprises, including the loss in 2016 strategies in place to ensure they have of 6.6 million working days and $1.5 billion the capability to deliver their organisation’s What type of work will our due to absence. future strategy in a tight labour market, organisation’s employees be doing? Risks to physical and mental health but also that they are thinking about the and worker wellbeing come in a range of potential opportunity that automation What kind of workforce do we need forms, from dangerous substances such can offer to combat labour shortages to successfully do this work? as asbestos to workplace cultures and and productivity challenges. Can automation of some tasks help behaviours that cause harm, eg sexual Often called the Fourth Industrial us remedy some of our productivity harassment or bullying. Three high- Revolution, our times are characterised and labour shortage challenges? profile cases in New Zealand this year by a pace of change that is faster with independent reviews (into Russell than ever, and it will only get faster. What type of environment and culture McVeagh, the Human Rights Commission The board’s role in scanning the horizon does our organisation need to thrive and the NZ Football Ferns) all found for potential opportunities and risks has in a digital and disruptive world? governance failings. never been more important. One change Our nation has deplorable suicide that will impact almost all businesses Pointers for 2019: statistics: 606 New Zealanders took is the changing world of work. their lives in 2016/17. The Mental Health The “future of work” includes Think about work (eg tasks subject Commissioner reported in 2018 that one consideration of the impact of technology, to automation), workers (changing in five New Zealanders lives with mental demographics and other factors on work, skills and expectations) and the illness and/or addiction. workers and the workplace. Whole jobs workplace (locations and work The 2018 Director Sentiment Survey are disappearing and jobs are being anywhere) to help develop your results show that during the past 12 months reshaped, which is also leading to real strategic approach to investment 63% of boards had discussed workplace concerns about increased income and future needs. mental health issues. inequity and poverty. This year we’ve seen the launch of a Understand organisational and Government Mental Health and Addiction Key areas of focus in the Government’s worker needs, and how adaptive Inquiry and the release of a Mental Health Future of Work forum (August 2018) were: workplace practices can enhance Guide for New Zealand Leaders, which aims employee engagement, organisational to help organisational leaders enhance and “just transitions” in industries performance and productivity. protect mental health in the workplace. undergoing structural shifts Lead and monitor organisational It’s not just about doing the right thing so that everyone goes home safe and introducing a lifelong learning culture to retain, retrain and grow employee talent. healthy from work every day. Poor mental approach to allow for swift training health causes significant human and understanding what new technology economic costs, eg increased absenteeism, will do to work practices 4. MENTAL HEALTH AND sick leave, injuries and workplace conflict. WELLBEING IN THE WORKPLACE Improved workplace wellbeing also leads lifting labour productivity. to improvements in productivity, financial Protecting and supporting the mental performance, risk management, employee Boards need to think about their own health and wellbeing of workers is not retention and recruitment. >> organisations. They need strategies just the legal and right thing to do, it to excel in these changing times, including also has positive impacts on business assessing their organisation’s stance performance and productivity. on talent matters including retraining/ upskilling workers, replacing workers’ Nearly three years since the Health and tasks with technology alternatives Safety at Work Act 2015 came into effect, (eg automation and algorithms) and there is an increasing focus on mental future capital expenditure as the gig health and wellbeing in the workplace. economy continues to grow.

7 Dec/Jan 2019 BOARDROOM FEATURE

FMA/RBNZ recommendations on culture and conduct

Take ownership and accountability for conduct and culture and drive changes. Be proactive and prioritise the identification and remediation of issues. Strengthen processes and controls to prevent, detect and manage conduct and culture issues. Ensure employees know what good conduct and culture looks like and that there are effective mechanisms for employees to report issues. Ensure incentive and remuneration policies and practices support good conduct.

Pointers for 2019: The 2018 Director Sentiment Survey For example, a current proposal by the also shows regulatory red tape as a Tax Working Group to introduce personal Lead awareness and understanding key concern (after labour capability) liability for company PAYE and GST debts of mental health in the workplace. of respondents in relation to both the is particularly concerning as it is likely to Reduce the stigma by normalising economy and business performance drive additional (internal) compliance and conversations about mental health. and an increased concern since 2017. may also deter experienced directors. Sixteen percent of directors (compared Disclosure and reporting requirements Ensure management report on to 11% in 2017) citied regulatory red for financial and non-financial information mental health and wellbeing, and tape as the biggest risk facing their are evolving (and increasing) to meet that there are measures in place organisation. In addition 41% (up from stakeholder and investor expectations. to track organisational culture 30% in 2017) rated it as one of the Telling a performance story, including (including risks, incidences and biggest impediments to national in relation to governance, social and progress). economic performance. environmental impacts and risk, Foster more resilient workplaces Organisations have mandatory is important to accountability and building where mental health and wellbeing compliance activities that have to be trust and confidence. But reporting are a priority. fulfilled. There are also other compliance needs to have a purpose and be activities that, although not legally meaningful to the organisation, and tick- required, are important. The challenge box compliance can add little value. 5. COMPLIANCE THAT MATTERS is to manage time and effort on compliance to ensure it adds value and is not Pointers for 2019: Beware of compliance overload and undertaken for the sake of it. For example, ensure sufficient time and focus on the 2017 NZX Corporate Governance Assess the time spent on compliance strategic and performance issues. Code requires disclosures on a “comply compared to performance and strategy or explain” basis. The value of compliance and rebalance if needed. Each year since the Director Sentiment is in providing meaningful disclosures to Survey began in 2014, between 70% and inform investors and other stakeholders. Ensure the board is getting the right 80% of directors have said that they had If you can’t comply then explain why. information from management for spent more time on compliance-related It’s the “why” that matters rather than effective decision making. Assess activities in the previous 12 months than ticking the box for the sake of it. board papers as a whole, eg to in the preceding year. Directors have a wide range of legal, ensure information is timely, accurate, The Directors’ Fees Report 2018 found ethical and commercial duties. And there complete and includes forward looking a significant increase in time spent by can be significant penalties for breaches projections as well as trend data. directors on board matters, up from or failures. The Directors’ Fees Report Check insurance policies and 106 hours a year in 2017 to 127 hours in 2018 found that only 76% of organisations indemnities provide adequate cover 2018. This is up from 88 hours in 2014. provided directors with liability insurance. for potential liabilities. There have been increases in legislative Additions to that liability burden can and regulatory requirements, eg the Health have unintended consequences, such and Safety at Work Act 2015, and directors as deterring experienced and skilled also need to keep on top of complex risks directors from putting themselves such as cybersecurity and climate change. forward to serve.

8 Dec/Jan 2019 BOARDROOM FEATURE

Director Sentiment Survey Help wanted

Directors see labour force quality LABOUR CAPABILITY and capability as the top risk factor facing businesses in 2019, and the Concerns about workforce skills and tight labour market as the biggest capability featured strongly with 28% impediment to the economy. of directors identifying it as the biggest risk facing their organisation, nearly It’s all about the quality of your double the number identifying the second team in 2019, according to our fifth most prevalent risk (red tape, 16%). Director Sentiment Survey. This is the fifth consecutive year that labour force quality and capability has been 28% roduced in association with rated by directors as top of the worries list. the ASB, the Survey is an annual review of strategic concerns in the boardroom. We would ECONOMIC PERFORMANCE Plike to thank the 936 IoD members who responded this year, our highest level It is also seen as a problem for the economy of engagement to date. in general, with 61% identifying the tight labour market as among the top three impediments to economic success. This contributes to a gloomy view of New Zealand’s immediate economic prospects. Just 17% of directors are optimistic about New Zealand’s economic 17% performance over the next 12 months, the lowest percentage in the five years we have run the Survey.

9 Dec/Jan 2019 BOARDROOM FEATURE

There should BUSINESS CONFIDENCE be nothing but This view is mirrored when directors are asked if they expect the economy admiration for to decline next year, with a Survey record 43% answering “yes”. people who commit By contrast, directors were relatively to reskilling. upbeat when it came to their own organisations, with more than half of Frances Valentine CNZM reminds us directors (52%) expecting performance that the labour skills shortage affects to improve. This result is consistent with staff as well as organisations in “Are 52% you a Samurai or a ninja”, BoardRoom the pattern in other business surveys Oct/Nov 2018 and may reflect the fact that directors generally feel they have a better understanding and control over the drivers of their own organisation’s performance.

FUTURE OF WORK

The Survey showed that boards recognise the key role they play in strategic talent management (and mitigating the risks inherent in a tight labour market). Over the past 12 months, 66% of directors said ? their boards had discussed the impact of technology, automation and/or artificial intelligence on their organisation and its workforce. This included identification of skills that would be needed in the future. 66%

I personally believe ETHICS RISK

that in every More generally, ethics remained a focus business, including with directors recognising that the board plays a core role in overseeing and setting 8

the ones I work for, the tone for organisational values, standards 1 01 7 0 2 and culture. The Survey found that a larger ! 2 there will be slavery. number of boards are assessing ethics risks Rob Fyfe calls on directors to take an in their organisations with 55% (compared ethical approach to their supply chains to 44% in 2017) of directors responding that in “Blind spots in the supply chain”, BoardRoom Jun/Jul 2018 their board has assessed ethics risks in the past 12 months. 55%

WHISTLEBLOWING

With the rise of the #MeToo movement and significant media focus on sexual harassment in the workplace globally, boards need to 7 be thinking about these and other forms 8 1 1 0 0 2

of conduct risk. Thirty-nine per cent of 2 directors said their boards had discussed sexual harassment within the past 12 months. Just under half (44%) of directors responded that their board has discussed whistleblowing and how they make speak-up provisions more 44% effective. >>

10 Dec/Jan 2019 BOARDROOM FEATURE

BOARD CAPABILITY Since the Survey was launched in 2014, we have tracked board capability in key areas – health and safety, business complexity and risk, and digital capability.

Trends

HEALTH AND SAFETY CAPABILITY Right capabilities to meet The proportion of boards that consider they have heath and safety obligations the capability to comply with obligations under the Health and Safety at Work Act 2015 improved 90% year-on-year between 2014* and 2017. However 70% in 2018 we saw a slight drop. It’s important all 50% boards maintain vigilance on health and safety. 30% *In 2014 we asked a slightly different question before the Act came into effect. 10% 2014 2015 2016 2017 2018

BUSINESS COMPLEXITY AND RISK CAPABILITY Right capabilities to deal with increasing business complexity and risk Over the past four years the proportion of directors who consider that their board has 80% the right capabilities to deal with increased business complexity and risk has hovered 60% between 50–57%. 40%

20% 2015 2016 2017 2018

DIGITAL CAPABILITY Right capability for digital future The number of boards that consider they have the right capability to lead their digital future has remained consistently low over 80% the past three years, hovering between 30–35%. It’s critical that boards consider 60% the digital leadership needs of their business. >> 40%

20% 2016 2017 2018

11 Dec/Jan 2019 BOARDROOM FEATURE

REPORTING TO BOARDS We have also tracked trends in two key areas of reporting to boards – cyber risk and conduct. It is important that boards get the right information in order to manage risks and make sound strategic decisions in these areas.

DATA BREACH REPORTING Data breach risks and incident reporting Despite an increased focus on the importance of data governance and data breach reporting globally, less than half of directors (47%) were sure 50% that their board received comprehensive reporting 40% from management about data risks and incidents. This is a marginal increase from 45% in 2017. 30%

20% 2017 2018

ETHICAL CONDUCT REPORTING Ethical conduct reporting We have seen a steady year-on-year increase in the number of boards who are receiving 80% comprehensive reporting from management about ethical matters and conduct incidents, from 37% 60% in 2016 to 46% in 2018. However, more than half of the boards surveyed have yet to put in place 40% comprehensive reporting processes in this area. 20% 2016 2017 2018 You can find the full Director Sentiment Survey 2018 at iod.org.nz

It is important that the board isn’t committed to a particular technology and that no one on the board feels like they are the ‘expert’ in tech.

Melissa Clark-Reynolds stresses that boards need to be open minded about the impact of technology on their organisation in “Customers before technology”, BoardRoom Dec/Jan 2018

12 Dec/Jan 2019 BOARDROOM FEATURE

ASB BUSINESS CONFIDENCE Weak business confidence: should we worry? Low business confidence is being driven largely by political uncertainty rather than economic fundamentals.

AUTHOR NICK TUFFLEY, ASB CHIEF ECONOMIST

Business confidence began softening nly recently has it started to Meanwhile, they are less sure of being as last year’s election battle heated show signs of bottoming out – able to pass on these costs, and up, and fell sharply once the new at a level that usually coincides increasingly anticipate that their profit government was formed. Although with weak economic growth. margins will come under pressure. confidence began to recover in OHaving reached a level of focus Increased global tensions will be early 2018, it soon resumed its that elephants in rooms are now being on businesses’ radar at present. downward path. dwarfed, there are three key questions All of the above are reasons for to ask. Why is business confidence caution. Businesses tend to be relatively so weak? Does it matter? And, what less upbeat under Labour governments can be done about it? about the general economic outlook. More importantly, businesses also tend WHY SO WEAK? to be a bit more circumspect about their own businesses’ trading prospects Broadly speaking, business confidence (which more closely correlate with will be influenced by factors that economic growth). businesses perceive are affecting, It can be easy to put these survey or will affect, their performance. responses down simply to perceptions Domestic demand growth has of preferred political colour. But, to slowed relative to a couple of years ago. paraphrase the Labour Party, there Businesses are increasingly reporting that is a reason why the party is called costs are rising, such as for fuel or wages. what it is. >>

13 Dec/Jan 2019 BOARDROOM FEATURE

Businesses can reasonably expect to see a policy tilt in favour of labour relative to capital wherever there is perceived tension between these two economic foundations. And that in turn may influence businesses’ views of their trading environment. Nevertheless, it is clear from various business surveys that the change of government is genuinely influencing business perceptions, particularly through uncertainty about future government policy. Numerous working groups are still developing policy recommendations, including in key areas such as industrial relations and tax. Consistency and quality Source: Newstalk ZB of decisions also matters. The ending of further permit issuance for offshore oil SO, DOES WEAK CONFIDENCE From the government’s part, providing and gas exploration highlighted the risk MATTER? as much policy clarity as is feasible as of game-changing policies being soon as possible will help to reduce the introduced with little analysis or Businesses make key long-term decisions, real and perceived uncertainties. Ensuring consultation to guide policy making. such as employment or capital investment, key policy decisions are made after The Mood of the Boardroom recently based off the business environment that reasonable consideration of the overall put “general uncertainty about the impact they expect to face. That environment will economic and business impacts will and direction of current government always carry uncertainty from more usual give greater public confidence in those policies” at the top of business executives’ sources. This year the post-election fog decisions. Let’s also give the government list of concerns. Regulation and of yet-to-be defined policy changes makes some credit for seeking input into a employment changes also made the the future that much harder to discern. number of key policy developments from top five. Usually economic growth does slow a wide range of interest groups, even if The NZ Institute of Economic when businesses’ expectations for their that has come at the cost of a lengthier Research’s Quarterly Survey of own performance and their employment process. Business Opinion, taken over September, and investment intentions are low for a From businesses’ part, it’s important specifically asked business respondents sustained period of time. And that is why to keep in perspective that governments what they saw “as the key issues affecting the sentiment surveys are ringing alarm come and go, and policies tack slightly the general business situation in New bells, as they flag the risk that economic along the voyage. Usually, it is the Zealand over the next six months”. growth does indeed get held back by broader domestic and global economic Again, government policy came out cautious decision making. environment that most heavily influences as the top issue. But, as yet, there are few signs in the business performance – unless you are hard data that growth is slowing from the trying to run a business in Venezuela. moderate pace in place since the middle New Zealand businesses have proved ...sentiment surveys of 2017. Imports of capital equipment themselves to be incredibly adaptable are holding up to date, as is credit growth to a range of seismic shifts in the are ringing alarm bells, to businesses. Reported employment landscape. Keeping a laser-like focus as they flag the risk growth in the September quarter was on what can be controlled is always very strong, although the Quarterly important, and particularly so while that economic growth Survey is notorious for volatility. the government keeps working to clear the policy uncertainty clouds. does indeed get held TRAVERSING FROM MT DOOM back by cautious TO ECONOMIC EVEREST decision making. So how should New Zealand collectively respond to that part of weak confidence that appears to be influenced by the uncertainties from the transition to a new government? Really, it is incumbent on us all.

14 Dec/Jan 2019 BOARDROOM Runs on the board

Since 2016, the number of women in governance positions across cricket’s major association has quintupled as part of a major push to make the game more inclusive.

AUTHOR AARON WATSON

Dec/Jan 2019 FEATURE

n 2016, cricket had girl trouble. The Women and Cricket report made a WHAT GOVERNANCE DIVERSITY The proportion of women playing, series of recommendations on governance LOOKS LIKE umpiring and leading in the sport and leadership within the cricket family was in decline and the statistics (see The governance and leadership “It has brought different conversations Iuncovered in the Women and Cricket recommendations sidebar). These to the board tables,” Dawson says. “I was report were sobering: included significantly increasing the sitting on a board appointments panel proportion of female players in cricket for central districts cricket last week Only 10% of those participating governance – and quickly. [October] one of the questions we asked in cricket were female. “It was clear around the boards the applicants and the nominees for those in New Zealand cricket, the major various positions [was] ‘what do you A 40% decline in secondary schools associations and district associations, think having females on those boards has girls’ participating in cricket over that there were very few women involved brought?’ Without a doubt every person the past decade. in leadership,” says Dawson. who was interviewed talked about the 90% of clubs don’t have a girls- So Cricket NZ embarked on its Women difference it has made to conversations only team. and Governance Project, a slightly different and business as usual, to thinking much proposition to other diversity projects. more broadly than just about the men’s Fewer than 10% of coaches While keen to increase the number of team, or men’s cricket. were female. women in governance, NZ Cricket was not “Probably the greatest learning for me simply seeking a better balance – it was was that it has brought true diversity. It was not what the game’s administrators trying to fix a clear problem. [In looking at those women] we have had hoped for when the New Zealand “Women and Governance is a two-year doctors, lawyers, coroners, women with Women’s Cricket Council and New project that comes to its phase one fruition sub-continent Asian ethnicity, Māori Zealand Cricket amalgamated in 1992 – around our AGM this year in November. women, Pasifika women, women with a unification considered a trailblazing That project has goals in terms of the South-East Asian ethnicity, religious model for the world at the time. So the number of women on boards. For major diversity …so it has actually brought Cricket NZ board set out to uncover what associations we aimed to have at least two diversity other than gender diversity.” had gone wrong and how to fix it. women on boards. For district associations The ultimate aim is to ensure that the “The report was an eye opener,” says to have at least two women on their boards women’s game gets the attention at board board member Liz Dawson. “It was pretty as well,” Dawson notes. level that it needs to thrive, Dawson says. obvious that things were not looking good. While the effects of the project are Alongside the governance push, NZ Cricket We knew that the participation of females still to be fully felt, Dawson says the initial has created a full-time position for a female in our game was not as strong as it had results are encouraging. As of July 2018 engagement manager, who will create been in previous years and we wanted the NZ Cricket board moved from 11% strategies for improving engagement at to investigate why.” to 44% women, major associations have the grassroots and community levels, right moved from 4% to 28%, and district through to the national pathways. “That’s associations from 7% to 14%. the longer-term play.” ...Māori women, As of October, the number of women But, like many cultural changes, the lead in cricket governance positions has has to come from the top. And Dawson says Pasifika women, quintupled. the earlier evidence is that having more women with South- “We went from ten women on any women in governance will pay dividends in of those boards, we have now got 50. terms of women’s engagement at all levels. East Asian ethnicity, I am really pleased with that,” Dawson says. “In getting more women on boards, we have seen a greater focus on ensuring religious diversity… women and girls have equal opportunity so it has actually to be involved in the game.” >> brought diversity other than gender diversity.

16 Dec/Jan 2019 BOARDROOM FEATURE

CHALLENGES TONE FROM THE TOP THE GOVERNANCE AND LEADERSHIP Effecting change in the make-up “The NZ Cricket board is walking the talk,” RECOMMENDATIONS of boards throughout New Zealand says Dawson. “We have three women on presented particular challenges to NZ our board, plus a female president. We have A Significantly and quickly increase Cricket. Some boards had to change senior leaders who are female. We are very the proportion of females in their constitutions to allow for board much leading and showing the way that cricket governance. appointments rather than finding in creating diversity and creating inclusion members through elections at district on boards leads to better outcomes and B Ensure all national and regional association and club level. “That required better culture.” cricket associations have either a special general meeting or to “You can’t do this without the full leadership role(s) accountable go through the AGM cycle,” Dawson says. board being behind it. You can’t do this for driving improved cricket NZ Cricket has in part encouraged this without the management team being outcomes for females. through financial incentives. “We are in behind it, understanding it and advocating C Positively influence the media a position where we can use levers such it as well.” awareness and portrayal of as, if you meet targets there are funding She has special praise for Sir Richard females’ success and legacy levers that can be pulled. Bonuses for Hadlee who was “a true advocate of in cricket. meeting targets.” diversity” when he was on the board. Many boards have had to reconsider She also offers thanks to CEO David D Gradually increase female the way in which they engage with the White and her fellow board members – presence in coaching and people in their area, Dawson says. particularly Geoff Barclay, Martin Sneddon umpiring positions. “It’s been a change in thinking: actually, and Geoff Allott. “Of those five men, four we have a very successful men’s team and are former cricketers who have represented E Target the engagement or re- men’s pathway. What else do we need?” New Zealand. They understand how engagement of females who know Having more women on those boards is important this is.” and love cricket in ways that fit one route to making sure women’s cricket And while it is still too early to say their life stage and availability. is considered, she says. “How do you think what the long-term effect of the push about your women’s pathway if you don’t will be, Dawson believes NZ Cricket has Source: Women and Cricket, 2016. have that voice around the board table?” already learned lessons that could be But the new female directors have not of benefit to other sports codes seeking been left to fend for themselves. Dawson to improve female representation says there is much governance research at a governance level. that shows one woman can be reduced “We are encouraged to talk about it to a ‘“lone voice” in the boardroom, where because we have some runs on the board. two to three women can make change. We have shown that the work works… So goal targets that we set were to have But we have only just scratched the surface a minimum of two women on the board. and there is a long way to go if we are going NZ Cricket has also put in place support to be true to our vision. for these new directors, to ensure they “I think there are other codes in can deliver effectively in their roles. New Zealand that look at NZ Cricket and “We actually have a network for those wonder how it is being done in such a short women. We have an annual forum. period of time? My strong advice is that We have been encouraging the IoD to get it is hard work, you have to change minds, involved and assist. We have membership but the results are without doubt so of DiversityWorks training,” Dawson notes. much better for the organisation and 01 so much better for the sport.”

01: Liz Dawson 02: The NZ Cricket Board, Back row from left: Martin Snedden, Diana Puketapu, Geoff Allott, Ingrid Cronin-Knight Front row from right: Don Mackinnon, 02 Liz Dawson, Greg Barclay, Neil Craig

17 Dec/Jan 2019 BOARDROOM Sustainability. It’s good for business.

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Congratulations to all the 2018 NZI Sustainable Business Network Award winners.

To learn more visit sustainable.org.nz FEATURE

From old boys club to professional body 01

When Geoffrey Bowes took up the presiding over the establishment and FROM KHAKI TO PINSTRIPES reins at the Institute of Directors growth of New Zealand’s preeminent in New Zealand his first task was governance network. Bowes is an ex-military man. He retired to find somebody to pay his salary. In those days the IoD was more a as Lieutenant Colonel in 1979 having network of like minds than a professional served in Borneo and Vietnam in the SAS, AUTHOR body, he recalls. “That’s a thing you should commanding Queen Alexandra’s armoured AARON WATSON know. You couldn’t apply to join, you were cavalry, and in the RNZAF. Working as asked to join,” Bowes says with a twinkle a consultant in the early 1980s, he came It was an unusual start,” says in his eye that betrays the humour that into contact with the Wellington branch Geoffrey Bowes dryly, “to what is a feature of his conversation. of the IoD and became its secretary. “became, in my opinion, a very happy “You had to be white, male accountant Now 80, he has an insider’s view of the relationship which I enjoyed very much.” or lawyer and a member of the Northern growth and development of governance Now in his eighties himself, Bowes Club or Wellington Club. We had about as a discipline in New Zealand during a says the 1980s were different times for 150 members – 50 were dead – a turnover tumultuous period. This included the 1987 the IoD, when the organisation was largely of $45,000 and not much else. We started crash, the introduction of the codification run by volunteers and relied on the off and I ran it all from my house.” of directors’ responsibilities in the generosity of its members – both in terms Today the IoD has 8,686 members Companies Act 1993 and growing public of time and money – in order to function. from many professional backgrounds. interest in boards and their activities. It worked out for Bowes. Then Just under 30% of the members are He helmed the IoD in New Zealand Wellington Branch (and later national) female. Programmes are in place to from 1984 to 1997, during which time President Denis Griffin agreed to promote diversity and provide mentoring. membership grew from the hundreds underwrite his pay. So Bowes became It posted a $1.25m surplus in 2017 on to the thousands. And Bowes gained the IoD’s first executive director – turnover of $13.4m. experience at the coalface, sitting on later retitled chief executive – and a number of commercial and not-for stayed in the role for 13 years, profit boards. >>

19 Dec/Jan 2019 BOARDROOM FEATURE

By the time he moved on from the IoD, governance had become his second career. Bowes stayed in the game, spending nine years as chief executive of the Commonwealth Association for Corporate Governance (CACG), developing director talent in 35 commonwealth countries. In 2003, the CACG received the International Corporate Governance Network Award for outstanding work in global corporate governance, which sits quietly on Bowes’ curriculum vitae alongside his MNZM and DistFIntsD.

LONDON CALLING

In its early years, the IoD in New Zealand operated as a branch of the IoD in the 02 UK. “They paid a levy to the UK. In return they had full rights and access to the His plan for a short visit was shelved IoD UK’s premises, and they received at the recommendation of the British, a very flash looking magazine called who had a culture of not rushing business The Director,” he recalls. matters. “They didn’t start until 10am That changed in 1989 when the and then you went to lunch and that IoD NZ became an incorporated society was it,” Bowes laughs. But he is quick (with a membership of 500). “Peter to stress that the support and expertise Clapshaw, the then president, was offered by the IoD in the UK was key instrumental in that. He and I drew up to the successful establishment of the the constitution – and I had the job of IoD in NZ. telling the Brits that we were a self-entity. Plus they were fun to visit. “I went I managed to arrange for the airfare to to a conference and it was top notch, be given to us by British Airways and off absolutely top notch. It was run in the I went – with them thinking I was going Royal Albert Hall, I think. They would start to be bringing over a big fat cheque…” at 10.30am or 11am and they had boxes. The great unwashed sat down on the floor. 03 I found it very convivial. They had a box 01: IoD President John Storey, Geoffrey Bowes lunch – I had never seen it before – and and Warren Young discuss developments I had to leave at two or I wouldn’t have (1996) 02: The Wellington Club been able to see much longer.” Cue the Source: Wellington Recollect Bowes chuckle. 03: Geoffrey Bowes Such international relationships helped form his view of what a FROM DIRECTORS TO professional body for directors could GOVERNANCE be and how it could provide value to The CDC has its members. The commonwealth bodies “What we could do” was to shift the focus he visited were all finding ways to provide of activity from old boys to the concept become, if you like, professional support. of professional governance, he says. But the flagship of the “I learned a lot from the UK and was that took time. In the early 1980s, the main lucky enough to go every two years. member activity was to “pontificate on organisation. It was I looked at the IoD in South Africa, things”. Zimbabwe (before the monster), Canada, “I think what then appealed was the the first such course and Australia. I had a potpourri to draw meeting as a group. So the branches were in the world. on as to what we could do in NZ.” pretty important to us. There was nothing really done on a national basis. Auckland was very established and it had all the doyens,” he smiles. “You could just about walk into the Northern Club and see all the members.” >>

20 Dec/Jan 2019 BOARDROOM FEATURE

As the branches grew so did the The ‘“pivotal point” was the development People who join the IoD because they membership – from 500 in 1989 to of the company directors’ course (CDC) think it will get them a directorship are 1,500 by 1993 to 2,000 in 1997. “In those in 1991, he says. It had become apparent misguided, he says. It’s not a job centre. days they were talking about directing. that one of the two Australian directors’ As a professional body, it should be there [Former IoD President] Peter Grayburn institutes (“they fought with each other to assist members in their fiduciary duties. said to me just recently that I was the all the time”) was planning to run a course And he has a clear view of what those first person to mention corporate for New Zealand directors at Waikato duties are. governance to him, he didn’t even University. Bowes and co. decided to “Directors are fiduciaries. They are know what I was talking about.” get in first. guardians of the investors’ money. They What he was talking about was “Denis Griffin and I went to Dryden are not managers. It occurs to me that establishing governance as a profession Spring who was Chairman of the Dairy some of the big consulting companies are in New Zealand, with the IoD at its heart. Board at the time and Dryden asked, managing to put a lot more duties in for Over time the IoD introduced company ‘what do you need?’ We said $20,000 directors which, of course, they become chairmans’ retreats, CFO retreats, to set it up. He said he would also the consultants for. CIO retreats – “a lot of those sorts of guarantee 50% of the students – in those “Directors are there – really – to things that we ran ad hoc”. BoardRoom days there were 18 dairy companies as oversee the operation of the management. magazine began as a monthly newsletter. the amalgamations hadn’t really started. To ensure that the finances are right. “I’m delighted to see what it has grown Without Dryden’s guarantee we would To set the strategy. To ensure that the into now.” And he identifies the board have been sucking the back end of a … legal requirements are being met. And if appointments service, which helps boards “The CDC has become, if you like, necessary sacking and then appointing find good directors, as another key step. the flagship of the organisation. It was a chief executive officer. That’s about it. “That took a long time to get underway the first such course in the world.” Risk control is part of the management and we were really indebted to the people function and so are a lot of other things. who did the work, who did the interviews. CONTEMPORARY VIEW If we are going to have directors coming We ran it with non-executive directors. down to managing then we have got it Charles Speight who was the chairman Now retired, Bowes has an ongoing all wrong.” of National Mutual did a lot of work for it. passion for governance and, when In Auckland Sir Lawrence Stevens was prompted for his perspective, on the committee. The key for us was to is comfortable speaking his mind. have people who were well known doing He sits up a little straighter before the selection.” putting his view strongly.

Our Company Directors Course (CDC) was the first such course in the world. Pictured: participants in the Auckland CDC, 20 November, 2017. Back row: Richard Fraser, Murray Robertson, Alwyn Corban, John Hannan, Kevin Palmer, Simon Bilton Middle row: Matt Bond, Chris White, Howard Long, Rob Heebink, Brenda van Zyl, Kelvin Watson, Tania Armstrong, Gary Leslie, Jim Stuart-Black Front row: Mark Sadd, Dave Stanley, Craig Candy, Trish Bolger, Kirsten Ralph, Allan Tribble, Margaret Gibbs, Stephen Hunt, Kevin Murphy

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Building a better board

Gaining a government contract to provide drug and alcohol rehabilitation services for severely compromised addicts was one of the catalysts for the Nova Trust board to re-evaluate its governance practices.

the necessary skill set and capabilities to use the IoD as the services they around the board table,” says Nova Trust provided were completely independent, director Stu Myles. wholly professional and would be able “It was important that we took the to give a view that wasn’t coloured in time to identify any gaps that we had, any measure by any particular board and that individuals on the board had an member.” independent appraisal of their own skill The decision was made to undertake set that also identified areas that perhaps a BetterBoards evaluation process they might need to work on in terms of through the IoD, with both individual upskilling.” board member assessments and a whole- Nova Trust hired a new CEO, Steve of-board report. Rossell, from the UK last year. “Again, that There was a mixture of apprehension was a recognition that the business was and excitement from the board before the changing and that there was a need to evaluation. “But the apprehension was have some really strong leadership in the more because going into it we didn’t really organisation,” Myles says. know what it entailed. In some ways the Once the CEO position was filled, process was confronting because you not Stu Myles, Nova Trust Director the board started looking at its own only have to assess yourself, but you’re needs. “We had some gaps in terms of also assessed by your peers,” Myles says. he Substance Addiction numbers so we started talking about what “The reports were confidential to (Compulsory Assessment and we needed in the board to fill those gaps, each individual in terms of their own Treatment) Act 2017, which both in terms of numbers and capabilities. assessments, except for the chair, whose came into force earlier this year, That was the start of the conversation.” report was made available to all of us. Tenables the compulsory assessment and “We decided we should be looking The whole-of-board report was also treatment of severe drug and alcohol at the board as a whole. Given the circulated to all of us.” addicts, including the ability to detain nature of our new relationships due to Once the reports were completed, them for treatment for up to eight weeks. the new legislation, we would be under the board opted to have an independently Nova Trust’s Christchurch facility is much greater scrutiny, not only from the facilitated session to look at the results the only provider in the country mandated Ministry but anybody we’re associated of the whole-of-board report and talk by the Ministry of Health to treat these with. If we were going to be involved in through how to take the results forward. addicts. Before the new legislation, Nova public funding or government funding “All the way through this process it Trust had predominantly worked with local then we needed to ensure we were up was about rebuilding and refocusing the health boards. Now it also works directly to the task at a governance level.” Nova board and what we do,” Myles says. with the Ministry of Health. Once it was decided that a board-wide There has been a subsequent refresh “We were conscious we needed to review was needed, conversation turned on the board – although Myles says ensure that, not only were we meeting our to whether to get an external consultant that’s not necessarily a direct result of the obligations from a services perspective, or an organisation like the Institute evaluation. “Our chair has decided after from a governance perspective we had of Directors (IoD). “I was keen 15 years on the board to step off the board. >>

23 Dec/Jan 2019 BOARDROOM FEATURE

...we’ve got the I think other board members have “What we’ve said is that this is not a one- indicated where they are at in terms of off and then we park it. This is an ongoing platform now to their position on the board. I think it’s part of how we look at ourselves and how launch forward, been a refreshing thing for everybody. we look at the board. I guess you could “The beauty of that whole process say we’ve got the platform now to launch but we couldn’t have is that, as a board, we can now look at forward, but we couldn’t have done that that report and say ‘these are our skills without the BetterBoards programme done that without gaps around the table’. It makes us and without the self-analysis of directors. the BetterBoards a lot more informed in terms of what It was also about us being mature enough we then go out to market for in terms as an organisation and being able to programme and of additional trustees/directors.” acknowledge that we were in a time of Myles says insights gleaned from change, and needed to take those steps.” without the self- the evaluation and facilitation have also The board is committed to ongoing analysis of directors. led to better governance structures reviews. “Every couple of years we will and practices. “We thought our board come back and do a health check about meetings were well structured and that where we’re at relative to the report. we were covering off the necessary things We’ll probably do that in a facilitated when in fact we found out we had a long session, using the whole-of-board report way to go, that there were a number of and following on from our first facilitated key elements we were missing as a board session.” and the structure of our board meetings If you think your board might benefit wasn’t as good as we thought it was.” from an evaluation, and to find out more The Nova Trust board sees the about BetterBoards, contact the IoD’s evaluation and report as a starting Board Services team at boardservices@ point in its fresh focus on governance. iod.org.nz

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24 Dec/Jan 2019 BOARDROOM FEATURE

Boards must lead change

Governance of the banking sector must improve to protect customers and the banks themselves.

AUTHOR ROB EVERETT, CHIEF EXECUTIVE OF THE FINANCIAL MARKETS AUTHORITY

25 Dec/Jan 2019 BOARDROOM FEATURE

onduct risk should not be It seems that at least some of the a new concept to directors financial services industry have only of financial services in taken notice of these warnings and New Zealand. However, guides as a result of us knocking on Cthe results of the Financial Markets their door for a conduct review. Better Authority (FMA) and Reserve Bank of late than never. New Zealand (RBNZ) review into the The FMA and the RBNZ took the conduct and culture of New Zealand’s opportunity of the events unfolding banking industry suggests otherwise. in Australia to get the banks in New We found significant variability Zealand to demonstrate why and in the maturity on the governance, how they were different. We wanted oversight and effective management to test whether boards and senior of conduct risk in New Zealand banks. management at New Zealand banks The Australian experience (see “What’s had a solid basis for expressing happening in Australia” on page 28) confidence in their businesses. shows clearly that those weaknesses, While we are satisfied that no if left unchecked, will expose banks widespread issues of conduct and and their customers to serious risks culture currently exist in New Zealand’s in the future. banks, there are weaknesses in the The FMA issued its guide to good management and oversight of conduct conduct in February 2017, after an risk that need to be addressed Rob Everett extended consultation period. At the immediately. We have given all banks time some questioned our prerogative their own feedback on where they in putting forward expectations of need to improve individually. conduct that were outside our remit in law. However, these factors for urgent The events that have burnt the attention are common to all banks: reputation of financial services in Australia demonstrate the short Greater board ownership and sightedness of that approach to accountability – including being conduct and, most importantly, good able to properly measure and customer outcomes. report on conduct and culture Even before our conduct guide, risks and issues. in 2014 the FMA warned about complacency to conduct risk within Prioritising the identification of financial services. In a speech, I urged issues and accelerating remediation. the heads of the country’s biggest Prioritising investment in systems financial services companies to embed and frameworks to strengthen the interests of the customer and processes and controls. >> integrity into the heart and culture of their businesses.

26 Dec/Jan 2019 BOARDROOM FEATURE

Strengthening staff reporting channels, Questions boards need to raise to While the ASX corporate governance including whistleblower processes for ensure good customer outcomes. principles proposal to impose some sort conduct and culture issues. of “social licence to operate” obligation What information do we need? Measuring customer outcomes and on directors was controversial, it is easier strengthening procedures around the to argue that case for industries like What reporting tools do we reporting of complaints. financial services that are too systemically need senior managers to build? important to allow to fail. Removing all incentives linked to sales What oversight structures All boards need to shift their focus measures and revising sales-incentive need developing? to developing long-term sustainable structures for frontline salespeople businesses rather than maximising short- and through all layers of management. term profits. Stakeholder reputation and promoting strong customer outcomes will Our recommendations are very clear deliver long-term value to shareholders. FOUR POSITIVE ACTIONS in stating that accountability and Miss this and you will become irrelevant, ultimate responsibility for delivering or worse. these necessary changes rests in the I said recently that because of events boardrooms of the banks. around the world, especially across the Boards should be asking themselves Tasman, we are in the second stage of 01 what information they need, what a crisis of trust in financial services. Track and monitor reporting tools they need senior managers So the results of our conduct and culture trends to identify/ to build, and what oversight structures review have come at exactly the right prevent future issues need developing, to ensure that conduct time for New Zealand’s financial services risk and good customer outcomes are providers and their customers. hardwired into their firms. Building confidence and trust is Financial services providers, like banks, everything when it comes to financial and their relationships with customers markets and services. We expect are different to other industries. These banks and their boards to respond 02 firms have a unique responsibility for positively to our review. Change must Maintain social the financial wellbeing of their customers. be fundamental, especially in how licenses from all your They have to respect that some of the executives and staff are incentivised. stakeholders decisions being taken by their customers Directors and boards set the values are life changing, with the harm caused and culture of their organisations. by poor design, poor advice or poor They need to wire good conduct into communication often only appearing years their business models. A good customer- down the track. Therefore, the risks that centric culture is important but not boards have to be wary of, plan for and enough. The hard yards involve designing 03 build frameworks to manage are different. procedures and governance to provide Ensure stakeholder However, there are lessons here for solid foundations. Directors and senior reputation by directors and boards across all industries managers need to rethink how to focusing on long-term that shouldn’t be forgotten. Directors motivate staff to perform and what sustainability need to find out what is going on in good performance looks like. their businesses and develop reporting mechanisms to collect the right information. Lagging indicators have been 04 dominating directors’ reports where …accountability and Design governance boards should really be proactive and to motivate/set the demand information about leading ultimate responsibility tone for good staff indicators. Don’t just focus on what’s for delivering these performance already occurred. Instead, track and monitor trends that could identify and necessary changes prevent future issues occurring. Across the globe we are seeing rests in the boardrooms community expectations shifting of the banks. for financial services – and for many industries – and the increasing importance of maintaining your social licence to operate from all your stakeholders.

27 Dec/Jan 2019 BOARDROOM FEATURE What’s happening in Australia?

Stories of misconduct, greed and ruined The Commission said all of the IMPLICATIONS FOR DIRECTORS lives have played out in Australian media misconduct that was identified and in recent months, as banks and providers criticised in its report provided a financial The Australian Institute of Company of financial services have been forced benefit, either to individual employees Directors said the implications to front an inquiry into their conduct. or the organisation they worked for. for directors, particularly those in The Australian Royal Commission “If there are exceptions, they are the financial services sector, were into Misconduct in the Banking, immaterial. For individuals, the conduct “potentially wide-reaching”. Superannuation and Financial Services resulted in being paid more. For entities, Industry was established in December the conduct resulted in greater profit,” It says, at a minimum, the report 2017 in response to public and political the report states. will raise questions: pressure and unease about industry The Commission found that the practices. governance and risk management Are existing remuneration The Commission, headed up by Hon. practices of the entities did not prevent structures appropriate, particularly Kenneth Hayne AC QC, released an the conduct occurring. variable incentives, including for interim report in early October, which “The conduct that is at the heart senior executives? exposed significant issues within the of the Commission’s work is inextricably Australian banking and financial services connected with remuneration practices, What governance and risk sector. with deficiencies in governance and management practices are Misconduct outlined in the three- risk management and with the culture in place to prevent misconduct? volume, 1,000 page report included of the entities concerned.” How do we engage with the regulators, charging fees to dead people, charging The report notes that “much and is that appropriate? fees for no service and providing more often than not, the conduct inappropriate financial advice. now condemned was contrary to law”. How much visibility does the board Customers spoke at public hearings Given this, the report doesn’t have of misconduct and poor customer about poor advice that wiped out their suggest the need for greater regulation, outcomes? superannuation savings or left them but asks whether existing laws need unable to pay their mortgages. to be simplified and administered A final report is due by 1 February 2019. or enforced differently. Hayne said the Commission had asked two key questions:

Why had such poor conduct occurred? What could be done to stop it happening again?

In many cases, he said, greed was the cause. “Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty. How else is charging continuing advice to the dead to be explained?” He added that selling became the focus of banks and financial services entities. “Too often it became the sole focus of attention. Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.”

28 Dec/Jan 2019 BOARDROOM Lexus LC500 Review – Second date

irst dates can be a nightmare – The same thing went through my mind when not the date itself (that’s a different I picked up the LC500 for the second time. story), I’m talking more about the The initial ‘date’ in Queenstown, with its pressure that surrounds it. It doesn’t breath-taking scenery, the five-star hotel Fhelp that the date is shrouded in anticipation and the racy time around the Highlands (I assume from both sides) but if you are Motorsport Park of course made me starry the person organising it, trying to decide eyed, but I wanted to get to know far more on the correct venue, albeit restaurant, about the object of my desire, and Lexus park, function, what to wear, transportation happily let me take it away for the weekend. and so on, I’m sure you all know the score. I had been given the option of meeting However, bizarrely, very often the second either of the twins again (the V6 Hybrid or date receives far less focus when it comes the Naturally Aspirated V8), and don’t get to preparation, and I believe it shouldn’t. me wrong, I would have been happy to You see, assuming all went well with the spend my time with either, but call me old initial encounter (otherwise why are you fashioned, I gave my rose to the more vocal AUTHOR DAVE MCLEOD, TARMC.NET going through it again?) the second and of the two, the 5.0. subsequent dates are far more involved. I picked it up in Ponsonby (of course) The second date is where you should really and it was dressed to thrill in Garnet Red begin to get to know the person behind the and Ochre. Plenty of bright chrome bling initial facade, you should start to really listen and 21” forged alloy wheels. Possibly a little for the signs, both good and bad, and look too posh for the weekend I had planned but way beyond the initial attraction – as such very easy on the eye nonetheless. You see, it should warrant much more than popcorn rather than a weekend filled with opulent and a movie. hotels and places to be ‘seen’, I wanted to understand what made LC tick, and possibly introduce it to the family. >>

29 Dec/Jan 2019 BOARDROOM ADVERTORIAL

Enough of all that! The LC500’s design is a standout; it’s a grand tourer with head turning good looks. The two door coupe hails from the same Motomachi home where the LFA was born and, although the similarities are very apparent, the LC500 undoubtedly has its own unique style. Long aluminium bonnet with the Lexus spindle grille perfectly integrated. Angry/ squinty Bi-Beam LED headlights, with Lexus hook DRLs. The front nose ‘air curtains’ channel cooling wind in towards the wheels while the side, body coloured rocker moulding and flush door handles, keep the air flowing smoothly towards its staunch rear end where the tapering roofline comes down to meet it. The rear features multi reflective LED lights (that you can get lost in) and quad exhaust tips and a retracting boot lip spoiler complete This powerful (351kW/540Nm) beast It invites door-knocking from the the sporty look. In short, I challenge you is connected to a direct shift close ratio inquisitive and even the odd covetous to find an unattractive angle. 10-speed transmission via a real leather glare from the shy curtain twitchers. The interior is just as engaging. gear knob or paddles, the latter becoming From a practicality point of view, I initially didn’t like the ochre (kind of my preference. I refer back to the fact that the LC500 tan) colour scheme, but by the end of the Slip into first and you’re off. Despite is a GT. It has 2+2 seating and nearly 153L weekend it just seemed ideal. Leather the low stance, visibility is good and boot space, not tiny but not something and fine stitching (Takumi craftsmanship) the LC500 offers very little drama while you’d take to the hardware store. Its throughout. The seating is both navigating around city streets. The functionality was always going to be supportive and comfortable (well, for the steering weight seems varied, soft at a hard sell from the wife’s side (mind front two people anyway). Infotainment, low speed, increasing as you get faster you, I did see her smile a few times when including Mark Levinson audio and Sat and even in ‘normal’ the LC500 pulls I opened up the baffles) but my seven- Nav with SUNA, comes to you via a 10.3” away nicely with a lovely note from the year-old son hugged it like a long lost high res display screen, are all controlled exhaust system. friend. via an easy-to-use touchpad and it even Move out to the freeway and up Even though the rain and the big storm has an analogue clock as all high end to a cruising speed of 100kph, a speed that came along with it did everything vehicles should. in which the LC feels totally at ease. it could to dissuade me (hmmm, powerful Now onto the fun stuff (ok, more fun Something of note, there is very little front engine/rear wheel drive car in the stuff). Push button start and the 5.0L, V8, difference between the last few gears – wet), I ended up spending more time 32 valve quad-cam engine roars into life. call it overdrive if you like. You can literally with the LC500 over the weekend than Yes it’s borderline Neanderthal but the paddle up and down 7–10 with barely the family would have liked, and enjoyed sound still tingles the nerves, it ‘settles’ a noticeable change – I assume these every minute. I listened to it speak (the shortly thereafter but rest assured it isn’t gears are mainly for the long stretches LC500), danced in the rain, and really got long before you invite it back to rear its of the German autobahn. The driving to know it. The LC500 is a car that likes noisy head again. modes are changed on a dial beside to be driven and loves to go places the instrument cluster (not necessarily with you. It’s sporty and luxurious and the most obvious of places to put it, comfortable, even practical, for those ...backfiring pops but once you know where it is …). long weekends away. and highly Twist up to Sports or Sports + and Although we didn’t do anything overtly the engine note comes with you. Once fancy together, our second date was far aggressive, even there, the combination of the quicker, more engaging than our first encounter. ‘antisocial’ bellows more responsive driving modes and Overall it confirmed my initial thoughts paddle shifting up, and even more about what a great car this was, a GT from under the importantly down, gives backfiring pops of good looks and substance. Mind you and highly aggressive, even ‘antisocial’ Lexus, if you want to arrange a track time bonnet and out of bellows from under the bonnet and out and fine hotel again, I’m sure neither of the tailpipes – it’s of the tailpipes – it’s awesome! While us would complain. on the subject of sociability, having awesome! the LC500 parked on your driveway is quite the draw card.

30 Dec/Jan 2019 BOARDROOM MARSH Natural disasters dominate risk thinking

DENISE MOLLER, MARKETING & COMMUNICATIONS MANAGER, MARSH

“Disruption to your business caused cost $35.6 million. The 27–29 April WHAT DO YOU DO WHEN THE by fire, flood or another natural storms, which saw severe flooding and TAP IS TURNED OFF? disaster” was rated the risk issue a state of emergency declared in Rotorua, of most concern to New Zealand have cost $16.1 million so far. Weather- Preparation to deal with these risks is organisations for the fourth related loss in New Zealand now exceeds key – 95% of the organisations that we consecutive Marsh Survey of Risk. $200m year-to-date. surveyed said that they were prepared The economic impact of these to deal with natural disaster risk. hese results align with the occurrences was recently measured An area that we sometimes see being World Economic Forum’s annual in a global underinsurance survey by overlooked, however, is entities not fully Global Risks Report, which Lloyd’s. It showed that New Zealand is assessing how they can continue to found that extreme weather the second-most exposed nation to operate if their supply chain is impacted Tevents and natural disasters were the natural catastrophe losses, costing us by an event. They are so focused second and third greatest risks to society about 0.66% of our GDP. We even have on what they would do if they were in terms of impact – only preceded by a higher risk exposure than Japan impacted that they haven’t considered weapons of mass destruction. and other less-developed Asia-Pacific the consequences if they are ok but their Given the frequency of events now economies in the Lloyd’s top 10 list, suppliers are affected by a catastrophe. occurring in New Zealand, the financial which measured a country’s vulnerability For example, if you had a heavy reliance cost associated with recovering from to losses as a proportion of economic on Asia for trade, what would you have these disasters is likely to increase – activity. done if the recent earthquakes or including the cost of insurance. With climate change, increases in typhoons had suddenly turned off your Cyclone Fehi, which hit in early the frequency and intensity of extreme supply of goods and services? >> February, cost a total of $45.9 million. events such as flooding, droughts and Cyclone Gita, in late February, even wildfires will only continue. There will also be slowly emerging changes such as ongoing sea level rises.

31 Dec/Jan 2019 BOARDROOM MARSH

You not only need to think about this in Finally, you need to reassess the level Of the survey the context of natural disasters but other of cover you have on a regular basis. risk events. The increasing propensity Underinsurance has always been a participants who of cyber attacks, for example, means problem in New Zealand. Marsh often had suffered a high that your local or global suppliers could comes across situations when we are have their operations temporarily halted – working with a new client where there impact financial as happened to shipping operator Maersk are gaps within the coverage needed. last year – meaning you suffer the It is also a worldwide issue. The Lloyd’s loss in the past three ongoing effect. report showed that efforts to close the years, only 30% had underinsurance gap are making limited ARE YOU FULLY COVERED? progress. it covered by their About $250 billion of assets While we were pleased that the globally remain uninsured, which is just insurance policy. organisations surveyed said that they a 3% improvement from the last study. had plans in place to deal with natural Asia-Pacific economies account for WHO IS RESPONSIBLE disaster risk, there is another element $205 billion of the insurance gap. FOR MANAGING RISK? to this discussion, which unfortunately only becomes apparent once a claim WHAT ELSE ARE BUSINESSES A section of the Marsh Survey of Risk has been made. WORRIED ABOUT? that slightly differed from the Directors’ Of the survey participants who had survey, however, was around who holds the suffered a high impact financial loss in the Some of the other issues highlighted in ultimate responsibility for managing risk. past three years, only 30% had it covered our seventh Survey of Risk matched those In regards to governance and by their insurance policy. This highlights expressed by IoD members in our 2018 who is accountable for ensuring risk the importance of making sure that you Directors’ Risk Survey. management is in place and appropriate undertake a thorough review of all of your Brand and reputation management, investment in mitigation is undertaken, policies when they come up for renewal. which was the second biggest external 37% said it was the role of the board In particular you should take a look risk issue for directors, was the second of directors and 31% said the owner at the indemnity period for your business biggest risk for the businesses we or proprietor of the business. interruption insurance, ie the amount surveyed. Similarly, cyber was the biggest When it came to “who holds the of time your business is covered by emerging risk. Another key topic, talent ultimate responsibility for implementing, insurance following a major event. Twelve attraction and retention, which was ranked managing and reporting risk management months is a common timeframe selected as the second biggest emerging risk procedures within your organisation” by companies for this purpose. However, in the Directors’ survey, was ranked our respondents said it was the CEO/ it is often not sufficient – as reinforced third in the Survey of Risk – eclipsed managing director/general manager by 40% of the affected respondents, by increasing corporate governance (37%) or the owner/proprietor (31%). who said that it was not long enough. requirements in second place. This contrasts with the Directors’ Risk A significant 63% said that 24 months Survey, where 49% of directors responded was more realistic and 37% said 36 months. that it was their responsibility, while 26% said the CEO. An important point to note here is that organisations need to ensure that there is clarity about who actually does have the ultimate responsibility for ensuring risk management is in place, and to ensure that appropriate investment in mitigation is undertaken, so that there isn’t any fallout following the occurrence of an event. The Marsh Survey of Risk was completed by representatives from 132 organisations from across New Zealand – from SMEs to large corporates across a range of industries and organisational types. A full copy of the Survey of Risk can be downloaded from marsh.co.nz

Container shipping company Maersk got hit by the NotPetya cyberattack in June 2017.

32 Dec/Jan 2019 BOARDROOM Taxing time for boards Company directors face greater reputational and finance risk than ever before and tax governance is next on the agenda.

TONY JOYCE SENIOR TAX PARTNER, KPMG KPMG

The last decade has seen a governance framework they have in place, Boards must appreciate this and ensure noticeable and deliberate strategy it is important for boards to respond to they make their expectations regarding by regulators globally of placing this challenge. managing tax risk clear to management, increased demands on boards to Companies that do not have clearly as well as being kept informed of any take greater ownership of issues documented tax control frameworks will developments that could have either traditionally considered the domain be assessed as high risk relative to those a financial or reputational risk for the of management. that do. Audit activity, and the amount company. A robust tax control framework of engagement tax authorities have with is a minimum starting point on this journey. his is, some would say, the new taxpayers, will be determined based on norm – placing significantly these risk assessments. In situations Contact Tony more legal and reputational risk where errors occur or tax positions E: [email protected] on boards than ever before. taken by taxpayers are challenged by T: (04) 816 4512 TIt perhaps started with AML anti-money the Commissioner, companies that laundering (AML) rules, which rightly put are unable to demonstrate sound tax a higher level of responsibility on boards, governance and a strong tax control especially those in the financial services framework will be significantly more ...it has never been sector, to understand the background of susceptible to penalties than those that persons they do business with. Attesting can. When aggressive or unacceptable easier for a company’s to the legitimacy of customers and their taxpayer behaviour is in the public domain, business and tax source of funds became a time consuming a company’s brand could be significantly but necessary requirement of doing damaged. Directors, therefore, are now affairs to be within the business. While it is management that on notice by regulators that tax oversight are tasked with the heavy lifting in this is a critical and important function they clear sight of Inland regard, it is the board that has ultimate have responsibility for. Revenue than it is now. responsibility for the actions a The New Zealand Inland Revenue company takes. to date has not taken the very public Next cab off the rank was new health approach of putting boards on notice and safety regulations, which for many that we have seen taken by the ATO companies remain a significant and in Australia. This, however, in tax speak ongoing issue today. Again, it is boards is likely only a timing difference and, that have ultimate ownership and if they have not experienced it already, responsibility for ensuring all employees boards should expect increased scrutiny and contractors are operating in a safe around tax governance in New Zealand environment. Accidents can prove in the short term. both costly and extremely disruptive With the huge amount of data and for companies that get it wrong. information sharing between revenue Now, taking a lead from overseas, authorities globally, and the massive and in particular our Australian cousins, technology investments many revenue tax governance is set to be the latest authorities have been making, it has agenda item for boards for tackle. never been easier for a company’s With tax authorities risk profiling larger business and tax affairs to be within taxpayers substantially based on the the clear sight of Inland Revenue than quality and robustness of the tax it is now.

34 Dec/Jan 2019 BOARDROOM GLC UPDATE

FELICITY CAIRD GENERAL MANAGER, GOVERNANCE LEADERSHIP GLC Update CENTRE (GLC) Stepping up advocacy in 2018

This year has been the IoD’s busiest in advocating on issues relevant to directors and governance, through formal submissions on a range of policy and legislative matters and promoting our views through the media. Our annual Director Sentiment Survey also provided valuable insights to aid our advocacy programme.

Key submissions in Extensive options 2018 include: proposed to fix to the Tax Working Group and to NZX on the whistleblowing regime review of the listing rules and market structure A significant review of the Protected Disclosures on the Trusts Bill, Privacy Bill and a bill Act 2000 is being undertaken by the State Services criminalising cartels, all of which are currently Commission. The Act is intended to protect people making their way through Parliament from losing their jobs or being mistreated for on policy proposals to government departments speaking up in the public interest about serious including on the publication of director residential misconduct in the workplace (eg activities that addresses, beneficial ownership, the policy behind are illegal, corrupt or pose a serious threat to the Zero Carbon Bill, whistleblowing and state public safety). Several options for reform have sector reforms. been proposed with the most comprehensive options including:

requiring all organisations to have whistleblowing procedures in place On the horizon allowing people to report concerns In 2019 we expect to see: to an appropriate authority at any time establishing stronger oversight and a single the introduction into parliament of a Zero port of call for advice Carbon Bill and a bill reforming the Incorporated Societies Act 1908 monitoring the public, private and not-for- profit sectors. a review of the Charities Act 2005, which is earmarked to take place in March/April, The IoD has been involved in informal consultation and further consultation on the Tomorrow’s and is submitting on the review. >> Schools review the final report of the Tax Working Group, which is due to government in February 2019.

35 Dec/Jan 2019 BOARDROOM GLC UPDATE

Opposing director Keeping members personal liability for current with the tax debts of companies GovernanceUpdate

In our second submission to the Tax Working Group, Catch up on key developments, trends and the IoD strongly opposed the proposal to introduce emerging issues in our GovernanceUpdate director personal liability for PAYE and GST debts sent to members on 31 October, including: of companies. The prospect of director personal liability for company taxes is deeply troubling and topical issues relating to data governance, may have far-reaching and unintended consequences one of the IoD’s key themes for 2018 outweighing any potential benefits. We have advocated against this proposal since 2016 when the increasing focus on climate change it was first raised by Inland Revenue. results from our surveys, showing what’s on directors’ minds court decisions and other proceedings relevant to directors What will the state governance reforms in the UK, US and Australia sector look like in the recent policy and advocacy developments. future?

The government is reviewing the State Sector Act 1988 to ensure it is fit for purpose and meets the needs of a modern public service. The IoD’s Food safety submission on the review focuses on governance related matters and, in particular, where Crown entity governance guide boards may be affected. We asked for greater clarity around proposals in relation to the definition of public The Food Safety: Good Governance Guide service, executive boards and integrity and conduct for Directors, Executives and Business Owners, matters. We will continue to monitor the review, developed by the Ministry of Primary Industries especially in respect of Crown entity governance. with the support of the Institute of Directors, was launched in November. The guide aims to assist directors, executives and business owners to understand their responsibilities in relation to food safety and to improve food safety culture in their businesses. >> CODE OF CONDUCT FOR BOARDS OF CROWN ENTITIES

The State Services Commission will develop a code of conduct for boards and board members of Crown entities and is engaging with boards and stakeholders including the IoD. We expect this to be a focus in 2019.

36 Dec/Jan 2019 BOARDROOM GLC UPDATE

New NZX market Learnings for all structure and listing directors from the bank rules launched conduct and culture After extensive consultation, NZX released its report new listing rules in October. These are effective on 1 January 2019, subject to a six-month transition Following a six-month review, the Reserve Bank period ending on 30 June 2019. The new rules of New Zealand and the Financial Markets Authority cover equity, debt and funds and are contained in published their report in November into the conduct one document. They are significantly shorter and and culture of banks in New Zealand. While the written in plain English. It is hoped that the changes review found that conduct and culture issues do not to the rules and market structure make it easier for appear to be widespread in banks in New Zealand, companies to list, and for existing companies to raise weaknesses in the governance and management additional capital. of conduct risks were identified, along with significant gaps in the measurement and reporting of customer The IoD was disappointed that the contentious outcomes. issue of constructive knowledge in respect of continuous disclosure has been included in the rules, The report makes a number of recommendations despite strong opposition from leading law firms to improve board oversight, controls and processes and other key stakeholders. Time will tell if concerns and should be recommended reading for all directors. about adverse effects of this change will materialise. The report also touches on potential regulatory NZX is also publishing updated guidance on reform, including clarifying accountability and continuous disclosure, spread requirements, individual responsibility for management of conduct. backdoor and reverse listing transactions, Boards and management should expect much greater and new guidance on governance. focus from the regulators and stakeholders in relation to conduct and culture. See the brief published in November by IoD and MinterEllisonRuddWatts on what directors need to know All GovernanceUpdates, submissions, guides and other about the new NZX Listing Rules available on iod.org.nz governance resources are available at iod.org.nz

37 Dec/Jan 2019 BOARDROOM FEATURE

Meet our emerging directors

Every year the Institute of Directors (IoD) recognises emerging directors who want mentorship, experience and support with their professional development.

Nagaja Sanatkumar

merging Directors Awards are AUCKLAND – NAGAJA Auckland judges Ted van Arkel, Cecilia given out by IoD branches around SANATKUMAR Tarrant and Bindi Norwell say they were the country and are open to IoD “impressed with Nagaja’s international members who are in the very early Digital technology expert Nagaja experience and her commitment to Estages of their governance career. Judges Sanatkumar of Remuera is currently explore, learn and participate in the fast- look for people who have demonstrated Icebreaker’s General Manager of Global moving world of the digital commercial a commitment to developing a career eCommerce. Before coming to New sector. This, along with her passion for in governance, who have skills and Zealand in 2015, Sanatkumar lived in excellence, is a credit to her.” experience that would be useful to the US and held senior leadership roles “Nagaja is on a journey of being a board, demonstrate an understanding at Amazon and Expedia. able to add real expertise value in of the importance of sound governance, Her expertise spans industries such boardroom discussions, and recognises and who have had either senior executive, as retail, travel, financial services and the need for good governance at board leadership or governance experience. management consulting. With a lens that level. We are sure that Nagaja will We are pleased to congratulate views new challenges as opportunities become a highly sought-after director the Emerging Director award winners for disruption, her passion is to harness in the very near future,” the judges said. from Auckland, Waikato, Bay of Plenty, the power of digital technology for greater Taranaki, Wellington, Nelson Marlborough, social and environmental good, and help WAIKATO – CARLA MULLER Canterbury and Otago Southland as businesses, governments and non-profit AND SARAH VERRAN well as the winner of the Canterbury organisations thrive in an ever-changing First Steps in Governance award. digital landscape. Carla Muller won the Waikato Branch She enjoys motivating and inspiring Emerging Director Award, while Sarah people to continuously raise their Verran won the Waikato Branch Emerging standards for collaboration, execution Director – Disability Sector Award. >> and learning.

38 Dec/Jan 2019 BOARDROOM FEATURE

When Sarah Verran’s 10-year-old She is looking forward to learning from daughter was diagnosed with a brain the governance internship on the Wintec tumour, her life, and that of her family, Board, which comes as part of the award. changed completely. “Being able to observe the Wintec The slow-growing tumour had been Board for a year would provide invaluable developing since birth. It transformed learnings from experienced directors.” the once happy, bright and healthy “Carla and Sarah will no doubt add to young girl into someone who now needs the strong legacy the award has gained, 24-hour care and support in order to live. with previous award winners establishing After three years of caring for her themselves in the governance community daughter, and with a background in and contributing to boards of significance IT, tourism and media, Verran’s new across the region and beyond. It is perspective on life has drawn her to focus also great to see the continuation of her energies on the social and disability the Disability Sector Award with the sectors, particularly governance. applicants being of a very high standard 01 “I have found strength in becoming the indeed,” says Simon Lockwood, advocate for my daughter, to be able to IoD Waikato Chair. speak about our experience to challenge thinking, offer some objectivity and add BAY OF PLENTY – value to facilitate change,” Verran says. JANA RANGOONI As a way of pursuing a governance career, she joined a community of practice, Paralympics New Zealand board member Enabling Good Lives, and applied and Chief Executive Office for the Radio to be on a patient and whānau care Broadcasters Association, Jana Rangooni board through the Auckland District says she understands the principles of Health Board. She says developing good governance and the importance her governance career is a way of of skills and experience people have to achieving her objective of advocacy bring to a board table, but she was slightly and change within the disability sector. taken aback at the breadth of knowledge For her prize, Verran will sit on required to be a director. the board of LIFE Unlimited for a year. “The need to learn and understand so many new areas, and the value and 02 Carla Muller started her governance importance of your other personal skills career in 2012 with the Massey University has been a wakeup call.” 01: Carla Muller 02: Sarah Verran College of Business Board. Last year, She says that as someone who knew she was a finalist in the Westpac about finance, she had to step up recently Women of Influence Awards for rural to a finance and risk committee. “I had to and young leader categories, and join this group for some months, as I was When I started thinking a winner in Hamilton’s 30 under 30 the most experienced in finance. Then about governance I awards. She has a Master’s degree I was asked to stay on the committee. >> in Environmental Management and thought that it was a Bachelor of Applied Economics. “When I started thinking about something that I governance I thought that it was wanted to do, but that something that I wanted to do, but that it was out of reach until I had got to it was out of reach until a senior management level,” Muller says. “I have always believed in giving back I had got to a senior to my community and hadn’t worked management level. out |that the local trusts and committee roles I had held, were at their heart, governance.” “Since I have been taking on governance roles, I have learnt a lot, both technically and personally, and have taken all opportunities to increase my experience in a range Jana Rangooni of governance roles.”

39 Dec/Jan 2019 BOARDROOM Drive your governance career. Do the Company Directors Course

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IOD0058 CDC Campaign Boardroom Ad Nola FA.indd 1 9/05/18 11:43 AM FEATURE

She has also learnt to “challenge “Over the past 10 years, prior to constructively when something doesn’t accepting any governance or advisory seem right, and listen to and work with role, I have always asked myself how fellow board members who may have does this organisation’s purpose and completely different perspectives and values align with my own, what value ways of operating”. can I add and how will I know if I have “I have also learnt to build the made a difference?” respect of people who may not have even wanted you at the table,” she says. WELLINGTON – SHAUN TWADDLE

TARANAKI – JOE HANITA Economist Shaun Twaddle is a shareholder-director of economics and New Plymouth chartered accountant data consultancy Infometrics, chair of Joe Hanita works as general manager, Khandallah School board of trustees, finance and investments, for a Māori land, has three children, coaches junior rugby, farming, property, investment and seafood and as “an avid runner” was “often in organisation Parininihi ki Waitotara Inc. negotiation with his wife around the 03 that employs over 45 staff. ‘next marathon’”. He has held formal governance roles As an economic consultant Twaddle since 2004 and is currently a director provides data, forecasts and advice of the National Hauora Coalition Limited, to chief executives and senior managers which provides primary health and social in tertiary education organisations, services in Auckland, the Waikato and iwi groups and local government Whanganui. agencies. He recently completed director In choosing Hanita for this award, governance development courses the three Taranaki judges – IoD branch to achieve Chartered Member status chair Marie Callander, Richard Krogh of the Institute of Directors. and Graeme Marshall – said he has “In my day job at Infometrics I focus on a clear vision of where he is going. providing industry and tertiary education “Joe demonstrated a strong foundation- clients with data, analysis and advice in understanding of governance, which which I make informed decisions,” Twaddle had been gained through study and says. “A lot of my job is spent outlining participation. These attributes made the long-term benefits of evidence-based Joe a clear choice for the judging panel.” decision making, even if it sometimes can 04 A failure to achieve University Entrance slow down the decision-making process. in 1997 served as Hanita’s first life-lesson. “In my roles as a director, I seek 03: Joe Hanita 04: Shaun Twaddle “Ever since then I have sought out and to ensure that decisions made have taken advantage of any opportunity a sound evidence base to support them.” to learn and grow, both personally and His “professionalism and interpersonal I would never have put my hand up professionally. I believe that I then have skills will see him become a valuable for that, unless it had been such an a responsibility to share that knowledge director to many different organisations emergency, but I learnt a lot and realised with others to help them learn and grow,” over the next two or three decades,” how much value I could bring.” he says. Infometrics board chair Andrew Rangooni says that in the three Hanita went on to achieve a Gawith said. years she has been on the board of Bachelor of Business degree from the Twaddle says he hopes the Emerging Paralympics NZ, she has learnt a lot Waikato Institute of Technology, and Director award will have long-term about high performance sport and sport is also a Fellow Chartered Accountant. benefits for him and his career. “While administration. In recent years he has worked as the award is only for a year, I hope the “I have had to learn about things the director of finance at Te Wānanga relationships and benefits that I am like high performance sport, the o Aotearoa and as an associate able to get out of it will last much longer administration of sport, what it takes director at KPMG. than that. I would say the skills you to win medals, health and safety issues He has tribal affiliations to Rangitāne need to be successful in governance around an International Olympic/ and Ngāti Kuia. “My passion is the are strategic thinking, sound judgement, Paralympic Games, as well as how valuable advancement of Māori development – integrity and ethical behaviour and it is to be able to ask questions when you particularly in health, education communication skills.” >> don’t understand something.” and commerce.

41 Dec/Jan 2019 BOARDROOM FEATURE

NELSON MARLBOROUGH – MANOLI AERAKIS

Manoli Aerakis, who is managing director of Malloch McClean Tasman, currently serves on the Nelson Tasman Chamber of Commerce Board and works alongside the Ngāti Apa ki te Rā Tō Trust board and group of companies. He was previously on the board of the Nelson SPCA. Award judges John Palmer, Ed Johnson and Julie Baxendine said they were impressed by Aerakis’s high energy, passion for strategy, recognition of the importance of culture, clear focus and understanding of risk. 06 07 “He was well prepared and showed structure in his approach to governance, CANTERBURY – HANNAH DONEY Kathryn Ruge, senior communications both through his business and community AND KATHRYN RUGE advisor is the other Canterbury winner. roles,” the judges said. As part of her prize, she receives an Manoli has a background in sales, The Canterbury branch named two internship for a year at the board table marketing and banking roles and is Emerging Director winners, Hannah Doney of Christchurch-based engineering, coaching others around New Zealand and Kathryn Ruge. contracting and logistics firm, Connetics, in how to set up their firms for the modern Hannah Doney, a freelance marketer, chaired by IoD Chartered member Rob world, in governance point and operations. sees the award as a stepping stone in her Jamieson. IoD Chartered Fellow Brian The Institute of Directors Nelson career. “The opportunity to listen, learn Wood will be her mentor for 12 months. Marlborough branch runs its awards and engage at a commercial board as Ruge, who has been involved in the every second year. Previous winners have an associate is an invaluable experience. governance of charitable, not-for-profit included Marina Hirst-Tristram, Dave I want to learn from competent directors organisations since her late teens, is Ashcroft and Mike Brown. so that I can add value to the current on the national governing body of the and future boards I am involved with.” Public Relations Institute of New Zealand “I want to see commercial directors in (PRINZ), chairs the PRINZ Southern practice so that I can learn about the right Branch, has served on the Avonhead questions to ask, the right tone to have School board, and is currently assisting and the right timing for discussion. I don’t Archery NZ with a governance review. believe there are enough marketers at the She has worked in the private board table.” and public sectors across a range Doney is already on the national board of organisations including aviation, of Girl Guiding New Zealand, is a high-tech, local government and convenor for the Banks Peninsula A&P most recently for Te Rūnanga o Ngāi Association, an advisory board member Tahu and will shortly take up a senior for an Australian beverage start-up and communications role with the New is working towards Chartered Membership Zealand Defence Force based at Burnham.>> of the Institute of Directors. Her director internship will be with I want to learn from Ashburton’s locally owned co-operative 05 electricity company, EA Networks. “This competent directors is the first time EA Networks have offered 05: Manoli Aerakis so that I can add 06: Hannah Doney an internship, so it’s very exciting,” said 07: Kathryn Ruge IoD committee member Jane Cartwright, value to the current who chaired the selection panel. IoD Chartered Member Philip McKendry and future boards is Chair of the EA Networks board, I am involved with. and Hannah will be mentored by IoD Chartered Fellow Rex Williams. Hannah Doney

42 Dec/Jan 2019 BOARDROOM From concept to completion.

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She thinks adding PR and communications Allen, who lives in Spreydon, is the South governance practice is an important skill to bring to the board Island Operations Manager for Thrifty Car table. “As boards progress to triple Rental. IoD Canterbury Branch committee is enriched when and quadruple bottom line reporting members Jane Cartwright, and Ronald diversity of thought frameworks, it is increasingly important McDonald House South Island trustees for them to develop strategic capability Jock Muir and Stuart Leck selected and experience is in the area of managing reputational Allen for the one-year governance board risk and complex stakeholder internship. “We liked her strategic focus, sought after and relationships,” Ruge says. “It is not especially in relation to sales, innovative valued... enough to simply have access to a ‘public thinking, systematic approach to things, relations machine’ in times of trouble – ability to build teams and desire to be a this capability and counsel is needed at director. She was well grounded probably the governance table.” due to her great love of the outdoors.” She also believes “governance practice Ronald McDonald House South Island is enriched when diversity of thought is an independent registered charitable and experience is sought after and valued, trust established to help and support which means being open to sourcing the families of children who are receiving strategic and financial capability outside medical care. It is managed by a voluntary the traditional occupations of law Board of Trustees, a small staff and many and accounting.” volunteers. Having worked in several senior CANTERBURY – FIRST management positions in different STEPS IN GOVERNANCE – industries and been involved with KATHERINE ALLEN Oxfam NZ, Allen says she now felt she could make a valuable contribution As well as the Emerging Director Award, at governance level. the Canterbury branch also runs the 09 First Steps in Governance Award. OTAGO SOUTHLAND – 08: Katherine Allen This award provides opportunities for DESIREE WILLIAMS 09: Desiree Williams young professionals to gain experience in the not-for-profit sector, and is Barrister and solicitor and qualified We were impressed with her dedication open to applicants under the age of 40. mediator, Desiree Williams, is currently the to improving her governance skills and Christchurch senior manager CEO of the Malcam Charitable Trust and using these to enhance the capabilities Katherine Allen won this year’s First is chair of Te Hou Ora Whānau Services. of the organisations she works with.” Steps in Governance Award, gaining a She is also a Trustee for the Four Trades “Desiree works hard to better the lives seat on the governance board of Ronald Trust. Desiree has held earlier governance of those around her. She puts enormous McDonald House South Island for a year. roles with Community Law Centres energy into improving herself and Aotearoa and with Te Whare Pounamu continually building her skills. She has Women’s Refuge. good practical skills from her board roles Her passion lies in championing the and we believe she will add great value. rights and responsibilities of people Winning the Emerging Director Award particularly for sometimes overlooked will give her access to mentoring, communities such as the elderly, youth director development training and and Māori. networking events.” The Institute of Directors’ Otago Williams says she is excited about Southland Branch Chairman Geoff the opportunities winning the award Thomas, a Chartered Fellow of the will bring and looking forward to building Institute, said the judges were impressed her future governance career. by Desiree’s passion and commitment “I absolutely aspire to enhance and to building her governance skills to benefit build my career. I’m particularly keen organisations. “Desiree puts people first. to involve more Māori in governance and I hope to set a strong example to others which will encourage them on 08 their journeys.”

44 Dec/Jan 2019 BOARDROOM OUT AND ABOUT Out & about

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Auckland Aura’s Peter Bailey presented the risk management update “The stealth of a hacker” in Whangarei, and members gathered in south Auckland to understand the strategic use of data at events in November.

01 03

Taranaki Andrew Jefferies and Andrew Hudson spoke about director responsibilities during a takeover at a lunch event in New Plymouth.

04 05

01 Jo Brosnahan, Mike Simm, Darren Mason, Leah Peacock, Peter Bailey

02 A World of Data streams live from South Auckland

03 Anne Walsh, Sunel Connor, Wendy Bremner

04 Joe Hanita, Marie Callander 07 05 Andrew Jeffries

06 Julie Langford

07 Warwick George 06

45 Dec/Jan 2019 BOARDROOM OUT AND ABOUT Out & about

Wellington Michael Sturtz brought a technological perspective from Stanford and Google to an after five event in September.

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09

12 13 08 Dr Helen Anderson, Tony Parker, Cathy Magiannis Canterbury Hon Dr Nick Smith was the speaker 09 Chris Allen, Pauline Prince, Heather Verry, Kristen Ellis at an evening function in Christchurch on 15 October and joined Distinguished 10 Hon Dr Nick Smith addressing members Fellows and Chartered Fellows for and guests dinner afterwards. 11 Paul Rhodes, Rex Williams, Jen Crawford, Jane Cartwright, Mark Cathro On 26 October IoD CEO Kirsten Patterson joined Canterbury members for a 12 Kathryn Ruge, Sir Tipene O’Regan sponsors breakfast with Duncan Cotterill, attended the inaugural Canterbury leading 13 Mark Jordan, Sue Sheldon, Kirsten Patterson directors lunch hosted by Sheffield, then joined local Distinguished Fellows for 14 Craig Stobo afternoon tea. 14

46 Dec/Jan 2019 BOARDROOM OUT AND ABOUT Out & about

Nelson Members heard security policy advice from National Cyber Policy Office director Paul 17 Ash at a lunch briefing in October. The IoD partnered with the Marlborough Chamber Otago Southland of Commerce for a panel discussion The annual Fellows’ dinner was in Blenheim. held at Carrick Winery in October, and a fine time was had by all.

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15 Matt McDonald, Paul Ash

16 Andy Rowe, Sarah Wadsworth, Miriam Radich, Paul Bell

15 17 Kerry Harper and Owen Poole

18 Alan McKenzie and Trish Oakley

19 Susie Johnstone and Robbie Burnside 19

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47 Dec/Jan 2019 BOARDROOM EVENTS Eventsdiary For more information visit iod.org.nz, contact the director development team or contact your local branch manager.

December February

3 Auckland 8 Christchurch Company Director’s New members lunch Course (non-residential) 11 Christchurch 3 Christchurch Next Generation Christmas Cocktails director workshop Online Learning 5 Tauranga More events will be available as iod.org.nz as they are A World of Data confirmed. Any time, anywhere. Offering convenience panel discussion and flexibility, our self-paced courses provide focused online learning. Progress through the course slides, interactive diagrams, videos and reflective exercises at your own pace.

Health and safety governance Branch manager contact details 3 CPD points

Auckland Taranaki Ethics – how directors do business Rebecca Gadson-Green Julie Langford 3 CPD points P: 027 200 9961 P: 021 806 237 [email protected] [email protected] Directors’ and Officers’ insurance 2 CPD points Bay of Plenty Waikato Laura Gaveika Megan Beveridge Not-for-profit fundamentals P: 027 588 8118 P: 021 358 772 3 CPD points [email protected] [email protected] Cybersecurity Canterbury Wellington 3 CPD points Sharynn Johnson Pauline Prince P: 03 355 6650 P: 021 577 031 F: 03 355 6850 [email protected] [email protected] BRANCH EVENTS Webinars Nelson Marlborough For information on member Karen Goodger events in your area, Live webinars are facilitated by subject matter P: 027 525 7400 see iod.org.nz experts, and themes from your questions and [email protected] comments are addressed live during the sessions.

Otago Southland 14 December, Data Governance; 10.30–11.30am; Vivienne Seaton 2 CPD points P: 021 152 2809 F: 04 499 9488 [email protected]

48 Dec/Jan 2019 BOARDROOM Level One, Press Hall 80 Willis St Wellington 6011, New Zealand +64 (0)4 894 1856 [email protected]

Client futuredirectors.co.nz

Institute of Directors

Contact Aaron Watson

Project Future Directors

Execution Full Page Boardroom Advert

Artwork Size 210 (h) x 275(w) mm

Scale 100%

Output Size 210 (h) x 275(w) mm

Date 29 November 2018

Studio Victoria Wong

Notes CMYK

Host a future director on your board Access new insights and show your commitment to developing diverse board talent. To get involved, email [email protected]

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The Institute of Directors is New Zealand’s leading network of directors committed to excellence in governance. To find out more: iod.org.nz “ PROGRESS IS MAKING DIVERSITY THE NORM, NOT THE EXCEPTION AT THE BOARD TABLE.” Kirsten Patterson, Chief Executive of Institute of Directors.

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