Springboard or Tramlines? How do you manage the Meeting Agenda?

I suppose we're all creatures of habit - even those of us who talk about and sometimes initiate change. But I've had a good experience recently that has made me really think about the order in which we deal with things at our Board meetings.

I've always advocated getting to the key decision items and strategic issues as early in the meeting as we can, so we can spend as much time as we need on these. (These big items are what we sometimes refer to as the 'gorillas in the room': however docile they may seem, you can't ignore them.)

But until now I've been a fan of working through the CEO's report ahead of these items. I've felt that the Board needs to be updated on what has happened since the report was written - probably up to a fortnight before the meeting, if the papers are well planned and reach the Board members a week or so before the meeting.

Well, I've changed my mind. I've chaired three Board meetings in the last couple of months (in two separate organisations), where for various reasons we hit the strategic items almost immediately - right after the formalities and action points from last time. What a difference it made to the meeting: the whole Board was engaged and involved in the discussion from the start. We enjoyed some great thinking, including some big ideas from 'outside the square'. This week we even generated a spontaneous whiteboard session for half an hour, to capture some ideas that we haven't adequately explored before. Not quite the typical image of a traditional board discussion - I'm pleased to admit!

I've thought about why these meetings went so much better. It wasn't just that we gave ourselves enough time for the big items - we usually do that reasonably well - but I think the real difference is that we hadn't been drawn down into the operational issues, which is what probably happens once you get into the CEO's report. The Board members had arrived - well charged with caffeine in most cases (this may also be relevant) - to talk about big issues, and nothing got in their way before we did just that.

And what did we lose by this? Well, if anything, we became even more efficient in our use of time. By the time we got to the CEO's report, we'd discussed most of the main items she'd written, so we spent only about ten minutes on some of the smaller, but important, matters in the report.

There is one assumption in all this: our Board members have to read their papers, and think about the issues, before our meeting. I'm lucky with the Boards I chair, but I know this failure to prepare is a 'sea anchor' that holds some boards back. We take our papers as read (... and understood and thought about) - we couldn't have an effective meeting otherwise: then we use the information from them as background - a springboard - for the type of discussion that effective Boards need to have around the table.

The alternative - sadly quite common - type of meeting is where the Board works its way from page 1 to the end of the papers, without deviating, looking up or adding a creative (or strategic?) thought for the full three or four hours that they're together. Just like a tram-driver really, with the difference that the latter doesn't need to worry about steering the vehicle.

Next, I'm thinking of keeping the minutes from the last meeting until near the end of the agenda too. Why not?

A recipe for New Zealand

Last year, John Williams, one of New Zealand's relatively unsung entrepreneurial heroes wrote a piece for the website nzedge.com setting out ten strategies that would restore New Zealand to the league of wealthy nations, where most of us - I suspect - believe we should be. John used to own Marton-based company PEC (New Zealand) Limited, which developed some revolutionary petrol-pump technology that is now in common use around the world.

From this smart, technology-based platform, which has successfully been taken to global markets, John has produced a list of his 'must-dos' that would see New Zealand transform itself into a genuine knowledge-based, smart economy that we need to become if we are to remain globally competitive.

The list begins, not surprisingly, with a suggestion that New Zealand industry should emulate his success, by 'maximising growth in the sectors where we currently produce world-class products and/or services.'

He includes several strategies for business and commerce, but he also recognises the need for a sound basis in a strong and fair society, recommending (No.4) that the values-based "Kiwi-Can" programme should be extended to all primary and secondary schools.

Whether you agree with the details of this 10-step recipe is, I think, less important than that here at last is someone taking a long-term, strategic look at what New Zealand needs to do. One of the features that I feel has been sadly absent from our national debates over the last decade has been that we have not really talked about what sort of a country we want New Zealand to be. We have argued at length about policies, fairness and tactics; and we've even talked loftily about 'knowledge economies', 'growth waves', 'innovation frameworks' and so on; but without some hard decisions about what we're actually going to do, these will remain simply as cliches.

This debate isn't optional: if we don't at least have the discussion, we'll continue on the current path, where, while enjoying its best trading conditions for decades, New Zealand has barely held its place in the OECD's income rankings. If we have the debate, it's quite valid that we might reach a consensus that we don't want to get back among the rich nations. But I doubt that will be the answer.

What I think we might discover is that dragging ourselves back up the growth curve is in reality the best path to those global standards of health, education and social outcomes that most New Zealanders instinctively want. Unless we're generating the wealth, we can't spread it around. New Zealand's general election is only seven weeks away. Let's challenge ourselves, and the people who aspire to represent us, to take this national debate seriously... to show us their strategies for growing the pie, rather than changing the way we divide the existing one... and to make sure that all sectors of society take part and help to develop a sense of vision and purpose for the next decade.

And, while we're at it, let's not leave it just to the politicians. As leaders in our own sectors, we need to have these discussions around our board tables: how do we build our company to take advantage of the global opportunities (and counter the threats) of the increasingly complex global environment we're in? If we all address these questions, the sum of our answers will go a long way towards providing the answer for New Zealand.

Measuring real success

I realised I'd had enough of the Olympics for another four years when I found myself staring at a semi-final of the women's Handball tournament between, I think, Norway and Georgia. Now come the analysis and post mortems, including the recent discovery that Bronze medallists ('Wow, I got an Olympic medal') are generally happier than those who win Silver ('If only I'd gone just a little harder ...').

New Zealand has had a successful fortnight, with a haul of three Gold, one Silver and five Bronze (that's why we needed that earlier analysis), placing it twenty-fifth in the overall Medal rankings.

We're sure to see commentary around New Zealand's traditional area of strength - medals per head of population. Here we are near the top again this year, with just over 2 medals per million of population, pretty much in line with Australia. On this measure, we're six times as successful as the USA (three million people per medal) or Britain (1.2 million per medal), but we all trail Jamaica, who dazzled on the track with eleven medals in total (six of them Gold), from a population of fewer than three million (remember 'Cool Runnings' - the movie about the Jamaican bob-sleigh team?). If you want more, see this forecasting model produced by Professor Andrew Bernard in the United States and this clever graphical analysis by the New York Times, showing relative performance at each Olympic Games since 1896.

Enough jingoism for one blog post! What I really want to write about is a more meaningful, and sobering, measure of a country's success - New Zealand's ranking in GDP per head of population. Here we have little to be proud of over the last forty years. From being one of the wealthiest countries in the 1960s, we slipped to 22nd out of 30 OECD countries by 2005, sitting between South Korea and Spain, with about 85% of the OECD average Real GDP per head. In 1970, we were up at about 115% of the OECD average.

The good news is that we stopped sliding in the early 1990s. The bad news is that, despite stated political ambitions to return to the top half of the OECD ladder, and enjoying New Zealand's best terms of trade for some decades, we've made no real progress in the last few years.

Looking ahead, I think we face two dark clouds, both related to our remoteness: the growing issue of 'food miles' presents yet another non-tariff barrier to our food exports. Regardless of the science, and the proven fact that total carbon emitted in sending our produce to Europe is less than that of European produce (where stock are generally housed under cover during winter), what really matters is what the supermarket shopper believes. We need to get our message across.

The second point is similar: whether we can remain a destination of choice for the world's tourists, if they get more concerned about the carbon footprint of long distance travel.

As a resource-rich country, we're blessed with some of the world's best conditions for producing protein, we have plenty of fresh water (usually) and a broad range of options for our energy needs. Until recently, we've been sheltered from the adverse trends by high prices for our commodities and a strong and growing global economy. The latter is fading fast, while the former may continue for a few years. But we need to face the reality that one day we won't be the world's cheapest food producer: South America and Eastern Europe are not standing still.

This is a challenge for governance at all levels: for Boards, it's important that we all play our part in thinking how we can genuinely transform our businesses, to get ouselves back onto a faster-growth path. We have the raw materials, we have the brains and the education; we need to commit to investing in a country that wants to grow the pie faster, rather than simply distributing what we have differently.

Next time, I'll look at one person's recipe (non-party political) for restoring New Zealand to the levels of wealth we could enjoy - with all the other benefits that flow in health, welfare and life expectancy.

Welcome a-board - more news on better balanced boards

If you read The Economist, you'll know that it never lacks confidence in its own rightness.

It promotes a liberal, free-market view of the world and, healthily, has little time for the fuzziness of much modern economic policy making. So I think that an article this week, Getting more women on board, is quite significant. As you'd expect, this article is about the improving gender balance on Boards and in top-level management (known these days as 'The C-Suite' - as in 'C' for 'Chief [insert function - Financial, Information, Executive ...] Officer').

The article discusses the slightly disappointing findings of a survey by Catalyst, an NGO that promotes equal opportunity in workplaces, indicating that the rate at which women have reached the top floor offices has 'stalled' in the last few years. Even now, Catalyst estimates that women occupy only one in seven board positions in Fortune 500 companies.

One interesting, and not surprising, finding is that the strongest predictor of how women will progress into the top executive positions in the future is the current proportion of women on their board:

• 'Companies with 30 percent women board directors in 2001 had, on average, 45 percent more women corporate officers by 2006.'

You'd expect this if a company has a culture that creates a work environment providing opportunity for all its people - as seems probable if there is real diversity around its Board table. There is also some evidence that female directors are seen as role models who both inspire and support aspiring female executives.

The Economist takes this a step further, getting close to what I see as the real point - the incentive for shareholders to select leaders from the broadest possible pool of talent, regardless of gender or other demographics (apart, one would hope, from ability).

Several years ago, I was a member of a Board of five directors. Normal succession processes had resulted in my being the only male on the Board. The best part of that experience was that it was three or four months before anybody even noticed this rather unusual circumstance. And that, surely, is the end-game - when surveys such as Catalyst's, and blog posts like this, are redundant, because all of us around the table are seen simply as directors, each appointed because the shareholders considered us to be the best person for the role.

Realistically, I think it'll be a while yet.

Paying dividends - a director's duties

If you've taken any interest in financial markets over the last year (and if you either borrow money or have some to invest, it would be a good idea - especially now - to take an interest), you'll know that a number of finance companies in New Zealand have found themselves in difficulties.

You're also likely to have heard various commentators allocating blame. Some commentators have known what they're talking about, but others we might describe, charitably, as having less than a full understanding.

I thought it might help to explain some of the basic duties of directors in these situations (remembering that I'm a company director, not a lawyer, so I'm drawing any inference as an informed layman, rather than a legal expert), so you'll be in a better position to judge the facts:

1. Dividends

In general terms, dividends are income that shareholders receive as a return on their investment, usually paid from the company's tax-paid profit. Section 52 of the Companies Act says that the Board of directors may authorise the payment of a dividend if it is 'satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test' - together with a few other conditions.

So what's the 'solvency test'? For this we look at Section 6: '... A company satisfies the solvency test if -
(a) The company is able to pay its debts as they become due in the normal course of business [my italics]; and
(b) The value of the company's assets is greater than the value of its liabilities.'

My guess would be that finance company deposits which fall due on a particular date would be classed as 'in the normal course of business'. In determining the value of the company's assets, 'the directors must have regard to the most recent financial statements of the company ... and all other circumstances that the directors know or ought to know ...' [again, my italics].

Even allowing for the tidal wave of changes in financial market conditions, and the precipitous decline in reinvestment rates (the amount of deposits that are renewed when they fall due, rather than being repaid to the investor), which has led to the liquidity difficulties of some finance companies, these provisions in the Act should prompt some searching questions of a few people who are known to have been paid large dividends in the not too distant past.

2. Reckless trading

There's another Section (135) in the Act, entitled 'Reckless trading' which may also turn out to be relevant. Under this, a director 'must not agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss ...' to the people the company owes money to.

The Act provides various defences for people charged under these Sections, so you can expect any legal actions to be lengthy, strongly contested, affairs and, naturally, to be far more complicated than this simple explanation.

But I hope that, after reading this, you will be better able to form your own view of the actions and responsibilities of various parties likely to feature in the news in coming months.

Does absolute power corrupt absolutely?

Last week British retailer Marks & Spencer faced attacks from shareholders and members of the financial press, when Chief Executive Sir Stuart Rose was promoted to Executive Chairman.

23% of shareholders abstained or voted against Sir Stuart's re-appointment to the Board because they considered it went against good governance principles to have one person holding both positions, Chief Executive and Chairman.

This is an old debate and I think it's very easy to over-simplify it - right or wrong. The real answer, as always, is much more complex and depends on the substance rather than the form of the appointment.

If we start with what we're trying to achieve - a successful company - we can find case studies that both support and oppose the appointment.

In many large American companies (which Marks & Spencer is not, of course), the roles are combined. This has often been quoted as one of the weaknesses that led to the fall of companies like Enron and Worldcom. I think it's always a risk if one person holds too much power in an organisation, but the American system provides balance by having, usually, one or two other positions in addition to the Chairman and CEO: we usually find a President and Chief Operating Officer and, since Sarbanes-Oxley, the position of Lead Independent Director. So, in practice, this 'standard' American model builds in some real checks and balances on each individual.

What really matters is not so much the Board's structure, but how (and if) Board members fulfil their roles adequately. There's plenty of evidence to show that the difference between effective and ineffective Boards comes down to how Board members act, whether they deal with the tough issues and have the necessary debates, and that this matters far more than details about the Board's structure. If you've got the right behaviours in the boardroom, you can deal with deficiencies in the Board's structure or composition. But not vice versa.

As has been in the case in several of my previous 'posts', it comes down to the substance of the matter, not just the form.

Marks & Spencer will be an interesting case to watch. As an English company, it would not be typical to have the President/COO and the Lead Independent providing balance. However, my guess is that the Deputy Chairman and other Board members will be very conscious of their obligations to perform: perhaps we'll have material for another comment in a couple of years.

I learned about succession from that

They say we learn best from our mistakes ... some people would say that explains why I never stop learning.

I was reminded the other day of one of the biggest boardroom mistakes of my career. If it's any comfort - which it wasn't to me - it was in an area that many boards fail to deal with well, board succession; or in this case choosing a successor for the Board Chair.

I had been Chair of a medium-sized non-profit organisation for about six years and we had agreed it was time for a change, for both the Board and me. First, breaking all my own rules (see my recent post 'How do we fill his boots now he's gone?'), I agreed to lead the succession process. Without realising it at the time, that alone probably restricted our search criteria to people I thought would be good for the role.

After defining the attributes we were after, we developed a list of possible targets. Our preferred choice, from what we knew of the people, was a just-retired highly-successful Chief Executive who we knew had a passion for our sector. Although several of us had met him a few times, none of us could say we really knew him. (Does anybody hear warning bells yet?) I was given the job of phoning him to ask if he'd be interested.

To my mild surprise, he told me this was his first approach to join a Board since his retirement and yes, he was flattered and delighted to be asked. Abbreviating a long story, we felt that we'd 'got our man', so we didn't approach any of the other candidates (I think that's still quite normal, especially with non-profit Boards, because I think there is an understandable reluctance to approach people for voluntary roles, only to say 'sorry' to them later).

Well, he joined, was elected Chair and I left the board. I've never believed in hanging around once you stop being the Chair: it's the governance equivalent of 'Dead Man Walking', when you don't want to be there and you know nobody else wants you around either.

From almost his first meeting, the appointment was a disaster. He started behaving as the 'super-CEO', over-ruling the employed CEO, getting involved in management details and barely including the rest of the Board in most decisions. Get the picture? Much to the Board's credit, they realised very quickly the damage this was causing and he was a very short-term Chair of that Board.

So what did we (or I) learn from all that?

First, there are very good reasons for checking references. We've seen several public examples of what happens when nobody did. Only a few months after these events, someone I knew quite well asked me quietly, but obviously in frustration, why I hadn't checked with him (yes, I know, there's a small thing about Privacy Law as well). He told me - too late of course - that the person in question was a superb CEO, but terrible to work with as a director, because he could never remove his CEO 'hat'. However big the reputation, we need to check whether it is relevant to the role we're considering: it's a big change in approach from being a CEO to joining a Board as a non-executive member (even as Chair), where effective decision-making comes from building consensus, and where we don't manage the business hands-on.

This example showed me that checking those references is vital, even for a voluntary, non-profit position, because the consequence of not doing so can be disastrous.

Secondly, should I have been involved in the process at all, considering it was my successor we were looking for? In an ideal world, I don't think so. Perhaps I was so keen to move on that I allowed (possibly even encouraged) some short cuts in the process. In retrospect, if I hadn't been involved, the rest of the Board might have been more rigorous in interviewing and checking references, rather than letting me influence the appointment too much. In my defence, none of the other Board members showed a lot of enthusiasm for putting in the time that was needed to find someone and make the appointment.

On the scale of how wrong things can go, this was possibly not too bad. But the lessons were clear, and more importantly they taught me that we've developed some good basic principles of how Boards should do things.

These principles have evolved through other people's mistakes: disregard them and people will be learning from yours!