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    Local Councils: You need to resolve your #corpgov conflicts

    Governance Management Research Societal Wellbeing
    The ugly face of conflicted interests in local council governance raised it head in Wellington again today. In September, I suggested that it was time for Councils (and Councillors) to resolve the conflict of interest that exists when they appoint themselves to subsidiary company boards.

    This morning, the Dominion Post published a front page article stating that Wellington City Councillors had voted to axe perks for board appointments. This sounds like a step in the right direction, however the decision will only become effective from the next term! Further, Councillors can (and probably will) still appoint themselves to plum roles. This smacks of cronyism and the feathering one's nest for personal gain.

    It's disappointing that the Council has not bitten the bullet by moving immediately to appoint independent directors to the Boards of subsidiary companies. The appointment of independent directors, through a robust appointment process, will achieve at least three positive outcomes:
    • Remove the conflict of interest that exists when Councillors appoint and pay themselves
    • Ensure the best possible skills are recruited to maximise business performance
    • (Begin to) restore public confidence in civic administration 
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    On becoming "globally influential"

    Readings Societal Wellbeing
    Every day, news stories and articles from a plethora of sources arrive in my email inbox and news reader software. The deluge is self-inflicted—I need to read widely for my doctoral studies. Mind you, having a voracious appetite for general knowledge doesn't help much!

    Every now and again, an article seems to lift itself off the screen, seemingly to attract extra attention as my eyes scan down the headings. Today, one such article was the "Top 100 global thinkers for 2012" list, published by Foreign Policy magazine. I looked at the FP list, because I was fascinated to know whether Aung San Suu Kyi of Burma or the Pakistani student Malala Yousafzai featured anywhere. To my surprise (and delight) both appeared in the top ten.

    It seems that, in 2012 at least, global influence is strongly correlated with politics and activism. With one exception (Sebastian Thrum—a computer scientist who has been working on the driverless car), the top ten are all activists or politicians fighting for various causes. It's not until you read further down the list that musicians, economists and business people start to appear.

    The point of this muse? Perhaps if you aspire to become globally influential, you should turn to politics in a volatile state, or embrace a vital cause. But most people motivated by these endeavours couldn't care less about fleeting appearances on "influence" lists. Rather, their primary motivation is the cause they've chosen the invest their hearts and souls in, and the enduring impact of their efforts. And therein lies a lesson for us all, as we ponder our role in society and contribution to it.
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    Mixed mid-year reporting signals (UPDATED)

    Governance Management
    UPDATE: more filings + latest business confidence results published since original post.

    The annual and half-year reports emerging in the New Zealand market this week appear to be generally soft—perhaps indicating that the economy remains relatively fragile, and that strong economic growth may still be some way off.
    • Ecoya's revenue is up 16%, while EBITDA remains in the red
    • Rangitira reported that operating earnings of $3.3M for the six months to 30 Sept 2012, down from $4.4M for the corresponding period in 2011.
    • Sanford's profit fell and sales growth stalled.
    • PharmacyBrands appears to be growing, but the bulk of the growth has come from acquisitions.
    • In contrast Air New Zealand has provided guidance that it is on track to double its pretax earnings.
    • Argosy boosted its first-helf result by 29% (albeit on the back of an in-house merger)
    • TOWER (the insurer) reported a 67% increase in net profit after tax.

    While business confidence is reportedly improving, more strength is needed in the economy. What do you think the trigger to tip the economy from "fragile" to "strong" will be? 
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    What is your Christmas #corpgov wish?

    Governance Research Societal Wellbeing
    Thanksgiving marks the beginning of the Holiday Season in the US. Sinter Klaas is not far away for Western Europeans (5 Dec). Indeed, today marks one month until Christmas Day. With the cooling of the weather in the Northern Hemisphere, and its warming in the Southern, many people start reflecting on the year past, and the year ahead. On their hopes and dreams, and on the giving and receiving of gifts.

    In the spirit of the season, and the general theme of this blog, what might your corporate governance wish be this year?
    • more diversity on Boards?
    • better alignment between pay and performance?
    • less corruption and fraud?
    • directors taking more responsibility and accountability?
    • something completely different?

    I'd like to think that 2013 will herald a sea-change for governance; the year in which the boardroom troubles of recent years were consigned history; the year in which Boards got on with the business of growing companies, making them strong and improving societal wellbeing as a result. Gosh, that sounds grand. Is this too much to wish for, or is this something worth striving for?
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    The governance intent–reality gap (trap)

    Governance Management Research Strategy
    I've been conducting an informal survey in recent weeks—asking directors and managers about the importance of strategy, and the extent to which the Board of their company is involved in strategy formation.

    The overwhelming majority of respondents have told me that the Board has a key role to play in [forming] strategy. However, after listening further and checking, I've discovered what appears to be a yawning gap between what respondents claim and what actually occurs in practice. Surprisingly few Boards actually spend much time on strategy at all. Rather, they concentrate on monitoring and controlling the past, on managing risk and on ensuring compliance.

    Why is there an intent–reality gap when it comes to governance and strategy? And why is it so large? Surely, if Boards have a key role to play in forming strategy, they would be directly and heavily involved in the process? When pressed, Board members said they expect management to form strategy, for consideration and approval (or otherwise) by the Board. In reality, they spend the bulk of their time reviewing business performance. Is this smart? Looking backward is hardly a good technique when the goal is to drive forward.

    If Boards are serious about maximising the performance and value of the organisation they govern, you would think they would spend the bulk of their time on strategy and the consideration of strategic options. What do you think is going on here? Is this another case of board members offering the so-called "correct" answer because they don't want to be shown up? Or does "consideration and approval" equate to "appropriate involvement"? Or is some other psycho-social interaction driving behaviour? I'd love to hear from you!
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    Governance in sport: the same or different?

    Governance Research Strategy
    What role should governance (especially Boards) play in sport? Should sporting codes be governed any differently than commercial businesses or not-for-profit agencies? 

    These questions are raised from time-to-time—often by the media and commentators, and especially when a team or code is not doing so well. Yet another case was reported today, this time concerning New Zealand Cricket. Dion Nash is reported as saying "the board is failing in its duty to lead the game in the right direction." Such criticisms are not new. The challenge is in finding and implementing the remedy.

    The moving parts that make up a sporting code are familiar—a board, administration, management, players (called workers, employees, volunteers in other contexts), spectators (customers, consumers). In my view, sporting codes are just another form of organisation, albeit with goals specific to their context. Therefore, they should embrace [sound] organisational constructs and practices, including governance.

    Dion Nash's call for the NZC Board to take control of the sport's destiny (and ultimately the Black Caps' performance) via sound top-level planning (strategy) has much merit. The development of strategy is now widely accepted in academic circles to be a major task of the Board. To do this effectively, Boards need to be comprised of people who understand the market and emerging trends, and understand and participate in the development of strategy. In NZC's case, that means appointing suitably knowledgeable and competent people to the Board, and soliciting well-structured contributions from various specialists.

    The time to act is now. But will the NZC Board be so bold as to make the necessary governance adjustments—for the good of the game?