Last week, I was invited, with 16 others, to help review a Competency Framework being proposed by the Institute of Directors. I commend this initiative, aimed at raising the bar. While competency of itself does not guarantee that any director will be effective, it is a move in the right direction.

Last week, I was invited, with 16 others, to help review a Competency Framework being proposed by the Institute of Directors. I commend this initiative, aimed at raising the bar. While competency of itself does not guarantee that any director will be effective, it is a move in the right direction.

During the wide-ranging discussion, several participants suggested that governance should be professionalised, like medicine, accountancy, law and several other professions. I support these calls—strongly. Why? Well, stories like this get under my skin. While the majority of directors fulfil their legal and ethical responsibilities well, sadly there are a few bad eggs that discredit governance in the public's eyes.

The mechanism would be relatively straightforward, involving perhaps:

• entrance tests (competency, references and interviews)
• maintenance of professional standards (on-going education)
• periodic re-registration (two- or three-yearly)
• tiering (a general registration, and a higher level for directors of large, widely-held or publicly-listed companies)
• a disciplinary tribunal (with teeth and a propensity to act)

The Institute's optional accreditation scheme provides a useful starting point, but it falls short because participation is optional. In my opinion, governance must be professionalised, with a robust body and process not dissimilar to medicine (Colleges of Practice, Medical Council of New Zealand, Disciplinary Tribunal). Perhaps then the concerns expressed in the article—that directors can dodge bans—will become a thing of the past. Here's hoping.

An outstanding Editorial appeared in our local newspaper, the DominionPost, today. The editorial highlights the significant conflict of interest that exists when local government politicians are appointed to the boards of Council Controlled Organisations (CCOs). The appointment of local councillors—many of whom lack sound governance expertise, and all of whom are conflicted as the editorial argues—must stop. 

Councils and local communities would be far better off if independent directors were appointed to the boards of CCOs (and held accountable through normal shareholder and fiduciary processes). Independent, commercially astute directors would focus entirely on their role of acting in the best interests of, and maximising the performance of, the company. In so doing, the returns to shareholders would more than likely improve over what would otherwise be possible with a highly conflicted Board.

PS: I disagree with one sentence towards the end of the Editorial "...over time, superior systems will produce superior results." No. Governance is a complex and socially dynamic phenomenon. Over time, superior systems should produce superior results. 

Against a backdrop of greed, examples of New Zealand companies taking a strong ethical stand and "doing the right thing" are starting to emerge. This week, Keith Turner, Chair of publicly-listed company Fisher & Paykel Appliances was reported as saying that his approach was to resist trading (in FPA shares) while the Board was debating and commercially analysing ideas that could have material value implications. This strong ethical stance—based on what is best for the company—bodes well for the somewhat sullied reputation that governance boards have suffered recently.

Well done FPA Board, your ethical stance is an example that others should follow.

The first (planning) phase of my doctorate journey is drawing to a close. In the next few weeks I expect to finalise my research proposal and defend it in front of the University Confirmation Panel. Assuming that goes well, I can start the research proper, by selecting three companies to participate in the research. I have one already, but need at least two more. Here are the parameters:

• A record of high-growth over at least three years (revenue growth at least 20% pa compounding)
• A mature governance structure in place (a formal board that meets regularly, with reports and minutes)
• Formal records available (annual reports and board minutes)
• Domiciled in New Zealand

Would you like to participate in some ground-breaking research to explore the contribution boards make to company performance? The research will involve observation of board meetings and some interviews, and all company details will be kept 100% confidential. 

Please contact me if your company might be willing to participate, if you know of a company I should consider, or you would like more information. Thanks in advance!

A seemingly small—but ultimately quite significant—statement emerged from the corporate governance sector this week. The CEO of one of New Zealand's larger companies went on record when announcing the company's annual result. He stated that his directors must act in the best interests of the company (not the shareholder).

Meridian chief executive Mark Binns said the company would take time to evaluate the situation but would ultimately come to a decision that was in the best interests of Meridian Energy Limited. ''The obligations of the directors are very clearly set out in companies law and the Companies Act, that is to act in the best interests of the company.''

This was a refreshing statement, because most directors and executives (in New Zealand) incorrectly believe their role is to act in the best interests of the shareholder. Research conducted in 2010 by Dr James Lockhart indicated that the majority of directors in New Zealand simply do not understand their legal obligations. The New Zealand Company Act is quite clear: directors must act in the best interests of company. Well done, Mr Binns.

I get asked this question two or three times most months. Like any social institution, companies are complex and their success is subject to many variables. As far as I am aware, there are no cookie-cutter models that reliably deliver "point and shoot" type results. However, there are things company owners can do to increase the chance that their company will be successful. One of these is to establish a governance board. I'd like to suggest that a first board (or any board for that matter) can offer considerable value in three areas:

• First: strategy. Strategy is now widely (but not universally) accepted as a major role of the board. Owners are typically very busy, and they often can't see the wood for the trees. Also, many are not that good at generating or considering strategic options. A couple of carefully selected board members with well-developed strategy and critical thinking expertise can be really helpful to help understand the environment and set an appropriate course to navigate.
• Second: monitoring. Again, owners/shareholders are very busy! A board will help determine whether the company is performing to plan or not, and help sort out any remedial actions that may be required.
• Third: connections. Gaining access to resources (capital, skills, customers) can be a real challenge for smaller business owners. Directors can help in this regard, because most have a wide network of contacts and are happy to make introductions to secure access to much-needed resources.

These comments are offered in the context of owners of smaller companies becoming comfortable to "let go"—to open the financial records, to reveal the inner workings of the company, and to invite others to contribute to the generation of ideas and strategic options. These are all big hurdles for many owners. Yet they are hurdles which, if vaulted, can have big payoffs, through increased performance and a more sustainable future.

How does one get started down this path? Talking to people with experience is the best option in my opinion.  I am a strong advocate of professional bodies and organised networking groups. They are a good source of information, real-life stories, and, importantly, potential directors. Many of these groups schedule events where more experienced directors, researchers, business owners and CEOs to share case studies (good and bad), to help inform owners that might be considering an external board.

One final point. As an owner or shareholder you hold the control! You decide whether to establish a board or not, and you appoint the directors. And if things don't work as expected, you can (and should!) make changes.