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    Former directors cut a deal, without admitting liability

    Governance Leadership Management Performance Societal Wellbeing
    The former directors of failed finance company Strategic Finance have successfully negotiated a deal that sees them avoid civil or crown action against them, so long as they uphold some binding commitments made as part of the deal. The $22m settlement sees the directors avoid further court action in return for making a significant payment and promising not to act as a director, CEO, CFO or promoter of a public issuer for several years.

    The deal was made with the Financial Markets Authority and the Strategic Finance receiver, PwC. Interestingly, the fine print includes a line "without the regulator's approval", which suggests that any of the directors could, if they wish, mount a case to obtain permission to act in one of the roles for which they are now disqualified. 

    This is an interesting outcome. It enables the directors to avoid any form of conviction or detention. In effect, they are free to carry on their lives, albeit within the constraints of not performing certain roles. I doubt that would be too much of an inconvenience for the gentlemen concerned. However the investors lose 85–95 cents of every dollar they invested. The sounds like a deal in which there are a few winners (the directors) and many losers (the investors). I understand the deal has been done, but how fair is this type of outcome?
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    Deloitte partner does boards and governance a disservice

    Governance Leadership Management Performance Research
    From time to time, I read newspaper articles and get annoyed. When I read this article, published today in the Dominion Post, the hairs on the back of my neck stood up. Do you notice anything odd or misleading? The article is easy to read and very accessible. The title is compelling, and the information is seemingly helpful. However, aspects of the article are poorly researched and, quite frankly, the suggestions do boards, owners and governance a disservice. Bill Hale, a partner at Deloitte, should know better. Allow me to explain, using one of the ten traits for business growth mentioned by Hale:
    Governance - A well-governed company is one that is under ‘adult supervision' - the founders are surrounded by people who have ‘been there and done that' before.
    Actually, this is not governance at all. This description perpetrates a serious misconception. Boards are not minders or coaches and governance is not a mentoring service, although many boards behave this way. Individuals directors or external advisors may perform these roles, but not boards should not. The concept of a board was established as a result of the separate of ownership and control—when absentee owners (investors, if you will) needed something to represent their interests and achieve their purposes. A seminal article, written by Berle and Means in 1932, makes the case very well. The board is an organisational-level structure: the purpose of which is to influence the achievement of performance outcomes, in accordance with the wishes of shareholders. Boards are responsible and accountable to the owners. Further, they are required (by law, in New Zealand, at least) to act in the best interests of the company.

    Can I suggest that corporate governance is actually a mechanism, through which business performance outcomes are achieved. Governance is not some structure or process as many (including Mr Hale it would seem) suggest, and the terms 'governance' and 'board' are not interchangeable. The activities and actions of boards (what they do), including setting strategy; making decisions; monitoring performance; and, hiring the CEO (for example), are processes—events that occur over time. Further, companies are made up of people, and people make choices. Consequently, the desired results—revenue growth in the case of the companies mentioned in this article—may or may not occur as a result of governance interventions, despite the best intentions of boards and managers—or anyone else that wishes to contribute.
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    Postie Plus: now in administration

    Governance Leadership Management Performance
    Despite tough trading and assurances of an improved future, Postie Plus on the ropes. It appears the die has been cast for the once strong retail business, with the announcement today that an administrator has been appointed.

    I suspect this sad tale will make a very interesting case study for an MBA class or a governance researcher in the months and years to come. It will be very interesting to learn whether the board had full visibility of the situation; what it was doing about it; and, why assurances of an improved future were provided as recently as two months ago. However, answers to these questions can (and should) wait until the dust settles. Jobs and livelihoods are on the line. The administrator needs space to work out what has gone wrong, and to tidy up what looks like a rather messy situation.
  • Published on

    What's up at Postie??

    Governance Leadership Management Performance
    Things are not going well for struggling clothing retailer Postie Plus. They have just called a halt to share trading, pending an announcement. In April, the listed retailer was under threat of suspension for not filing it's half-year results within the required deadline. Back in December, the board got a grilling at the company's annual meeting. 

    Clearly, something is not right. Is the board active and acting in the best interests of the company, or is it simply asleep at the wheel? The former is hard to swallow given the evidence of late.
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    On FMA's investigation of St Laurence: the right decision?

    Governance Leadership Performance
    There was an interesting development in the long-running St Laurence story yesterday. St Laurence, once a darling amongst finance companies in New Zealand, collapsed in 2010 under a mountain of debt, falling liquidity and, potentially, misrepresentations. The case has been investigated by the Financial Markets Authority (FMA). However, the FMA issued this announcement yesterday. Rather than pursue a court action, based on a breach of the Securities Act 1978, the FMA has issued a formal warning to the directors and closed the file.

    I am disappointed by this decision by the FMA. While it's probably the right decision from a pragmatic perspective, an important principle remains untested. Whether the directors were incompetent, negligent, unlucky or fraudulent should be determined. The answer makes a huge difference to the investors that lost millions, and, crucially, to any companies and owners that might consider any of the directors for a future appointment onto their own board.
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    The small question of control: A new "shareholder spring"?

    Governance Leadership Management Performance Strategy
    The question of who calls the shots in companies has been vexed for many years. On paper, the shareholders should have the final say, after all they own the company. However, the reality of what really happens is not so straightforward. Company ownership is widely held in many cases—particularly amongst publicly-listed companies—so forming a common view amongst shareholders is difficult at best. Consequently, boards and CEOs have considerable scope to seize control, in order to pursue their own aims.

    My observation is that shareholders are relatively happy to accept this situation when the going is good. However, when times are tough, or when the board or management pursues strategies that are not popular with shareholders, shareholders need to become more active. Shareholders need to ensure that boards represent their interests and that they deliver the results that shareholders want. It seems that some shareholders are starting to do just that, for a new "shareholder spring" appears to be occurring. Will it make a difference? Who knows. One thing seems clear though: passive shareholders will get their comeuppance.