Wednesday, April 6, 2016

Smart Selldown of Kiwibank

As one of the three original independent directors of Kiwibank, I recall some boardroom discussions in its fledgling days. Back then, about 2002-2004, NZ Post was the national postal service and it also offered some personal banking services. Some of us cheekily suggested that one day it might grow into a bank that also sold a few postage stamps. 
None of us could anticipate then quite how few postage stamps that might become, nor that only a decade later the majority of NZ Post Group's profit would be generated by the Bank.
I've been off the board and simply an interested observer for a few years now. Yesterday's announcement that NZ Post is selling 45% of its shareholding looks like a logical and smart move for everyone: it frees up cash for NZ Post (with a one-off dividend likely to go to the Government); and it gives the Bank two new (taxpayer-owned) shareholders whose business is long-term investment and who have capital to invest if they wish to see the Bank grow faster towards becoming a real competitor for the four Australian majors.
This looks like the corporate equivalent of moving out of home for the first time: it's another step in the Bank maturing and growing to its potential. 
Congratulations and good luck! I'll keep watching.

Sunday, September 7, 2014

Corporate Boards – the 'Dark Matter' in the Corporate Universe

In the 16th August 2014 edition of The Economist, columnist Schumpeter writes about the performance of corporate boards as something that ‘might politely be described as mixed.’ He goes on to describe a novel proposal in the May edition of the Stanford Law Review to replace individual directors with professional-service firms, or ‘Board Service Providers’ (BSPs).
At first glance, this proposal has some appeal – after all, Westlake Governance would be a well-qualified and credible BSP, were they to emerge!
However, before we jump to this conclusion, let's be sure we have a real problem.

One paradox of corporate governance is that an effective board is usually invisible to outsiders; its wisdom and insights are evident mainly when the company succeeds, and we typically celebrate its visionary CEO. Boards typically become visible only when things turn sour – most obviously when the directors appear before a judge to face charges.
The traditional picture of independent directors, owing their appointment to the very CEO they are there to monitor, and resembling the description of one prominent chairman – ‘like parsley on fish… decorative but essentially useless’ – is not universal and is increasingly seen as flawed. In many countries, even in the USA, highly performing boards not only appoint (and fire) the CEO, but also hold her or him fully accountable for the company's performance. In addition, such boards identify the gaps in their own skills and experience, and appoint new board candidates with as much rigour as they apply in hiring the CEO and other senior executives.
As many of those who work with us will know, Westlake Governance has developed the FICKS™ Governance Framework, which boards are increasingly adopting to guide them in applying their talents in the right areas – to ‘FICKS their boards’ – very broadly:
  • 60% of their time to creating value – Future focus (strategic decision-making) and discussing external Issues and risks ("F, I");
  • 30% to preserving value – ensuring the company is legally Compliant and solvent - and monitoring Key performance indicators, holding the CE to account ("C, K"); and
  • 10% to ensuring the board remains fit for purpose – dealing with Succession, Skills and governance Structures ("S"). 

As someone who’s been a director and board chair for the last twenty years, I know there's little general understanding of how boards add value; they’re like the undetectable ‘dark matter’ in the corporate universe. But, like cosmologists, Schumpeter and the creators of BSPs risk making flawed assumptions, with unpredictable consequences, if they ignore them and draw their conclusions only from what's visible.
Welcome a-board!

Saturday, September 7, 2013

Just published, Richard's new book - "Guidance for the Directors of Banks"

I'm quite excited - not to say relieved - that the World Bank's Global Corporate Governance Forum (GCGF) has now published my short book, "Guidance for the Directors of Banks."

You can get your copy as a free download - from the GCGF's home page (, or here:

I wrote the book mainly for three groups of readers: 
  1. New directors who have experience in banking; 
  2. Directors who understand governance, but with no banking background; and 
  3. New directors who have no experience of either banking or being a director.
If you take a look, I hope you'll see that the principles aren't unique to banking! My aim, as I say at the start, is to generate some intelligent questions in your boardroom. If it does that, it has succeeded.

Sunday, March 10, 2013

I'm only a director ... Yeah, right.

Recent focus on the role of 'trophy directors' ('Directors require skills, not a high profile') prompts me to re-publish this piece I wrote in 2010, when the matter came up before. I think it's still relevant today ...

[Then] Auckland mayor John Banks was quoted recently as dismissing his involvement in one company’s troubles with the explanation, “I’m only a director.”

How much should a director know? How responsible should he or she be for what goes on in the company?

It's quite reasonable that non-executive directors (who by definition don’t work in the company day-to-day) don’t have the detailed operational knowledge that we would expect of the chief executive and senior management.

I’m no lawyer, but the Companies Act seems quite clear: the board is responsible for management of the company. Even when the board delegates management to the chief executive, as normally happens in larger companies, the board remains responsible. So it’s understandable that, when a company runs into difficulties, all directors - including the non-executives - come under the microscope.

It may come as a surprise, but the courts won’t normally try to second-guess the commercial decisions a board makes: it’s not a crime to make poor decisions - we’ve all done that - or sometimes even to go broke. However, what the judges will consider is whether, in making those decisions - good or bad - the directors complied with their legal obligations.

In most cases, the main test for directors (section 137) is whether they have acted with “the care, diligence and skill that a reasonable director would exercise in the same circumstances.” Where I think that bar has been lifted a little in recent years is in what we expect a reasonable director to do. At the very least, the days of what we used to refer to as a “sleeping director” (the one who lends his or her respected name to the company’s letterhead and shows up for the annual general meeting, but makes little further contribution) are - or should be - past.

More positively, thanks to some recent cases, we have a few pointers about how the courts define a “reasonable director.” Among these,
  • A “reasonable director” is one who turns up at board meetings - anyone who’s been around for a while will know that this is not a universal attribute of all directors. It’s no defence that you missed the meeting where the board took a bad decision. The logic here seems to be that the company has a right to the wisdom of its directors, so they in turn have a responsibility to show up. We can all applaud that one.
  • A “reasonable director” is one who takes an active interest in the affairs of the company, and asks for the information he or she needs, to understand the company’s business and financial position. They have a duty of diligence and care to make sure - within reason - that the information they receive is complete and accurate. The longer I sit at board tables, the more I realise that one of the most important skills of a good director is the ability to ask good, thoughtful, questions, and to understand the issues well enough to ask the follow-up, “So, if that’s the case...”

From what I understand of directors’ duties, and of the courts’ attitude, I don’t think Mr Banks’ alleged comments would provide him much legal defence... Or even whether they’d sway that other jury, public opinion.

Thursday, January 10, 2013

Risk and the Jakarta Moped

A few weeks ago, I was sitting in a taxi in rush hour Jakarta, when a motor scooter brushed past us, weaving through the almost-stationary traffic.
The rider appeared to be a young mother carrying two passengers: one a small boy, about three years old, standing on the scooter’s platform directly between her and the handlebar, wearing only shorts and a torn T-shirt; the other a baby perched on the woman’s lap, nestled in the crook of her left arm, wearing nothing but a disposable nappy. By contrast, their mother wore a safety helmet the size of a giant pumpkin.
As I’m sure most parents' response would be, my initial reaction was horror at how vulnerable her children were.
Then I thought about an article in the June 2012 Harvard Business Review – Managing Risks: A New Framework, by Robert Kaplan and Anette Mikes, in which the authors propose that we should look at our risks in three distinct categories:
  • First the Preventable Risks – these are controllable and we should try to eliminate or avoid them. In a company, these risks would include things like internal fraud, health and safety hazards, and others that we can do something about. In that mother’s case, she appeared to be riding carefully and she had her children as well shielded as she could (given the real limitations of a moped with three passengers).
  • Second the Strategy Risks – these we accept voluntarily in order to achieve our strategy. These are things like a bank taking credit risk by lending to its customers. If we want or expect a high return, we usually have to accept that the trade-off is a higher level of risk. The young mother obviously needed to get somewhere with her children, and she’d opted for this means of transport – I assume after some, probably unconscious, benefit/risk assessment of the alternatives.
  • The third category of risk is the External Risks – these are events such as natural disasters and major political or economic changes, where we have no control over the likelihood of the event occurring. We can only mitigate its impact. She of course faced the risk, probably daily, of Jakarta’s chaotic traffic. I’m always surprised at how 4 million vehicles in one city can play ‘dodgems’ all day, with so few hitting one another, but most people seem to get to their destinations – eventually.

Thinking about this case, she’d mitigated the risk as best she could, while there was inevitably some residual risk. This is exactly how we operate in business – we’re not in the business of eliminating risk, but of understanding its various components and managing the bits we can. In her case, if the worst happened and they were hit, it would be more important for her to be in a condition to look after the children, than the other way around.
So maybe she had it about right. I doubt whether she’d read that article, but it was useful to think through its practical application. I hope that mother and her family continue to enjoy safe travels.

Friday, July 13, 2012

What we're thinking - also at

We're glad you've visited. We hope it becomes worth your while to return from time to time. You may even want to bookmark as one of your favourites.

The Westlake Governance "Boardsrus" blog is about helping boards work more effectively - helping you to "FICKS" your board. (Come and talk to us if you don't understand what we're talking about here.)

  • We'll tell you what we think about some topical subjects,
  • We may ask your thoughts on something controversial,
  • We'll direct you to other sites that may be of interest,
  • And, from time to time, we may talk about something that is nothing to do with any of these.

There's an old governance paradox: When an organisation's working well, the CEO's the star; when it all turns pear-shaped -- "Welcome a-board!" We hope we and this blog will help to reduce the incidence of the latter.

We're keen to hear your thoughts too - whether or not you agree with us - so don't be shy about adding your comments.

We look forward to your joining us on this exploration.

Wednesday, July 11, 2012

A Cruel and Unusual Punishment?

Although he has been in the role unofficially for at least a month, Geni-i boss Chris Quin formally took over last week as Acting CEO of Telecom for a couple of months, between Paul Reynolds’ departure last Friday and Simon Moutter’s arrival on 1 September.

It’s not unusual to appoint a senior executive into the Acting CEO’s role. But this is the first time I can remember a board appointing someone known to have been a candidate for the role, and one who publicly acknowledged his “disappointment” at having missed out, when he sent a note to his employees on the announcement of Mr Moutter’s appointment.

I know nothing of the Board’s thinking on this, but this seems an unusual strategy: “Chris, here’s the prize you really wanted. Try the seat for a couple of months. Once you get comfortable and used to it, we’ll snatch it back from you.” 

On the other hand, there’s always a risk for a Board that values and wants to retain a senior executive who has failed to win the top job: importing an outsider for a short time, over the head of Chris and any other internal candidates who also missed out, might have been an even greater risk.

I have great respect for the Telecom Board, and its Chair Mark Verbiest ... which makes me wonder whether he doesn’t have a rather more devious plan: “Here, Chris, try the hot seat for a couple of months: by that time, I think you’ll realise you’re having much more fun where you are.”

Regardless of what the Board was thinking, let’s wish Chris well in his brief tenancy of the Corner Office at Telecom.

I chair the NZ Telecommunications Forum, the technical working body of the industry. This role does not involve direct interaction with either the board or executive leadership of any of the main telcos and the opinions in today's musing are based solely on my own observations after reading publicly available information.