Growth Company Director perspective on Board Governance in New Zealand

Sam Knowles, Chairman of Xero talks to Henri Eliot.

Sam is perhaps best known for his role as CEO in establishing Kiwibank. 
From 2011 Sam has taken up a number of governance roles in growth businesses with an export and technology focus public and private companies. These roles include Chairman of Xero, director of SLIsystems, Synlait and Trustpower.  He shared his perspectives of corporate governance.

What is the role of a board from your perspective?

In my experience the most important value-add by board governance is to promote the fitness and health of the organisation.  In a world where the only constant is change the fitness of the organisation to continually adapt and periodically transform is the key attribute of sustained success. There are three main areas boards need to focus on to promote the fitness and health of the organization

The first area is to ensure the organisation has a great senior leadership team with deep specialist capability that has a clear vision and aligned values and behaviours. In a small organisation the team might be 3 to 4 people in a large organisation it is frequently 20 plus. Central to success is the right CEO. The “renaissance” CEO is expected to be captain, coach and strategist and be the brand for both the external market and within the organisation.  Without an outstanding CEO it is very unlikely that the organisation will be an outstanding performer. Working out what to do when your CEO is not outstanding is one of the hardest and most important roles of a board

The second area is to ensure that the organisation has a well-defined, transparent and continually improving value creation system.  This system  includes the regular reporting on the organisations financial and non-financial measures; the plan, do, review and improve cycle within the business; the planning process that promotes board involvement in the fact based analyses of the big strategic issues; and the formalised decision process for the organisations key capital and Rand D investment and resource allocation decisions

The third critical area for the Board is to ensure that the organisation is actually taking the tough decisions and forcing change if it is not. Inevitably there are things from the past or present that have to change to build the future. The board standing above the day to day of the organisation can often see that much more clearly than the CEO and senior leadership team

Looking forward 5 years, how do you think the board dynamic will change?

There is currently much attention being given to good governance practice and process. This is necessary given the organizational failures that have caused significant personal and financial loss to many who were relying on our governance structures to put stakeholder interests before their own interests. However following good practice is not sufficient and will not always deliver the deep business understanding, the leadership style and the robust decision-making processes that are in my view the hallmarks of governance in successful companies.

Governance is a team process. The most critical dynamic is the diversity of experience of the team relative to the context (i.e. markets) that the organisation operates in. New Zealand’s future requires us to build globally successful companies fast.  Our biggest governance challenge is to step out of our comfort zone and diversify our board composition to include the in-market and cultural experience necessary to inform our global strategies. This will undoubtedly require us to adapt the “kiwi” style of informality and smallness we are so comfortable with.

How will the next generation of board members differ and operate?

Unlike today when most Board members look like me, the next generation will be far more diverse –culturally and  gender. Moreover the model of senior Executive, like me, moving from corporate leadership to full time governance will not be as dominant as it is currently.

Today the operating styles of boards vary widely. Size and the stage of organizational development and risk being key determinants of operating style.  I don’t expect this situation to change significantly.

How are we preparing the next generation board member for the future?

The competence required of a successful director usually comes from their breadth and depth of executive experience with the best preparation being a well-rounded career in a range of positions and ideally in a number of different markets. The best directors are respected for the depth of independent-minded judgment they bring, and the quality of their communication and influencing skills.

In my career I had the good fortune to take up corporate appointed positions on external boards reasonably early in my management career. This was, in my view, an excellent way to both develop my own skills and take back the good practices I saw in other companies.  I would really encourage Corporates to allow their senior management to take a least one significant external director role as the best way to prepare the next generation of board members and bring new insights to their full time roles

What gives you the most sense of achievement on a board?

My real sense of achievement is watching people and teams grow in confidence and capability as they successfully drive organizational growth. There is nothing better than the feeling you get working with an energized team to overcome what initially looked like an insurmountable barrier. And you know it will be easier next time

What do you read? From business publications to leisure…

My reading for work takes at least an hour every day. My general email reading includes a number of websites including strategy-business.com and techcrunch.com.

I usually get through the Economist most weeks to give me general background on what is happening in the world. I try to read a hand full of business books each year – I have just finished one of the marketing classics Crossing the Chasm by Geoffrey Moore on the challenge of technology adoption curves and I have waiting,  Predictable Success by les Mckeown on sustaining growth in organisations.

Final word or comment on corporate governance in New Zealand?

At its most basic, the job of the Board is to make sure the organisation is better at the end of the year than it was at the start. And if the board cannot stand up annually in front of its stakeholders and explain exactly why that is so – it is not doing its job properly. My sense is there are some boards that would find that hard.

Sam Knowles Interview

Henri Eliot is chief executive of Board Dynamics, a consultancy company which provides strategic advice to directors and boards throughout New Zealand and Australia.