An Investment banker’s perspective on corporate governance
John Brabazon career highlights include investment banking at Banque Indosuez, Brierley Investments and Bancorp. Currently John is a director of Auckland International Airport and Chairman of Kern River Oil Corporation in the United States.
John Brabazon talks to Henri Eliot on his perspectives around corporate governance from an investment banker’s perspective.
What is the role of the Board from your perspective?
The role of the board is to utilize the diversity of Directors’ skills and business networks to maximize long-term sustainable financial returns to shareholders. Another key role is in hiring, supervising, compensating and if necessary terminating, the CEO’s employment with the company.
The Board provides leadership around the vision, mission, business plans and ethics of the organization. It must ensure that the governance framework is operating efficiently and ultimately monitor its performance relative to budgets
Looking forward 5 years do you think Board dynamics will change?
Board Dynamics are already rapidly changing as evidenced by continued growth in Asia, including the sophistication of their capital markets. Increased regulation burden and uncertainty will continue to be top of mind for directors. I would expect the impact of the Internet and social media will change the way boards work. A growing pool of talented female directors will also continue to join boards.
Finally, there are a significant number of highly educated people within the migrant community that will play a more active role around the Board table in the coming years.
How will the next generation of Board members differ and operate?
As a generalization they are likely to have better knowledge of technology, better respect for the environment and social diversity.
How are we preparing the next generation Board member for the future?
The Institute of Directors operates many excellent courses. In addition, Sheridan Broadbent was on the inaugural Future Director Program at Auckland International Airport. Sheridan would be an outstanding addition to any Board.
However, unfortunately the financial return and risk profile of being a full time company director is unlikely to persuade a young talented person to switch from a corporate or professional career pathway in the future.
Can you provide tips on how to cool overheated debates or conflict in the boardroom?
Some degree of rigorous debate is inevitable in boardrooms and should be encouraged. The last thing any board wants is for all directors to be clones of each other. However, this needs to be managed by the Chair so it doesn’t lead to conflict.
A Chair on highly contentious issues will often do some or all of the following:
- Have a ring round pre-meeting to get the mood of the board
- Perhaps have a dinner the night before for directors to discuss informally
- Allow sufficient time for the issue to be fully discussed and all directors given the opportunity to express their opinions
- Identify whether further work is required before going to a vote
- Hold a vote – if a director/directors are passionate against the proposal they should vote against it
- Once a decision is made the board needs to fully support it, at least publicly. If a board member cannot do so they should resign.
- A board should be able to disagree without being disagreeable.
The Chair should have a one-on-one meeting with all directors at least annually to review that Directors performance and provide feedback. Some directors for example may need mentoring due to their inexperience and/or further targeted education to fully contribute at board level.
If you cannot persuade your board colleagues that your plan is the best alternative, chances are it is not and the consensus should rule.
What gives you the most sense of achievement on a Board?
The greatest satisfaction is genuine win-win situations, which create value for shareholders and benefit the New Zealand economy. For example, growth in tourism has deep flow-on benefits to employees, business owners and the taxpayer.
Turning back the clock would you do anything different?
Thinking about past business regrets is not a productive use of time. But to be honest I wish I had been a foundation investor in TradeMe and bought Xero shares at less than $2.00.
Henri Eliot is CEO of Board Dynamics