Lunch in the Boardroom: John Palmer | The National Business Review

Georgina Bond and Henri Eliot

John Palmer

Chairman: Air New Zealand, Rabobank New Zealand

Director: AMP, AMP Life, Rabobank Australia

Previously: Solid Energy chairman, Kiwifruit Marketing Board chairman

On knowing when to leave and hiring CEOs…

John Palmer became Air New Zealand’s chairman during one of the darkest periods in the airline’s history, in 2001, when its Australian subsidiary Ansett had just collapsed, requiring an $855 million government bailout.

After 12 years, in which he’s governed the airline through a successful rebuild, the Nelson-based chairman will retire at the airline’s annual shareholders’ meeting next month, where he will be replaced by former Foodstuffs managing director Tony Carter.

Mr Palmer has been well regarded in the marketplace as someone who does not see the limelight but is a team player who provides clear direction, with an innovative approach to selecting next-generation directors.

As he prepares to retire, he shares lessons in governance with National Business Review reporter Georgina Bond and Henri Eliot of Board Dynamics.

You’ve been Air New Zealand’s chairman for almost 13 years. How long do you think is long enough for a director stay on a board?

Mr Palmer says his 13-year tenure is longer than he considers ideal for a chairman’s term.

The main reason he extended his tenure was to oversee the transition to the airline’s new chief executive Christopher Luxon.

“It was the board’s view it was unwise to change the chief executive and the chairman at the same time,” Mr Palmer says.

But the shelf life for directors can vary, he says. Air New Zealand’s former deputy chairman Roger France is likely to go in to his 14th year on the board and in his case, that’s 14 “very highly valuable years”, Mr Palmer says.

Three terms (nine years) is the norm but it should not be set in stone, he says, and some directors can serve effectively for longer than that.

“But the idea you can serve effectively for 20 years I do not accept. That’s from the point of view of needing new ideas, energy, a change of chemistry and a change in the colour of the hair around the table.

“For state-owned enterprises there’s a view two terms (six years) is about right for a director to serve. But I think that is just silly. For some SOE directors, one year, let alone one term, is enough. Why we don’t have a more conventional three-term role for some SOEs just defeats me.”

What’s the maximum number of directorships a director should hold?

“If you are talking about active governance of companies that are of a listing size and bigger, then it depends how many chairmanship roles you have.

“I think for most people, four directorships is about the limit. I have been on as many as four boards, and chairing two and that is a heavy workload.

You led the way when Air New Zealand appointed a then 39-year-old and relatively ‘green’ Paul Bingham to the board in 2008. What are your thoughts on that now?

“The view we took at the time was, if you looked at our business and the key issues, the emerging commercial power of younger people would improve the nature of our discussions as a board.”

Mr Palmer said the board had deliberately set out to find a hands-on tourism-industry operator who could bring some new and different perspectives to our board and valuable industry links.

“Paul [managing director of Canterbury-based Black Cat Cruises] fitted the bill, but had no governance experience at this level.

“But for a large company such as Air New Zealand that was not an issue because we already had a lot of governance experience around the table – which creates an opportunity for someone like Paul. It has been a very successful appointment.”

How would you encourage other boards to bring more young people on?

“The key is for boards to be very clear and think about the attributes they are looking for in their next appointment.

“I think boards do themselves an injustice by giving poor instructions to the search firms they hire. Sometimes these firms get blamed for not finding the right people, but it was the board’s fault for not getting the brief right.

“You want a search firm that’s lateral enough to bring you potential directors on the edge of what you are looking for.

“You also need to trust your board processes.

“You don’t want a board full of bright young people with no experience. Around the board table you need some wisdom.

“You need people who have experience in different situations, a few scars, and who you can rely on when things are tough and are likely to give good judgment when it really matters.

“If you have a core of those people, then having one or two people with less experience, but new ideas and challenges, should be seen as a plus.”

How do you know when a director has the right fit?

“It’s not a mechanistic process. Around the Air NZ board table it’s been important to understand the chemistry effects of appointments. More important than a cosy environment at the board table is one where you think you will create robust discussion and where there’s respect for all points of view.

“We do some things other boards don’t do to understand our candidates, including reference checking, the types of questions we ask and perhaps a casual dinner with the candidate for a sense of how they would fit and the various parts of their life outside work.”

The importance of health and safety is self-evident in an airline situation. But do you think new director guidelines around health and safety will be tough for some boards to grapple with?

“Unquestionably, yes. Getting directors to understand their responsibility and show leadership in this area is quite a challenge for some boards.

“Boards need to have an honest assessment of where they are at. For many, it will be a big wake-up that what they are doing today is not acceptable.

“I think the imposition of safety requirements on a company has to be owned culturally by the company for it to be a success. Then, everything you do has a health and safety aspect attached to it.

“So the concern for me is, how do you get it engrained in the culture?”

Where are some of the areas you’ve stamped your mark on Air New Zealand’s board?

“When I was appointed chairman, post the Crown capitalisation in 2001, my first task was to find a chief executive.

The second task was to find a new board. That certainly marked the start of my impact on the airline, by helping to shape the nature and chemistry of the board from day one.”

A poisonous board environment had existed on and off at Air New Zealand prior. This was a function of shareholder groups, both airline and non-airline, having shareholder agendas rather than business agendas for the company.

It was important that the board set the tone for creating a great New Zealand business, Mr Palmer says.

“In the past the airline also had an ‘air Auckland’ feel about the business.

“We had to think about changing that and getting geographic spread by not just sitting in a boardroom in Auckland but also being out on the field.

“It’s now more of an Australasian board, and maybe, increasingly, an Asia-Pacific board.”

Has the board had to adapt to the personalities of three, quite different Air New Zealand chief executives –

Ralph Norris, Rob Fyfe and now, Christopher Luxon?

“I don’t think the leadership style has changed. Clearly, the nature of the relationships has been different with the three different chief executives.

“The key thing is to have a high level of respect and trust between the chief executive and the chairman, and between the chief executive and the board – and the chairman is critical for that. If that’s not there, then everything will fall to bits.”

Describe your working style as chairman

“I think if you asked my team about me they would probably say I’m very clear about some things that are non-negotiable to do with ethics and value sets.

“I make sure there’s clarity around the board table as to what needs to be decided, what’s expected and how that might be delivered.

“But I’m relatively hands-off and let the chief executive get on with the job.

“And I’m fairly open to new ideas and approaches as a starting point for conversations.”

What size should a board pack be?

“I’m in the less-is-more camp, for two reasons. If you are in the ‘more’ camp it says you are encouraging detail – yet it creates more work for management and does it detract from the big issues?

“Less allows you to see whether management can accurately distill what is important, which tells you something about the way they manage. And if the crystallised information doesn’t tell you what you want to know you have a bigger problem than too much paper!

“Air New Zealand has just converted to electronic board papers and I’m a strong advocate of them, having used them on other boards. I travel a lot and find it hard to carry wads of board papers with me. And when sitting on a plane, as I do a lot, it’s a lot easier to manage them all on my iPad.”

What would you change to improve governance in New Zealand?

“I’ve been public about this before, but I have a bias towards people with deep business experience compared with long professional experience, and I think that is one of the keys to improving the decisions boards make.

“In other words, there are too many lawyers and accountants in the board room. It’s not that they don’t make good directors, because they do. But the fact people have a lot of experience in law isn’t an appropriate entry point to governance.

“You need wider commercial experience and an approach that is different from the way you run a professional advice practice.

“A litigator can bring a commercial mind to a situation, which is good, but often they’re looking at how they can pull things apart. The discussion often then starts in the wrong place, which can lead to the wrong outcome.

“You see with a lot of professionals that they’re naturally risk-averse. But you really need to know about the risk appetite of the business.”

How can we get more of Generation Y around the board table?

“The honest answer is, I don’t know.

“They are much better educated than people in my generation – much smarter and more selfish, too.

“And despite all those things they are more risk-averse and generally more interested in a big salary than going into business at a young age and taking a big risk.

“I’ve always looked for people who have taken risks.”

What approach does Air New Zealand’s board take to monitoring the health of the brand?

“Air New Zealand has a lot of measures that tell us where we are on a range of things, from corporate governance through to customer and brand ratings.

“But it’s no good tracking something that’s failing. You have to have the ability to create it as well, and that is something Air New Zealand has done exceptionally well.

“We knew we needed to be better and more agile in the customer space than our competitors if we were to survive. That has been shown by a willingness to do things differently, take some risks on innovation and to ensure that the ‘unique Kiwi’ aspect of the company was developed in a way that no one else could copy.”

Both the reporting and management discussion centre strongly on the customer issues, so that board discussion is regular and active on things that matter.

“It’s the board’s role to ensure we don’t lose sight of our brand value.”

What do you read regularly?

“I start the day at 6am listening to Radio New Zealand’s Morning Report, then I read the newspapers, physically or electronically… I read the sports pages avidly.

“Through my various board positions I get a daily feed of financial sector news out of Australia, and by the time I’ve done that and the board papers that is the day over.”

What are your retirement plans?

“Hopefully, I’ll reduce my workload in terms of hours per week that I work. But I enjoy working so I won’t stop completely,” the Nelson resident says.

“I have a few projects in mind and I’ll be happy to get some things done quietly in the background. But I want to have a diary that’s much less heavily committed two or more years in advance.”

How do you see New Zealand’s economic future going forward to 2020?

“We should be optimistic about it. There’s no great shortage of opportunities for New Zealand, but we do have to understand that if you are setting out to be average, then you can guarantee the best you will ever be is average.

“But if we are setting out to be very good as a minimum – and, hopefully, world class as a standard – then we will find we focus on what is needed to get to that level. Too much of our energy is spent on issues of lowest common denominator rather than how we can be the best at things.

“I would like things to be more aspirational. Of course, there are things that you have to judge as risky, but there’s a lot of talent here and perhaps we’ve not set high enough standards for ourselves.

“It’s better to have tried and failed than not tried.”

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Lunch in the Boardroom: John Palmer | The National Business Review

The National Business Review’s Lunch in the Boardroom series features talks with leading directors and chairman who share their insights about governance and lessons learned in the boardroom.