ON GROWTH

Sam Knowles senses some boards would have trou­ble jus­ti­fy­ing their con­tri­bu­tion to the busi­ness, Henri Eliot re­ports

Sunday Star-Times - - BUSINESS -

Sam Knowles on di­rect­ing growth com­pa­nies,

SAM KNOWLES is per­haps best known for his role as found­ing chief ex­ec­u­tive of Ki­wibank. Since 2011 he has taken up a num­ber of gov­er­nance roles in pub­lic and pri­vate growth busi­nesses with an ex­port and tech­nol­ogy fo­cus.

Th­ese in­clude chair­ing ac­coun­tancy soft­ware de­vel­oper Xero and di­rec­tor­ships of listed search engine de­vel­oper SLI Sys­tems, milk pro­ces­sor Syn­lait and power com­pany Trustpower.

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 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 or­gan­i­sa­tion.

The first 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 three to four peo­ple, while 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 wellde­fined, trans­par­ent and con­tin­u­ally im­prov­ing value cre­ation sys­tem. This sys­tem in­cludes reg­u­lar re­port­ing on the or­gan­i­sa­tion’s fi­nan­cial and non­fi­nan­cial 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 or­gan­i­sa­tion’s key cap­i­tal and R&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, if it is not, forc­ing change. In­evitably there are things from the past or present that have to change. The board stand­ing above the day-to­day of the or­gan­i­sa­tion can of­ten see that much more clearly than the CEO and se­nior lead­er­ship team . . .

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.

Look­ing for­ward five 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 or­gan­i­sa­tional 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 (that is, 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.

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 by gen­der. More­over, the model of se­nior ex­ec­u­tive, like me, mov­ing from cor­po­rate lead­er­ship to full­time gov­er­nance will not be as dom­i­nant as it is cur­rently.

To­day the op­er­at­ing styles of boards vary widely, with size and the stage of or­gan­i­sa­tional 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 well­rounded 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 cor­po­rateap­pointed po­si­tions on ex­ter­nal boards rea­son­ably early in my man­age­ment ca­reer. This was 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 at least one sig­nif­i­cant ex­ter­nal di­rec­tor role as the best way to pre­pare the next gen­er­a­tion of board mem­bers and bring new in­sights to their full­time roles.

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