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