Setting the standard — why good governance matters

If there were any doubts left about the importance of strong corporate governance the brutal Australian Royal Commission into Misconduct in Banking cleared them up.

Commissioner Kenneth Hayne’s final report, released in February, noted “failings of organisational culture, governance arrangements and remunerations systems, lie at the heart of much of the misconduct examined in the commission”.

“Most of the boards we work with, it comes up in conversation all the time,” says governance specialist Stephen Leavy.

“In financial services, they’re actually implementing the recommendations, so it’s a real part of their world. But even beyond financial service, it is talked about all the time in wider culture and conduct questions.”

Leavy is a partner at Hobson Leavy, an executive recruitment firm which specialises in placing senior management and directors. He is also a member of the Institute of Directors.

The commission talked a lot about tone and culture, Leavy says.

“So when you think about why governance matters, it’s that the tone and the culture come from the top.”

Hobson Leavy is the sponsor of this year’s Deloitte Top 200 Chairperson of the year.

This year’s finalists are Port of Tauranga’s David Pilkington, Transpower New Zealand’s Pip Dunphy and Synlait’s Graeme Milne.

When it comes to what makes a great chairperson stand out from a good one, Leavy has a few tips.

“I think it’s important that the chair is a good listener,” he says.

“You can’t have a debate if there’s only one person talking.”

But they also have to hold management accountable.

“Sometimes governance is too soft and they rely on what they’re told,” Leavy says.

“The chair needs to set the right tempo. It’s very easy just to kick everything down the road to the next board meeting. Sometimes [you can’t — you’ve got to] make a decision”.

The stakes are higher now for boards, with a greater degree of personal liability.

That’s meant directors taking a more active role in their companies.

“In the past . . . they were almost guardians not to interfere in the business. That’s been a bit dangerous because it has created the impression that they shouldn’t get too involved or seek too much information.”

Directors these days needed to be much more willing to “deep dive” into pockets of the business.

“I don’t mean that they should be trying to run the place, that’s not their role, but they do have to be prepared to keep asking questions. There was an example in the Hayne Commission Report where one of the banks had this internal audit report which had been referred to for four years and no one on the board had even asked to see it,” Leavy says.

“And that was thing that . . . ended up getting them into trouble.”

Deloitte Top 200 Awards were established in 1990 and are held annually to recognise and applaud outstanding individual and management team performances among New Zealand’s largest companies and trading organisations.

All the Deloitte Top 200 winners will be revealed at a gala event being held at Auckland’s Spark Arena on December 5.

The evening will also include two special awards — “Visionary Leader” and “Executive of the Decade” announced on the night.