The Springboard NZ governance group for emerging directors is starting up a Wellington Branch.  The inagural meeting will be held on Tuesday 24 November at 5:30 pm at Minter Ellison, Level 24, Vodafone Tower.

For more information and to RSVP, please see the discussion on the SpringBoard Wellington LinkedIn subgroup.

SanLu Chairwoman Tian Wenhua was sentenced today to life in a Chinese prison, and two of her suppliers were sentenced to death for their part in melamine contamination cases.  According to the China Daily, Tian “was convicted for her failure to stop producing and selling milk products even after she was informed that they were contaminated. She was fined about 25 million yuan (US$3.7 million), too.”

We’re fond talking about how a director’s primary responsibility is to act in the best interests of the company (Section 131 of the Companies Act), and it goes without saying that a director must not break any laws while exercising their responsibility.

But I’m left wondering if it might not be prudent to be more specific in the Companies Act about the company’s relationship to its consumers and the general public.

In any case, it would be good for company directors to specifically acknowledge their responsibilities as part of their induction process.  Speaking the words of a public promise, with witnesses, that one can easily recall, sharpens the focus and would encourage better self-awareness of a director’s actions, as well as promoting public accountability.

I propose the following “Hippocratic Oath” for company directors:

In the exercise of my duties as a company director:

I will not deliberately harm our shareholders, other directors, company staff, our suppliers, customers, end-users, or members of the public.

I will always act within the law, and ensure that the company acts within the law.  Where I am unsure of the law, I will seek professional advice.

I commit to act in the best interests of the company, ensure that the company meets its obligations, and strive to make the company responsibly successful in achieving the strategy that is collectively set by the Board.

I will not seek to derive unfair personal gain from any transactions with the company or its personnel.

I will communicate clearly in a respectful and professional manner with my colleagues, being diligent and timely in my record keeping and reporting.

I will model behaviour as a director that I would expect from any company personnel.

I will not betray the confidentiality of information that has been properly given to me in confidence, nor will I seek personal gain from such information.  Likewise, I will disclose without hesitation any information that that is required to be made available to government agencies, other directors, stakeholders, or the general public.

What do you think?

I was invited to the Institute of Directors‘ First Generation Governance Workshop last week. Run by Marie-Claire and Frances from Vault Consulting, the session was meant to survey the SME landscape for attitudes toward governance for companies who either didn’t have a board, or had recently established one.

The participants at the workshop were an interesting mix, who thanks to Chatham House rules will retain their anonymity, covering a range from professional directors, startup entrepreneurs, people in industries servicing the sector (insurance, accounting, consulting etc), and most importantly, managers at the Institute of Directors.

There is some pretty strong recent New Zealand research suggesting that high-growth companies with boards yield significantly higher returns than those without boards, including:

• Clever Companies (PriceWatherhouseCoopers 2008)
• ANZ Privately Owned Business Barometer Survey 2008
• Managing High Growth Ventures: A survey of governance practices in New Zealand’s fastest growing companies, (Deloitte 2008)

And Yet … many companies are either unaware of the benefits of establishing good governance, or unwilling to expend the resources or effort required to get decent directors and/or advisors on board. Why is this?

The participants raised a number of hypotheses, including:

• Good advisors are too expensive and/or difficult to get
• People have heard horror stories about companies who had the wrong people on their boards
• Founders can be self-centered, and don’t want to be distracted by others whose vision might not be fully aligned with their own
• Boards can get bogged down with compliance issues, resulting in the foot being placed on the brakes rather than the accelerator
• Directors are seen to be “pale, male, and stale” – a significant disconnect with the diverse go-ahead high-growth scene

So what’s the solution to the problem? One of the participants suggested that IoD’s Marketing Manager be sacked, but as they’re mainly a subscription-driven organisation with elected branches, I would have thought that IoD’s existing members (myself included) are at least as much to blame. Nevertheless IoD management does deserve a rark-up, or at least a wake-up – unless more is done to make IoD membership more attractive to a younger audience it will find itself facing demographic heat-death.

The deeper problem is getting the message across to high-growth companies that good governance is a critical tool to survive and thrive. Yes, compliance is a box that needs to be ticked, but the real value of good governance comes from setting a strategy and driving the CEO to achieve it, supported by the experience and networks that a good board can bring to bear.

A number of people suggested rebranding governance (eg the “board room” becomes the “ideas room”) but twee semantics don’t address the real problem.

It was also suggested that “someone” (ie gummint) run a series of networking evenings to bring high-growth companies up to speed with buiding a great board. That’s a good idea, but the gummint has done to death educational opportunities for entrepreneurs.  And shouldn’t entrepreneurs and investors take responsibility for the things they can control?

I believe it’s time for the IoD to reinvigorate themselves, building new services for new companies under a new sub-brand, using new networks to create a new generation of new directors. As an example, I offered to help IoD start and manage an IoDNZ LinkedIn group to begin creating a such a new network, and suggested to her that they run a significant number of loss-leader spots on excess capacity on existing IoD courses for new directors. This two-pronged attack provides a good combination of education, knowledge transfer from old hands to young upstarts, leverages an old network into a new network, and would cost little. The result would benefit all concerned.

Sure, sex sells, and sexing up governance might make it more interesting, But the bottom line is…

Companies seeking angel investment, listen up: you’re much more fundable, will attract a significantly higher valuation, and have a greater chance of achieving your dreams with an appropriate board directing your company.

If a company isn’t willing to take that advice, they’re probably not worth funding.

High growth driven by a great board with an excellent strategy executed by a brilliant management team — now that’s sexy!