Crisis-Inspired Guidelines for Boards

The Covid-19 virus crisis has certainly thrown a lot of things up in the air. What does it mean for Boards and individual directors.. ? What has changed? Might new guidelines emerge?

How do we adapt fees to the context?

The question of fees is a very sensitive issue for many directors, a number of whom already feel underpaid. For Private Sector organisations where job cuts seem inevitable, it seems logical, as well as moral, for Directors’ fees to be cut, most likely in proportion with those of the chief executive and other members of the leadership team. The board directors are, in times of crisis, very much ‘in the team’ with everyone else and there is no more visible demonstration of that than a reduction in the fees.

How many Boards is too many?

Compared to international benchmarks, directors in New Zealand are already spread more thinly than most. Simply put, many have more board roles than they would be ‘allowed’ to have in other countries.

Add in Covid-19, and there are certainly murmurings from boards and executives suggesting directors [no matter how good they are] are just not able to devote the time they need to in order to fulfil their roles.

When a director has just one of their boards in crisis, there can be a significant impact on a director's performance on any other boards that they serve on. Currently, despite best endeavours, many directors are simply not keeping up and not able to put their shoulders to the wheel in ways that their shareholders and the management teams would expect them to. Many have privately admitted to us they feel ‘exposed’ despite working long hours to keep up with increased frequency of board meetings.

Even before the crisis, many analysts in NZ were beginning to question board appointments when they perceived the new director to be too busy. Strong commonly agreed guidelines around how many boards a director should be able to sit on would certainly help guide both board appointments and board evaluations as well as help inform an individual director as to when too many is too many. These need to take into account that being on the board of a large listed business has a very different workload to being an advisory board director for a small farm.

What does ‘independence’ mean?

By comparison to many offshore benchmarks, New Zealand directors are far more closely connected than others. It is quite common for directors to have past history with fellow board members in a way that gives risk to a director’s independence being compromised. While some might argue that prior relationship builds trust and so on, the intricate web of relationships that exist across the company boardrooms in New Zealand is probably something that warrants some attention.

The danger of prior relationships is a subtle negative impact on the board dynamic. Just one example is limiting free expression of a director if they are hoping that their chair will ‘like them’ and then pull them across onto another board that they are chairing. Anything that gets in the way of absolute free expression of a director’s view on a matter, whether or not it is in opposition to any other board member, is damaging to a board’s decision making process.

Again, some guidelines around what constitutes a prior relationship and how those are best managed in a boardroom would indeed be helpful.

Long-term also warrants some definition

Clearly a director’s job is to be mindful of the long-term, not the short-term however what do we mean by long-term? If you take it to its logical extension, every board in the country should be making multi-decade plans to take into consideration impacts of climate change, for example. At the moment long-term might feel like just getting through the covid crisis.

Some definition around this would be useful clearly many of our executives are on short-term incentive schemes and indeed long-term incentive schemes which might extend out for a few years at the maximum. Yet do we expect boards to look further than that..  how much further?

The current situation has gifted us the opportunity to re-imagine how boards might work in the future. We hope that some of these thoughts will assist in that.