CARGAS TÉRMICAS.

6.1 THE QUESTION ANSWERED AND IMPLICATIONS

The research question sought to identify power and influences on the board’s agenda and who determines what corporate directors discuss by looking at how the agenda is set. It focussed on a specific sector - publicly listed companies in New Zealand. The same research findings may apply to unlisted private concerns, although the consequences are somewhat different, and government organisations (such as SOEs) in New Zealand (particularly as many of the survey directors also hold directorships in those organisations). The research findings focus solely on the power and influences that are exerted on the agenda setting process as a preliminary determinant of board director discussion. During the course of the research it became obvious that while this was one important part of agenda setting (and the study focus) there was a second feature of the process that had not been considered at all, that is, the agenda in action or how it actually works.

The directors listed the chief executive as the prime force of influence on the agenda, with the chair close behind. These two (individually or in tandem) are seen as the controllers of the agenda by over 90% of survey respondents. While the chief executive holds the reins in agenda setting, the actual control of the agenda falls to the chair to execute. The dominant position of these two as the major influencers was reinforced by focus group commentary.

Although in New Zealand the chairman is overwhelmingly non-executive - a situation the reverse of the United States - and by far the majority of Australian and New Zealand directors are non-executive (e.g., Korn Ferry, 2008, shows non-executive directors as 74% of all Australian directors - 80% in the top 50 companies) the overall impact this difference has on the agenda seems irrelevant. The majority of New Zealand directors appear unperturbed that the chief executive exercises the greatest share of agenda control. This control by chief executive and management, a regime the regulators want to break, mirrors research findings in the United States.

The research suggests that regime of management control will not be altered by the introduction of independent directors. Independents are unlikely to affect the way in which the board operates if the agenda is laid down by a chief executive. This is a critical finding and showed that the board, however and wherever it operates, may find the role of an independent chair or director of questionable value. As an independent the individual is likely to be powerless; subsequently captured by the chief executive or chair power clique that dominates the board process, independence is lost. Without influence or power an independent director is likely to be irrelevant on the board. Shareholders should not rely on independence as a lever for change and impartiality and should not assume it is a valid concept.

The appointment of the chair is, therefore, as critical, or even more important, than that of the chief executive. However, while the chief executive is normally selected after a thorough board process the chair appointment does not usually follow the same scrutiny, and should, if ability and true independence of thought and action is the end goal. This process of chair selection requires a disciplined, impartial and objective format for, as Leblanc and Gillies (2003, p. 10) point out, “it is impossible to have an effective board without effective directors.” That is even more true of the chair.

6.2 POWER CLIQUES

At the outset the research did not address the concept that boards - like any other grouping - can be made up of factions or power groups (power cliques). It was assumed that the directors were there with a common purpose, working together for the good of the company, the shareholders and the broader stakeholder community. There can be no doubt from this research project that boards do not function as one concerted and unanimous body. They have their own groups, motivation and reasons for taking part and, as the research recognised, may at times act in the interests of their family, sponsors or power group irrespective of their primary legal requirements.

The research assumed the board was the ultimate authority that set the goals, monitored the progress and drove for results without fear or favour. In other words was the highest level of authority, unified in thought and action. While it anticipated power would have degrees of strength, that is, it would vary from, say, director to chair, it assumed the board acted as a cohesive unit. On the face of it boards are a collective on a common path, but management and influencers with external links, obligations and views drive different agendas for individual members, reflect widely differing views and therefore much decision-making is likely to be compromise.

The actions of individual board members, the interface with the chair and chief executive and the social and political pressures exerted on the directors, coupled with the fluid nature of power within a corporate, form a set of dynamics unlikely to ever be fully understood or identified through current research projects. These are traditionally a snapshot (such as the present study) or short-term. Therefore, if more is to be known about governance, it is imperative to learn how crucial decisions are made. That implies a long term view to observe repetition of crucial decisions that may only arise annually (example e.g., budgets, strategic planning and board performance reviews). To fully understand boards it is necessary to conceive and execute an on-going longitudinal in depth study that covers the corporate life cycle and spans individual director and chair terms. Such a study requires total immersion in the corporate and a long term research commitment by an appropriate university project team (as with the University of Otago study of individuals and their development mentioned in Chapter Five).

6.3 PASSIVITY AND ABDICATION

One issue that emerged offered a new insight to board agenda process and overrode the other findings in its significance. From both questionnaire and focus group there was a strong undercurrent from many survey directors that boards and their processes needed to change or at least bring their modus operandi into review. That was shown by 83% of directors who agreed it was important to discuss their role as a board. However, 40% had not participated in an agenda review and 23% had issues, structural items or content they wish to see changed.

The surprise factor in considering the scale of this was the resultant director passivity when it came to actual change. The need to change the agenda was articulated but action was apparently lacking. More disturbing was the revelation that this was not seen as important. (Director comment, focus group commentary: “I didn’t know it meant a lot” Chapter 5, 5.2.)

Why, when directors express the need for change, and can even suggest the areas which should be addressed, do they then take no action? In the theory of abdication or omission this eliminates omission and can only be interpreted as abdication. In asking why a number abdicate in this key responsibility that sets the parameters of their discussions the obvious conclusion is that the knowledge and the wish to change is one thing, the ability to drive change in a board quite another. Abdication must simply be recognition by those directors that they do not have the power or the majority of the board with them to ensure change occurs. Therefore while Olds’ view of directors as parsley on fish is valid in viewing the end result, Olds seems to have overlooked the possibility that directors are ineffectual in driving change if they do not have the power to do so. Many directors seem prepared to live with this situation. Therefore, either they do not see the desired changes to be of a major nature or they do not wish to risk their position on the board by attempting to force change. Either way change does not occur.

It appears, therefore, that there is a tension between conforming on the one hand, and a need or desire to do so, yet a situation where the directors’ expectations are not

being met on the other. Conforming appears as a significant moderating force.

When this spills into decision-making it suggests boardroom debates may become sub-optimal because of the tendency/desire to conform. If that is so the boardroom is not the robust debating chamber desired (or the open forum perceived by those externally) and, in fact, that outcome is likely to be rare.

This clearly brings back the issue of power in the control of the board and suggests that what is important in considering board performance is not only the individual and personal abilities but, more importantly, the implementation of strong formal and disciplined board process.

6.4 GOOD PROCESS

What can be determined from this research is that the board agenda process - and therefore the focus of board discussion - pivots on two people, the chief executive and the chair. Upon them rests responsibility for achieving good process under the current system. For reasons already outlined this may be their most onerous task as “corporate governance is about ‘doing the right things’ and ‘doing the things right’: a twofold condition often neglected” (Berghe & Levrau, 2004, p. 462). If good process overrides all other requirements so that standards are defined, implemented and reported against with transparency it supports the proposition put forward by Leblanc and Gillies (2003, p. 10) that “board process may be the single most important factor in determining a board’s effectiveness.”

So good process is needed from the very beginning of director involvement and starts with professional selection assessment of directors and is transparently continued through the full gamut of the board decision making function. Good process will show a consistent and transparent audit trail of logic and intent and will demonstrate no director self-interest in decision-making. It will start with the agenda.

While the survey directors considered they exercised control of the agenda, it is possible they do not and their own responses showed that. They have input to it -

on the agenda, its framing and content depends not on the directors but on chair, chief executive, the management executive and the format those people choose to use in presenting a subject to the board (or even suppressing it altogether).

The research comments from the United States executives who considered the board meetings just the formalisation of the decision-making process - where the decisions are already known - appear an accurate reflection of true process. Crucial decisions appear to be thought through and discussed by the power cliques before they are listed on the agenda. In such circumstances the forces for decision are already marshalled and organised by the chairman and chief executive prior to the meeting. In many cases board members just face firm recommendations to adopt and not open- ended discussion for guidance on a way forward or innovative thoughts and seasoned judgment.

6.5 A FORMAT FOR GOOD PROCESS

In the final focus group discussion, when the directors considered the overall questionnaire results and qualitative findings, they made a series of observations they unanimously agreed offered important guidelines for current or prospective chairs, directors, chief executives and others who are responsible for agenda management and preparation. They did this in full recognition that the agenda process will differ from company to company and that there was, as Paul Light (1999) observed, no ordered common process recognised by directors. They felt certain principles and values were important and should be observed by all corporates and organisations and made these recommendations as guidelines for the process.

The background experience of this final group included an independent, non- executive director with no chair roles; an independent, non-executive director who chairs several companies (including high profile concerns) and is the former CEO of a major New Zealand corporate; an independent, non-executive director on several prominent New Zealand/Australasian boards who is also currently deputy-chair of a state owned enterprise; an independent, non-executive director of major New Zealand/Australasian corporates who has held several high profile chair roles