Potential Director Shortage for Growth NZ Business

For Immediate Release
20 August, 2007

Potential Director Shortage for Growth NZ Businesses

New Zealand businesses seeking skilled and experienced directors to add impetus to their growth plans may be stifled by a shortage of suitable candidates for the next few years according to a just released business survey.

The “Directions – Understanding Governance” survey is one of New Zealand’s largest business surveys canvassing more than 1400 New Zealand commercial enterprises - most of them in the small to medium enterprise sector - found more than half of those businesses expected to be searching for one or more independent directors in the next 12 months.

The survey also highlights a shift in attitude towards regarding the role of the board as adding strategic value rather than a being a compliance tool and this shift may also be behind the growing demand for independent directors.

The hunt is on for directors who can provide experience, knowledge and strategy to businesses, typically with turnovers of $20 million to $100 million, that are in growth mode. A majority of those businesses have a global component to their operations.

When extrapolated out over the total number of New Zealand businesses, there is an underlying demand for several thousand directors - a demand that may not be able to be met from New Zealand’s traditional pool of directors, most of whom are 50 plus.

“We found a similar level of demand in last year’s survey,” says Waikato Management School Associate Professor, Jens Mueller.” But there are some notable changes to the profiles of those directors.

“What we are seeing this year is less demand for professional skills such as accountants and lawyers and more emphasis on track record, work experience and global business experience.

“Clearly those looking for independent directors want people who can give strength to their business through having experienced some of the pitfalls associated with growth.

“Many also want diversity of age and global expertise to assist in rejuvenating boards and bringing a different mindset to the board table. Increasingly that’s about bringing strategic direction and perhaps a view to taking the risks needed for growth, rather than satisfying the straight regulatory role of a board.”

Dr Mueller said the second annual Governance survey had thrown up some interesting trends and results.

“For example last year the gender make-up of boards was a real issue but this year the focus is definitely on adding new skill sets to the board.

“Nearly two thirds of respondents were active in the global market place and we know that globally good governance is regarded as an important contributing factor to business sustainability.

“That factor is consistent with international research that shows good governance is a fundamental indicator of success among small to medium enterprises.”

Dr Mueller said other positive trends from the survey were a decrease in the number of CEOs who were also the company chairman, although 65% of boards also had the CEO as a director. The survey also identified an increasing trend towards formal processes for handling conflict of interest scenarios. About 50% of boards now had a formal resolution process compared to 38% in the 2006 survey.

Report co-author, and experienced independent director, Sandy Maier said another interesting trend was that of Government and non-profit organisations leading the way on separation between governance and management.

“That may be because their stakeholders and funders require greater levels of transparency,” Mr Maier said.

“It’s clear that in most cases, around 65%, it is only current board members and management that get involved in the selection of new directors. That does limit the search to what is already known and the potential to create a board that is alike in its thinking. A wider search could lead to different more challenging thinking that benefits the company through a fresh perspective. International trends and experience would that boards should seek differing opinions rather than compatibility.

“For example, it’s very common practise in the US and Europe for CEOs and their direct reports to serve on the boards of other non-competing businesses. That’s not something we see much of in New Zealand and it may be a way to increase the pool of directors and meet the obvious challenges ahead for those companies seeking to grow their wealth and their contributions to New Zealand’s ongoing economic well-being.”

The survey is supported by ANZ, Business New Zealand, Cameron Partners, PricewaterhouseCoopers, Simpson Grierson and Swann Group who use the annual survey results to assist in identifying potential directors and their required characteristics for their clients.

The survey summary is available at www.directorsgovernance.com

ENDS

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