Management July 2010 by mediaweb

THE DIRECTOR p57

In this issue:

COVER STORY P26

The human face of banking A bit of a legend: AIA’s new head p32 Taking a stand on corruption p40 Managers at risk p55 It’s tough at the top: CEOs & depression p60 Deloitte/ Management Magazine

JULY 2010 $6.95 INCL GST

BNZ’s CEO Andrew Thorburn

TOP 2OO A Bold Spirit

Banking as...

...a human pursuit? In the new world, banking is about people who invest in people, their futures and the lives lived - here on our own doorstep. It’s starting bold conversations, that make us rethink what’s around us. It’s about pursuing possibilities and realising potential.

Join us at this year’s Top 200 where we meet those who are already rewriting the rules for a new world. 6.30 pm Thursday 2nd December, SkyCity Auckland Convention Centre. Visit www.management.co.nz/top200 for more information or ticket registration.

INSIDE

Deloitte/ Management Magazine

TOP 2OO

JULY 2010 • Vol 57 No 6

A Bold Spirit

Understanding the new world

26 COVER STORY

The human face of banking Putting the people back into banks

Andrew Thorburn.

THE TOP 200 CAMPAIGN

EDITOR’S LETTER

As part of this year’s Deloitte/ Management magazine Top 200 Companies campaign ‘Understanding the New World’, we continue our series of six themes examining major contemporary issues and opportunities for business. This month, an analysis of banking.

IN TOUCH: News & Views, Managers Abroad

ON THE MOVE

EXECUTIVE DEVELOPMENT

FOCUS

NZIM: Time to step up Reg Birchfield

THE HUMAN FACE OF BANKING Just how close New Zealand came to financial disaster during seismic shifts in the financial world last year we may never know. But the face of banking will never be the same, say those in the industry. Brenda Ward discovers after the shake-up, banks are going back to people.

JUST GOOD BUSINESS

NEWS

CASE STUDY: When waste is good

SUSTAINABILITY: Lost in the bush Peter Neilson

OPINION

BOOKCASE Reg Birchfield, Brenda Ward

THOUGHT LEADER: From dial-up to LinkedIn Gordon Shaw

POLITICS: When better is better than more Colin James

ECONOMICS: It’s fragile out there Bob Edlin

AS I SEE IT: Steve Price

ADVICE

HEALTHY LIFESTYLES: Why working is good for you Peter Tynan

EXEC TECH: The ergonomist speaks Pauline Herbst

VOICE: Love that harbour link! Brenda Ward

HEALTH AND SAFETY: Managers at risk Grant Nicholson

TOP TIPS: How to match Australia Grant Amos

FEATURES 32

FACE TO FACE: WAYNE BESANT – A BIT OF A LEGEND We need more authentic Kiwi leaders, says AIA’s new group CEO, Wayne Besant. As he moves from banking to take a fresh perspective into insurance, Besant tells Brenda Ward the finance industry has to do more to help Kiwis understand money.

SMART COMPANY: FIRST CAB OFF THE RANK Thinking differently about managing a fleet of cabs has worked for Kiwi company TaxiCharge, says Reg Birchfield.

EXPORTS: CHINESE WHISPERS Every Kiwi company should be looking at doing business with China, says a Kiwi who has experienced that country’s growth first-hand. Martin Freeth finds out why.

ETHICS: TACKLING BRIBERY AND CORRUPTION When it comes to anti-corruption policies, New Zealand companies may not be as good as we think we are, finds Reg Birchfield.

STAFF RETENTION: MORE THAN JUST A JOB Increasingly, companies are using methods other than pay to reward and motivate staff. Brenda Ward looks at two companies looking outside the square in increasing staff engagement – BDO and Vodafone.

FLEETS: REINVENTING THE WHEEL

Alastair Sloane test-drives practically every new car in his role as the NZ Herald’s motoring editor. He runs Brenda Ward through some of the top cars for you and your business. 52

TRAINING: CYBERSTUDY – THE FUTURE? As online training takes off, Brenda Ward looks at the benefits of virtual learning versus traditional face-to-face methods.

LEADERSHIP: FROM ROCKETS TO CATARACTS It’s not rocket science... or maybe it is. Winners of the Sir Peter Blake Leadership Awards showed inspiring leaders can come from fields as varied as medicine and astronautics. 46

WOMEN ON BOARDS As Australia adopts rules on women board members, Susan Hornsby-Geluk speculates that New Zealand may follow suit.

IT’S LONELY AT THE TOP Should boards, at the first sign of stress, bundle their high-paid CEOs out? Clive Plucknett tells Reg Birchfield how boards should react.

PAID TO FAIL Iain McCormick looks at CEOs who get big payouts even as their companies are failing – and what boards can do here. 58

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editor’s letter

Kiwis who inspire

by Brenda Ward

I’m fortunate to talk each week to some of New Zealand’s best minds in business and industry, and I’m incredibly heartened and humbled by what I find. You only have to scratch the surface of a Kiwi CEO to find someone who wants to make a difference. It’s extraordinary how many of our leaders think about the identity of New Zealand as a nation and how they and their companies can play a part in making this country great. One optimistic operator in the sustainability area told me: “Every Kiwi seems to have the green gene.” I’m sure he’s right. He’s using his for the betterment of the environment (page 14). Another leader in the prime of his career talked about ‘authentic leadership’ that role-models the kind of culture and social responsibility you want to see in your business. He volunteers in a budgeting service (page 32). But one fact that surprised me as I was researching the world of banking for this issue was the financial illiteracy of so many Kiwis. It’s obvious when you think about it. We send our children out into the world unprepared for the realities of budgeting and investing and then feel surprised that we’re not a national of savers. The crisis of confidence created by the global recession is being addressed by regulation, which is a fine thing, but I believe Kiwis won’t be truly financially secure until they have the skills they need to understand how to build wealth and prepare for retirement. We need business owners who are prepared to invest in their ideas and take them global. We need visionaries who show how leadership can create strong and proud companies. And finally, we need senior managers in business to look at their companies as a functioning part of the New Zealand landscape, and consider the wider choices they can make in their communities. As we continue our Top 200 Theme series, ‘Understanding the New World’, with an analysis of the banking landscape post-global financial crisis, we hope that business and industry will work together to encourage Kiwis to learn more about investment and building financial security.

www.management.co.nz a mediaweb magazine EDITOR Brenda Ward 09-575 8830, editor@management.co.nz contributing EDITOR Reg Birchfield reg@rjmedia.co.nz CONTRIBUTORS Grant Amos, Bob Edlin, Martin Freeth, Pauline Herbst, Susan Hornsby-Geluk, Colin James, Iain McCormick, Peter Neilson, Gordon Shaw, Peter Tynan Advertising Manager Clara Iqbal 09-271 3711, 021-930 887, admanager@management.co.nz DESIGNER Rachel Walker COPY & WEB EDITOR Gill Prentice production MANAGER Fran Marshall franm@mediaweb.co.nz NEW SUBSCRIPTIONS www.management.co.nz/subscribe Subscription enquiries subs@mediaweb.co.nz

Phone 09-845 5114, Fax 09-845 5116 enquiries@mediaweb.co.nz www.mediaweb.co.nz PO Box 5544, Wellesley Street, Auckland 1141

Deloitte/ Management Magazine

TOP 2OO A Bold Spirit

NZ MANAGEMENT magazine is independently owned by Mediaweb Limited and is published 11 times a year. It is the officially recognised magazine of the New Zealand Institute of Management Incorporated. Editorial material does not necessarily reflect the views of NZIM. Copyright © 2010: Mediaweb Limited. All material appearing in NZ MANAGEMENT is copyright and cannot be reproduced without prior permission of the publisher. Editorial contributions are welcomed. Letters to the editor are also welcomed, but pen names are not acceptable. NZ MANAGEMENT is printed by Benefitz. Subscriptions: One-year NZ subscription (11 issues)

$76.45 (GST incl). Overseas (airmail only): Australia $NZ130; rest of the world $NZ250. Enquiries: Mediaweb Limited, PO Box 5544, Wellesley Street, Auckland 1141, New Zealand. Phone: 09-845 5114, Fax 09-845 5116, enquiries@mediaweb.co.nz www.management.co.nz New Zealand Institute of Management enquiries to: National Office, Box 67, Wellington; Northern, Box 26001, Epsom; Central, Box 11781, Wellington; Southern, Box 13044, Christchurch.

Vol 57 No 6 • ISSN 1174-5339

JULY 2010 Management www.management.co.nz 5

intouch Carrington Resort, Karikari Peninsula: a fine expression of regional fare.

LOCAL IS HOT From China to Scotland, local is the hottest topic in international food right now. Hot enough for both European and US government agencies to fund local food marketing initiatives and for farmers’ markets to move from being romantic tourist destinations in ancient European villages to faraway countries like New Zealand. It is not just foodies who are driving this phenomenon, but also regular suburban shoppers who frequent supermarkets. The latest research from Canada shows that 78 percent of consumers want to know where their food is grown and 96 percent believe that ‘healthy’ equates to local produce. “Americans are more interested in food and agriculture than at any other time since most families left the farm,” said US deputy agriculture secretary Kathleen Merrigan in announcing the ‘Know Your Farmer, Know Your Food’ initiative on which the US Department of Agriculture is spending US$65 million in 2010 promoting regional food sources and farmers’ markets. To increase the appreciation and consumption of New Zealand’s regional

6 www.management.co.nz Management JULY 2010

food resources, Mediaweb, publisher of food industry publications grill and FMCG as well as NZ Management, has launched a Regional Fare campaign. It will gather information for comprehensive regional and national databases on locally produced food and beverage resources. The campaign will be backed by a nationwide branding programme – the Taste Of New Zealand Awards (TONZA) – which will direct visitors as well as local diners to those cafes, bars, restaurants, hotels and lodges that are supporting local producers by presenting their food and beverage products in the best possible light. A panel of independent industry representatives will determine whether an establishment is eligible for a TONZA and, if so, it will be categorised as either a ‘Good’ or ‘Excellent Expression of Regional Fare’ “The campaign programme is designed to foster an awareness of and pride in our stunning and growing range of local produce and promote it to local, regional, national and international audiences,” says Mediaweb publisher Toni Myers.

“Our aim is to have the TONZAs in place throughout New Zealand by August of next year in time for the influx of international visitors for the Rugby World Cup in September and October.” Myers says there has been a very positive response to the Regional Fare initiative from both the hospitality industry and local producers. “There is little doubt that the trend towards consumers seeking out good local products is gathering momentum globally, which is being reflected in the growth of farmers’ markets in this country.” Farmers’ Markets New Zealand, which was established only five years ago, now has 50 member markets throughout the country, representing over 1000 small to medium-sized food businesses and 50,000 weekly customers. The association recently held its third annual conference in Hamilton with international speakers from the UK and the USA outlining the latest developments in these markets globally, which include First Lady Michelle Obama’s launch of a farmers’ market at the White House. M

WINNING WORKERS Workers aspire to live lives they have reason to value, says a researcher from Victoria University. Dr Jane Bryson says her research study showed workers want to be capable humans – not just skill sets for the workplace. “Human contributions to society are not solely through work, and organisational contributions to society are not solely economic,” she says. Bryson’s team ran a five-year research project exploring the conditions that are required to get the best out of people in the workplace. Employers need a focus on human capability to ensure their workers are happy and their organisation is productive long term, the university research found. She says that other than legal compliance, there is currently no accepted set of principles guiding employers. “Management and human resource management practices are largely buffeted along on the tide of ‘best practice’, personal beliefs, or meeting the demands of a business strategy, where the needs of business survival and shareholder prosperity often outweigh other considerations. Hence, good managers and supervisors sometimes find themselves in the situation of being ‘custodians of bad practice’.” One part of the study, which involved more than 200 interviews carried out across 30 organisations, asked participants about the drivers and barriers to being able to develop capability in the workforce. Results showed it was better to be in a permanent job, which offered

were actually getting much more loyalty and productivity from their staff. Even though on the face of it these staff are easily replaceable, it still makes sense to invest in their development.” Bryson’s research suggests allowing workers to take part in decision-making and creating a workplace environment which encourages development. M

more stability and greater willingness by employers to invest in development opportunities. It was also better for organisations to take a long-term view rather than prioritising short-term gain. “One of the interesting things we found going into factories was that those that had, say, invested in literacy and numeracy training for their staff

THE EVENT TO BEAT THEM ALL It has to be the best organised event in New Zealand. Eventing the Future, the national conference for the event industry, is on in Christchurch on August 9-10. As the official conference of the New Zealand Association of Event Professionals, it’s a chance for event

Manage your Taxi Spend with Innovation and Technology

professionals across the country to get together, share experiences and keep up to date with current trends. The conference content covers current best practice, new initiatives and challenges, in a diverse programme of international and national speakers, and breakout sessions. M

tel: 09 306 1790 email: enquiries@taxicharge.co.nz

JULY 2010 Management www.management.co.nz 7

A DATE WITH A DIFFERENCE A new way of making business connections is racing around New Zealand. It’s Speed Networking, a novel way of getting your name and message around a room. Like speed dating, which is an event attended by dozens of single people who talk briefly to potential partners and decide whether they might like to see any of them again, speed networking combines a 90-second pitch with the idea of making professional rather

Hayden Jonas of Us Advice (left) and Grant Johnson of JMW Accountants.

than romantic contacts. Enterprise North Shore says the events have been hugely popular with local businesspeople, many times more successful than traditional courses and events. Those attending the latest North Shore event at Albany Stadium on June 11 included corporates, franchisees, SMEs and sole traders. A hot breakfast and the chance to connect with 19 other businesses at special stations costs $50. M

Lyn Cuthbertson, (left) of Baby on the Move and Sara Vowless of Kelly Services speed-networking on the North Shore.

From left, Loren Astridge of Datum Connect, Sachie Nomura-Siu of Sachie's Kitchen and photographer Amanda Reelick.

8 www.management.co.nz Management JULY 2010

EGO-SURFING IS GOOD FOR YOU Googling yourself is a good thing to do regularly, if you’re a professional and especially if you’re job-hunting, says a head hunter. Although some dub it ‘ego-surfing’, Megan Alexander, the general manager of recruitment company Robert Half, says it could be a wise career move to conduct a web search to see what information about you is available online. “All professionals should protect their reputation by monitoring their online presence, but this is especially critical for job seekers,” said Alexander. “Many employers now routinely perform internet searches to quickly learn about applicants’ interests, experience and industry involvement. What is visible to you also is visible to potential employers,” she says. “Job-seekers need to pay attention to what they share online, including contributed content, article comments and photos – and take steps to ensure the image they project is professional.” She suggests job-hunters: 1. Set alerts using Google or other tracking services to receive a notification each time something new is said about you, and delete any content that could be seen as unprofessional or controversial. 2. Use privacy settings to control access to personal information. 3. Comment online on topics in your field, or write columns for industry organisations. 4. Exercise discretion. Keep comments constructive. 5. Keep your LinkedIn and Google profiles up to date. M

GOODBYE SECRETS What happens to the information on the hard drives of printers, scanners, fax machines and multifunctional devices (MFDs) when they’re sold or returned to the lease company? Recent discoveries in the US have suggested that many companies fail to wipe off information that can easily end up in the wrong hands. Modern copiers and MFDs, which combine printing, scanning and faxing, now have internal hard drives like a computer that store information. Canon country manager for New Zealand, Mike Johnston, says: “We are conscious that many customers use their machines to manage sensitive information and we advise companies to make themselves aware of the security measures incorporated in their devices.” Information typically stored on the hard drive of an MFD may include system firmware, temporary image data, job logs, user address books,

device settings and any documents stored by the users in the device’s mailbox or advance box, says Johnston. Canon offers a new standard security feature on all its imageRunner and imagePress systems which allows a one-time overwrite of the device’s hard drive to be performed directly

TRILLION DOLLAR FRAUD Frauds committed by owners and executives are more than nine times as costly as employee frauds, a new worldwide survey has shown. Executive-level frauds also took much longer to detect than other instances of fraud, says the Association of Certified Fraud Examiners body, which investigated cases between January 2008 and December 2009. Worldwide, companies on average lose an estimated five percent of their annual revenue to fraud, the association says. That equates to up to US$2.9 trillion globally, with nearly one quarter of the frauds involving losses of at least US$1 million. Information from financial officers in 106 countries was compiled to develop the statistics on occupational fraud losses, detection methods and perpetrators. “Fraud knows no boundaries and anti-fraud professionals worldwide face more challenges than ever in detecting and combating it,” said the group’s president James Ratley. The study also showed fraud schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being detected. Frauds are much more likely to be detected by tip than by any other means. M

by the customer. “The majority of the machines returned to Canon undergo a hard disk overwrite, but we strongly advise customers to take responsibility for their own data protection before returning a machine to Canon or particularly before selling it to another entity,” Johnston emphasises. M

THE FUTURE OF MANUFACTURING A groundbreaking graduate scheme aimed at boosting the capability of the Wellington region’s manufacturing sector is looking for companies for the first of its 2010 intakes. The management de velopment scheme, which is being run by Grow Wellington, places university graduates into manufacturing companies where they gain industry experience while the companies get a fresh set of eyes, an increase in innovative thinking and, ultimately, an increase in profits, says Geoff Copps, of Grow Wellington. M For more information contact: geoff.copps@growwellington.co.nz.

JULY 2010 Management www.management.co.nz 9

on the move

Grant Milne.

Arun Patel.

Jeana Abbott.

Grant Milne

Kylie Archer.

appointments. Patel is NZICA’s new chief financial officer. His previous roles were as acting chief financial officer for Te Papa and general manager support services for Housing New Zealand. Abbott is the new director of human resources. She was previously head of human resources at the Accident Compensation Corporation.

Insurance broker and risk advisor Marsh has appointed Milne as country head of its New Zealand business. He succeeds Kirk Williams who will now focus on leading the business’ major client accounts, sales opportunities, colleague development and specific regional initiatives. Milne has over 23 years’ insurance industry experience including establishing the Marsh & McLennan Agency.

Mark Bramley

PricewaterhouseCoopers has a new partner in its Dunedin office. Bramley has worked as a partner in the PwC Central and Eastern Europe firm for the past 15 years, and in the last two years has divided his time across two large BRIC economies – Moscow and Mumbai.

Greg Thompson

Zeacom has appointed Thompson as global marketing director, responsible for market development and brand awareness internationally. He has over 20 years experience in international sales and marketing for high growth New Zealand technology companies and was most recently marketing programme manager at Jade Software Corporation.

Nicola Sutton

English Language Partners New Zealand has promoted Sutton to deputy chief executive recognising her strategic, HR, policy and operational skills.

Steve Barrett

Former Contact Energy chief executive Steve Barrett has been appointed chair of Meridian’s United States-based subsidiary company Meridian Energy USA (formerly known as Cleantech America).

Kylie Archer

After five years with Skycity Auckland Archer returns to Wellington to manage the New Zealand major events team at the Ministry of Economic Development. The major events team aims to retain, grow and attract major events that complement New Zealand’s image, existing infrastructure and achieve a greater contribution to economic growth.

Arun Patel, Jeana Abbott

The New Zealand Institute of Chartered Accountants has announced two new executive

Jonathan Tudor.

Joe Asghar.

Jonathan Tudor

Professional Public Relations has appointed Tudor, an experienced communications specialist with an extensive international background, to the new position of general manager New Zealand. He has worked in account director and senior management roles in the UK and New Zealand and has been with Asda’a Burson-Marsteller in Dubai since 2006. Joe Asghar

Diabetes New Zealand has appointed Asghar, a qualified pharmacist, as its new chief executive. He was most recently manager, external affairs with the Royal Society of New Zealand contributing to international activities, policy development and relationship building. David Glover

Chief executive of New Zealand-owned educational services company Learning Media, Glover has been elected to the board of USbased Association of Educational Publishers (AEP). He is the first non-American to sit on the board of this prestigious association. Mads Moller

New Zealand software company Jade has appointed Moller in a senior sales role. He has a sales and marketing background in European markets, including roles with Google, Vodafone and IBM.

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JULY 2010 Management www.management.co.nz 11

managers abroad NICKI BLACK LONDON-BASED SUSTAINABILITY CONSULTANT You are just about to move jobs. Tell us how that came about?

Since finishing my PhD in strategic management at Waikato University last September I have worked with business, civil society and policy organisations as an independent research consultant, based in London. In both my research and as a consultant, I work to promote more responsible enterprise, particularly in areas affected by conflict. Recent projects have included writing a guidance document for companies and investors on responsible business in conflict areas for the United Nations Global Compact, an assessment of the possibilities of doing business responsibly in North Korea for a large consumer goods company, and a benchmarking of social performance on luxury global jewellery brands. As a result, I have been recruited by De Beers, the world’s largest diamond company, as their corporate citizenship manager. I will be working on supporting the integration of sustainability and corporate responsibility issues across the entire diamond value chain – from mine to storefront – in the De Beers family of companies. How does that move fit into your career path?

As a New Zealander born and raised in Hong Kong, Singapore and the UK, I have an international outlook and have always been passionate about global issues. I also have a human sciences degree from Oxford and a Masters in political sociology from McGill, Canada. In my graduate work I have focused on the changing

12 www.management.co.nz Management JULY 2010

responsibilities of business, civil society and government under globalisation, first in the area of humanitarian advocacy and then in relation to the roles and impacts of global business in areas of very weak governance and conflict. For my PhD I analysed corporate citizenship in the oil and gas industry in Myanmar (Burma), interviewing more than 100 people in seven countries from 2006-2009. That sounds like a challenging job.

Responsible enterprise is a rapidly emerging field, spanning corporate, policy and civil society action at both local and international levels. Keeping track of what is going on and identifying how best to engage as a scholar and advocate is a challenge. As a normative exercise, the most desirable outcome can be as much in debate, as how to reach it. Working across organisations with very different aims, objectives, cultures and ways of interacting is both a challenge and a joy. What is one insight you have found in your work?

It is always, everywhere, about people. Even when it seems to be about systems and institutions, these are created and peopled by individuals with personalities, hopes, passions, fears and dreams. Our common humanity is more accessible than you think. Systemic change can come from the most unlikely quarters, where people show courage, imagination, and act strategically with conviction. In the grey areas of negotiating ‘responsibility’ it is ultimately about human dignity. You have recently been in New Zealand. How do you see us?

My work focuses on countries that are considered ‘fragile’ by the international community. They suffer from ongoing conflict, high levels of corruption, weak

London-based Kiwi Nicki Black’s work in promoting responsible enterprise around the world, most recently with Myanmar’s oil and gas industry, has seen her move into a new role, helping the diamond industry to develop sustainability and corporate responsibility policies.

and/or corrupt governments. New Zealand is consistently rated as one of the most peaceful, least corrupt places on the planet. When I go home it is like drinking water when you are parched, a reminder that for all the social challenges we face at home, our land is green and beautiful, and we have more than we often realise to be proud of and thankful for. The sustainability and responsible enterprise movement is quietly bubbling beneath the surface in New Zealand, with academics, businesses and some policy makers putting in good work around how to live up to our ‘100% pure’ strap-line, and support particularly our small-to-medium enterprises in reducing their environmental footprint and operating more sustainably. Although you work abroad, I believe you are still working for New Zealand...

Being the most peaceful country in the world means there isn’t a lot of work for me at home! But I am involved in some policy work on business and human rights in New Zealand at the Human Rights Foundation, and have links to the new National Centre for Peace and Conflict Studies in Dunedin. M

Nicki Black is a member of KEA, New Zealand’s global talent community. www.keanewzealand.com

BUZZ JUST GOOD BUSINESS

HOW GREEN ARE CONSUMERS? How are New Zealand consumers thinking and behaving when it comes to sustainable issues in general? Is our behaviour in line with our global image as a clean country? The Colmar Brunton ‘Better Business, Better World’ report answers these and many other questions around the issue of sustainability. Colmar Brunton is about to release results of its second research project into consumer views of sustainability this month – and will be looking for new trends in green attitudes. Managing director of Colmar Brunton Jacqueline Ireland says the company decided to run the survey when staff recognised that there was an almost total lack of metrics related to New Zealanders’ attitudes toward sustainability in comparison to other countries.

CLIMATE FORUM A conference in Sydney in August will be focusing on how business is moving forward on climate change response in a time of policy uncertainty. The sixth Australia-New Zealand Climate Change and Business Conference will be held from August 10-12, at the Sydney Convention and Exhibition Centre. Among the plenary sessions will be discussions on the potential for reduced emissions from key sectors, policy response to business requirements, and what is needed to unlock and leverage investment in low emissions technology. Adaptation as a priority response will be discussed, along with the international policy framework and the potential impact on this region. Likely to be of great interest is a session on climate change science and communicating the challenge. M For more details, go to www.climateandbusiness.com.

“We could not source local information to assist our business to make better sustainability decisions, let alone inform our clients,” she says. “The research was developed to fill a very real gap in information for New Zealand businesses. Last year saw our benchmark measure, and our 2010 study is due to be released for July reporting.” She says there was no sponsorship for the first survey, but the company funded it anyway, because they believed it was such an important issue. “There is little doubt that the buzz and public interest around the issue of sustainability is increasing rapidly, and so is the need for businesses to respond. “Whether consumers fully understand all the complex issues surrounding our impact on society and the environ-

The second Colmar olm Brunton nton survey surv aim aims to find out consumers’ level of concern and action on sustainability issues.

ment, ‘doing your bit’ for the future of the planet, and the quality of life of the next generation, is a powerful motivator,” she says. Over the next years, the survey aims to canvass and track the views and behaviours of 2500 New Zealanders each year. Experts predict that in the next few years, thinking and behaving sustainably will shift into the mainstream and become an accepted part of popular culture. M

executivepulse ATTITUDES TOWARDS RISE IN GST A new survey shows business decision makers are more likely than most New Zealanders to believe personal tax cuts in the Budget will fully compen-

sate them for the rise in GST. However, more (43%) still believe they will not be fully compensated than compensated (39%).

Do you think you will be adequately compensated, through reductions in personal tax and other changes, for the increase in GST to 15%? Results for 2499 New Zealanders

Results for 612 decision makers

Yes

22%

Yes

39%

55%

43%

Don’t know

22%

Don’t know

18%

Source: ShapeNZ Budget 2010 survey May 20 – June 8, 2010. Maximum margin of error on the national sample +/- 1.9%. Margin of error on the decision maker sample (business managers, proprietors, self employed and professionals) +/- 4%. On the web: www.nzbcsd.org.nz, www.shapenz,org.nz

JULY 2010 Management www.management.co.nz 13

JUST GOOD BUSINESS CASE STUDY

When

WASTE is good A Kiwi company of ‘enviropreneurs’ is creating truly recyclable packaging solutions, from the bottle to the pottle.

magine a world where every container you toss away is guilt-free, where packaging is truly recyclable and breaks down into organic compounds that help feed the earth. It’s a dream that has started to come true for Grant Hall of The Good Packaging Company, thanks to four friends and lots of big ideas. Already the company has bottled water in a pale blue plastic-like bottle that will compost in 45 days if you bury it. It makes a sustainable ice-cream tub for Kohu Road Ice Cream that can be truly returned to dirt and nutrients. And now it’s almost ready to offer the world’s first compostable green wine bottle. The success of its first three projects has the company fired up and ready to take over the world of sustainable packaging. Hall says the company grew out of a hard lesson he learned when he was a member of the New Zealand Juice and Beverage Association and

PM John Key (with Grant Hall) is a fan.

14 www.management.co.nz Management JULY 2010

was asked to join a committee studying waste plastic bottle recycling. “Like most people, I was diligently putting bottles into the black bin, thinking some good was coming of it. But what I discovered was that every 20 minutes a truck would arrive at the materials recovery centre in Auckland, full of used plastic bottles. “I found they were crushing them, baling them, shipping them overseas and selling them to the highest bidder, at that time China. We went up to China with a camera crew and found at best they were turning our bottles into nylon flags and sending them back to us, where eventually

recession has worsened the situation. It’s clear recycling is not working: At best we only recycle 11 percent anyway, and 90 percent goes into the landfill.” Frustrated, he resigned from the committee, and from the Juice and Beverage Association. “I made a commitment to come up with an alternative solution, to create a bottle that was made from sustainable resources, with no chemicals. Bio-plastics have been around for a long time, but oil has been so cheap that industry didn’t pursue it as a viable alternative. I decided to start there.” His company created Bio Flex, a biopolymer, which is an organic material

"IT’S CLEAR RECYCLING IS NOT WORKING: AT BEST WE ONLY RECYCLE 11 PERCENT ANYWAY, AND 90 PERCENT GOES INTO THE LANDFILL.” they would turn into landfill. “Otherwise they were burning them for energy. Burning plastics creates toxic fumes that are causing vast devastation to the environment. Plastics are infused with toxins, hardeners and metal oxides, and no one knows the long-term impact on the earth of those waste gases.” Hall says his findings changed nothing and he became depressed by what the beverages industry was doing to the earth, both in landfills and in the sea, where bottles circulate on gyro currents. “I found the situation morally repugnant. There’s been no change, in fact the

sourced from plants and developed in an ethical process to replace the petro-chemical based alternatives, primarily plastics. He started business with the Sir Peter Blake Trust on the first product, a water bottle made from horticultural and agricultural waste, which took two and a half years to develop. At the Scion Crown Research Institute, he found 340 scientists using industrial biotechnology to create new materials, energy products and green chemicals from organic waste products. “We partnered with them and some other talented materials engineers and bottles

engineers to create a square bottle.” Square bottles are the optimum shape for storage, he says, using less space per square metre to stack. However, engineering the base and corners of a square bottle took a lot of time, testing, trial and error. It was big news when it worked, resulting in invitations to Japan for World Earth Day and to Mexico for the World Bottled Water Congress in 2007, and winning recognition in the US academic world. You have to ask, if it’s so good, why isn’t everybody doing it? Hall looks pensive. “Quite simply, it is more expensive. Each bottle costs 15 percent more to manufacture. Big companies want to do it, but they’re holding off.” Hall’s company may not be producing vast numbers of truly recyclable bottles worldwide yet, but as a result of the project and its high profile, it has had a lot of enquiries, both from New Zealand companies and overseas ventures wanting to develop other ethical products. “The most exciting is the wine industry. Peter Yealands has New Zealand’s leading environmentally sustainable winery, based in Marlborough, and he’s bravely committed to doing his wine in a plastic bottle. We are now close to releasing the world’s first compostable green bottle. This is a New Zealand innovation, but it’s not quite retail-ready yet,” says Hall. He says the New Zealand wine industry is under a lot of pressure overseas, due to the distance we have to ship our products, so a fully compostable wine bottle will make a big impact. The company has also developed an ice-cream container that will freeze to -40 degrees Celsius and is being used by organic ice-cream manufacturer Kohu Rd Ice-cream. There are four partners in The Good Packaging Company team, Hall (who does business development), Rebecca Burt (designer), Grant Jeffrey (manufacturing) and Melanie Smith (administration). They see their role beyond just producing bottles, but as inspiring change

Grant Hall (left) and Grant Jeffrey of the Good Packaging Company proudly hold aloft the country’s first ever screw cap made from plant starch.

and helping other people upgrade their packaging, says Hall. They are happy to work with companies looking for sustainable packaging. The company has fans in high places, for example, Prime Minister John Key, who came to the launch party of the sustainable bottle and keeps in touch, says Hall. As the next part of a product stewardship programme, the company is planning to extract its bottles out of the waste stream, hydrolyse them, infuse with organic nutrients and then reform them into a seedling pot for the forestry industry. “We’ve already done it with pohutukawa seedlings,” says Hall. “We’re working with New Zealand forestry on the

product. Workers can leave the seedling in the pottle when they plant it in the ground, and as it degrades, it nourishes the plant.” They claim trees will mature three years faster using this method, plus the waste can be used as raw materials to create another bottle. “You’re adding value in every stage of its life,” says Hall. “The old model with packaging was ‘cradle to the grave’: use it, then throw it away. You can’t do that any more. You have to start by designing products made from sustainable resources, so they can be up-cycled into another product. “Sustainability is not enough, the next step is ethical added value.” M JULY 2010 Management www.management.co.nz 15

JUST GOOD BUSINESS SUSTAINABILITY

Lost in the bush by Peter Neilson

t one Coromandel tourist spot I visited last year with my family I was invited to donate a gold coin for a stop-mining bumper sticker. This possibly sums up our ambivalence about mining. The catalyst in my hybrid car may use platinum, but I’d like to be able to use it without any mining. The mining industry’s a perfect example of why behaving sustainably is crucial to an industry’s future. And why the industry is having such a hard time selling the idea of mining high-value conservation land. At the same time another issue has been raised by the debate: what is an adequate reward to the country for extracting its mineral wealth? A majority of voters for all political parties don’t think the industry is paying enough. While a government decision may have been made by the time you read this on what, if any, areas of high-value conservation land are to be removed from Schedule 4 protection so prospecting and mining can occur on a case-by-case basis, the massive nationwide debate on this issue throws sustainability issues into sharp focus. Only 35 out of every 100 New Zealanders think the industry has responsibly managed its effects on the environment and local communities in the past. Some 34 percent think they have been irresponsible. This is despite some mining companies having world-leading sustainability practices. Do they trust the industry to fully restore Schedule 4 areas after mining is complete? Not by a long shot: 63 percent say no, 13 percent yes, according to a nationwide ShapeNZ survey. Do they support Schedule 4 area mining subject to normal Resource Management Act procedures? Some 46 percent say no, 36 percent yes. New Zealanders fully understand the national and local economic and employment benefits, short and long term, of

16 www.management.co.nz Management JULY 2010

New Zealanders want economic growth but not at the cost of our native bush.

mining Schedule 4 areas. But they don’t support that happening. Why? Perhaps it’s a mix of past experience of mining, distrust over future performance, a desire to protect the 100% Pure brand and its benefits (even though few believe the environment here is pure). Added to this is a deeply-held desire to protect the quality of life in New Zealand. New Zealanders want economic growth, a protected environment and a decent society – and believe they can have all three. The Schedule 4 proposals crossed that line. Kiwis are yet to be convinced, not of its economic benefits, but of the Government’s and the mining industry’s ability to manage sustainably. Sustainability is defined as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. Sustainable development aims to make society not just better off, but better altogether. Another definition, this one from the British government says: “Sustainable development is about ensuring a better

quality of life for everyone, now and for generations to come.” This focus of sustainable development on improving quality of life is becoming more widely accepted. A quality of life focus makes the concept more aspirational, and it changes the tone and content of the sustainable development debate so that the emphasis is more on solutions than problems. The miners’ economic benefit arguments are well understood and supported. But they haven’t so far offered enough evidence of effective solutions to the environmental and social issues thrown up by mining. They’ll find it hard to win over a majority of the public unless they authentically take a truly sustainable approach. If the successful stool has three legs – economic, environmental and social – the Schedule 4 one so far has one. It’s pretty hard selling a one-legged stool to New Zealanders. M Peter Neilson is the chief executive of the New Zealand Business Council for Sustainable Development.

focus Clark in Brussels: 1 Minister Helen Clark, Administrator of the United Nations Development Programme, was in Brussels to hand over the EU/UN Partnership Report 2010, and met with Catherine Ashton, Vice-President of the European Commission. Canon Charity Challenge: The Canon Executive Team recently took the annual Heart Stopper Challenge and plunged into an icy cold pool to raise funds for Heart Children New Zealand. The team raised just under $3000, which contributed to the $41,354 raised online for the Auckland event. 2 Canon Team. 3 Kim Conner. 4 Marc Burns.

Bizzone Expo: Over three days at the ASB Showgrounds in Auckland’s Greenlane, the Bizzone Expo drew business people from all over the region for seminars, networking and sales opportunities. 5 The Bizzone team, front, from left: Stacey Bergen, Lisa McCallum, Annie Gandar, Victoria Mak, Jill Smith, Sarah Trotman. Back, from left: Aad van der Poel, Colin Bass, Sean Reid. 6 Harveys Real Estate’s Ross Hunter and filmmaker Qiujing Wong. 7 Sarah Trotman and ANZ’s Andrew Holford with the Rugby World Cup. 8 Gemma Eyles (Westpac) and Michael Tibbles (National Bank). 9 Kathy Shepherd (Air NZ) and Grant Amos (KG Agencies). 10 Lester Bryant (iComply) and Damian Waldron (HansaWorld).

7 9

JULY 2010 Management www.management.co.nz 17

OPINION

Bookcase by Reg Birchfield and Brenda Ward LISTEN: THE DON ROWLANDS LEADERSHIP GUIDE KEITH DAVIES • DAVID LING PUBLISHING • RRP $29.95

Homespun it may be, but former Fisher & Paykel chief executive and Mainfreight managing director Don Rowlands life story, and his take on leadership, is worth the couple of hours required to read this delightfully candid book. Rowlands is an iconic New Zealand manager and leader. Now in his late 70s, he is still an independent director on the Mainfreight board and, according to all accounts, still making a valuable contribution. Rowlands’ views on leadership are practical, proven, experience-based and profoundly sound. Davies tells the story in a down-to-earth style that Rowlands no doubt feels comfortable with. Listen: The Don Rowlands Leadership Guide is refreshingly free of jargon, highchurch management theory and perceived academic wisdom. But his observations on, for example, the current state of management and governance strike a resonant note. “Want to know why this world is in a mess?” he asks. “The Knitting Club” – the name he gives to boards of external directors and “people who haven’t cut their teeth” in engineering, or manufacturing or industrial relations. “I have real difficulty respecting their opinions,” he writes. Listen is a valid personal tale that allows Rowlands to share his leadership secrets and put them in a values context. He learned his craft by listening to and observing people, then applying the real life lessons to workaday situations. At F&P he helped build a global enterprise, repeating the exercise at Mainfreight. The catalogue of instances that support his leadership beliefs are too numerous to 18 www.management.co.nz Management JULY 2010

list here, but I suspect every manager that reads this book will relate to a goodly number of them. Listen is classic leadership advice, accessible and sensible. It is drawn from Rowlands’ personal journey as a successful executive, an international rowing champion, a committed Kiwi, and a humane individual who couldn’t cope with “bullshit” but seldom raised his voice at anyone who screwed up – so long as they didn’t repeat the performance. On the other hand, “he knew that if you have to spend time managing people, you have the wrong people”. You can buy it online by visiting www.Listen-thebook. com. • Reg Birchfield MOJO MARSHALL GOLDSMITH • ALLEN & UNWIN • RRP $29.99

What possible value could a book with a name that sounds like a bad 1980s’ disco hit have to offer? But hey, Goldsmith’s last book was the New York Times best-seller, What Got You Here Won’t Get You There, so it is worth taking a look at Mojo. Goldsmith has also been named by Business Week as one of the most influential practitioners of leadership development and The Times called him one of the 50 great thinkers and business leaders in management. Goldsmith defines mojo as “that positive spirit toward what we are doing now that starts from the inside and radiates to

the outside”. And he’s even created the antithesis of mojo – ‘nojo’, for the joyless people who drag us down in life with their lack of confidence, resistance and unhelpful attitudes. Mojo, says Goldsmith, affects every area of your life: health, wealth, relationships, happiness and meaning. Inside this lightweight premise is a powerful message for managers. Goldsmith says you can lead a meaningful and happy life and view the world in a way that brings your inner mojo to the surface. • Brenda Ward 5S A VISUAL CONTROL SYSTEM FOR THE WORKPLACE EDWARD MOULDING • AUTHORHOUSE PUBLISHING • RRP $17

By the time you have finished reading this book, you will have a sense of how to make your workplace a safer, cleaner, and more enjoyable place to work, promises Edward Moulding in his introduction to this manual for managers. He says every manager needs a philosophy “that will carry the organisation forward into improved productivity and efficiency”. Workplaces should look appealing to clients and appearances are important, he says, but even more important is an uncluttered, productive environment to work in, that encourages clear thought and easy access to equipment and information. Moulding is a convert to the Japanese theory of 5S: sort, set in order, shine (cleanness), standardise and sustain (discipline, training). • Brenda Ward

THOUGHT LEADER OPINION

From dial-up to LinkedIn by Gordon Shaw

RELATIONSHIPS

While one-on-one interactions are still vitally important, the use of the cellphones, text messaging and social networking has put a much wider pool of business opportunities at our fingertips. The business networking site www.linkedin.com now has over 65 million members in more than 200 countries. This is allowing New Zealand business people to participate in a massive business network. I have been using LinkedIn since 2007 and have experience of securing new business from working through this network. GLOBALISATION

Technology has driven a systematic demolition of traditional business borders and has allowed New Zealand businesses to

ties in this sector. I get daily updates of tendering opportunities from GETS and am able to respond to these opportunities while I’m away from the office thanks to mobile broadband. THE WAY FORWARD

As managers, we need to acknowledge how far we have travelled technologically over the past decade. While – and indeed because – the current domestic and international business environment is challenging, it is important to reflect upon and learn from the way we have adapted to, and embraced, technological change over recent years. This will help us to address the continuing technological and business change to come. While I don’t advocate a back-

“TECHNOLOGY MAKES ME MORE PRODUCTIVE, RESPONSIVE TO MY CUSTOMERS AND IT MAKES ME MOBILE.”

PLE

Technology has driven major changes in the way we procure our products and services, for example, the government sector created the Government Electronic Tendering Service (GETS). The service is designed to promote open, fair competition in the New Zealand Government market and meet international trade agreement commitments on the provision of information about New Zealand Government business opportunities. The result is easy access to business opportuni-

Gordon Shaw is the new president of the Institute of Management Consultants of New Zealand. LinkedIn: http://www.linkedin.com/in/gordonshawcmc Twitter: http://twitter.com/imcnz

OF AP

PROCUREMENT

to-the-future focus, I am proposing that as New Zealand managers, we do need to learn from the past to help us reshape our future. M

R T ES Y

compete on the global stage while still maintaining a Kiwi focus. I now conduct business in Asia, while being based in New Zealand. I can use the New Zealand timezone to my advantage and by using VoIP I can stay in contact with my Asian clients.

E CO U

f you’ve been a manager for some time, what challenges do you face now that you did not face 10 years ago? Thinking back that far is sometimes difficult, but it is a useful exercise, as there are opportunities from our past that can reshape our futures and recent history is sometimes overlooked as a source of inspiration for today and tomorrow. So, let’s think back a decade. We had to confront a worldwide sharemarket crisis and the establishment of the euro. The new millennium and the Y2K bug took up all of our IT resources, and at the November general election in 1999 Helen Clark became New Zealand’s first elected woman prime minister. The theme for business and managers was to understand how to harness the power of technology in our businesses. For example, back then we used dial-up services to access the internet and in June, Telecom ADSL (JetStream) launched at $89 per month for 600MB of traffic. We now live in a technology-based world, whereas a decade ago we were just starting to understand the potential from technology to shape our future roles as managers. Ten years on and technology is still a major driver in our businesses. However, the pace of change has become much faster and is now accompanied by a growing focus on how we integrate technology across our business processes. This leads us to ask the question, how has this changed the way we work? In addition, has this made us more productive? From my perspective, technology has changed the way I conduct business. Technology makes me more productive, responsive to my customers and it makes me mobile. Technologicallydriven change has been a significant advantage to me. I would like to touch on three key areas of my business that have changed because of technology that is now available.

IMAG

JULY 2010 Management www.management.co.nz 19

OPINION POLITICS

When better is better than more by Colin James

ast year John Key, ex-banker, went to his first National party conference as Prime Minister as the adulated winner who had restored the party to power. This year he is the Prime Minister who has taken the party into uncomfortable territory in his dealings with iwi leaders. Next year, will he be the economic game-changing Prime Minister? Key’s prime ministership so far looks like one aimed more at keeping the party in power than at finding pathways to new riches. Trying to finesse Labour through his alliance with the Maori party and koreros with iwi leaders groups in part aims to embed a broader National voting base. But actually that, plus loose cannoning by Gerry Brownlee on mining national parks and a bumpy road to super-Auckland, have taken some gloss off his popularity and, in consequence, the party’s. Many Nationalists like national parks. Many are conservative on, or blind to, Maori aspirations and uneasy with Key’s groundbreaking concessions. SuperAuckland stumbles trashed National’s Mt Albert by-election campaign. National loyalists are much more at home with economic policy. Key’s tax cuts will be celebrated at this conference. Nationalists believe, self-interestedly and as an article of ideology, in lower taxes – though they also believe, self-interestedly, in loopholes and some will lose access to Working for Families credits and student allowances for their kids, along with depreciation on building investments. But tax cuts don’t automatically make an economy that will keep those kids in this country. Key has yet to signpost a convincing path back to parity with Australia in standard and quality of life. So far his focus has been on ‘more’ rather than ‘better’: more roads – Labour’s greatly expanded programme is starting to deliver and National will claim credit – more broadband, more aquaculture, more dairying, more mining. 20 www.management.co.nz Management JULY 2010

Key’s own personal mission as Tourism Minister, to bring cycle-tourists to the last bike shed on the planet, will bring some higher spenders than commodity travellers from China. He backs a convention centre. But he has done little else to drive a step-change shift into higher-earning niche tourism. That is the test of his “ambition” for his country. ‘More’ doesn’t do much for catching Australian real incomes. That needs ‘better’. ‘Better’ needs innovation, lots of it, well capitalised. Key so far has been parsimonious there. He is said to be intending to keep tourism in a second term and not switch to science. That leaves institutional change – tax and regulation. And there his ministers have been very busy. Rodney Hide, in harness with Bill Eng-

There is legislation on auditors, financial reporting and insolvency, company law, copyright and cartels. Plus a busy programme of work on the single economic market with Australia. The Securities Act is being rewritten, which takes care of many of the Capital Markets Development Taskforce’s 60 recommendations. Power is sympathetic to many of the rest and has acted on some. Next term Key will sell minority shareholdings in state-owned enterprises, especially the electricity generators, to mum-and-dad investors. That will help deepen capital markets. Somewhat less feet-on-the-ground is the attempt to set up this country as a timezone-advantaged “hub” for financial services in the Asia-Pacific, specialising in high-value middle and back office functions for the funds management industry,

“‘BETTER’ NEEDS INNOVATION, LOTS OF IT, WELL CAPITALISED. KEY SO FAR HAS BEEN PARSIMONIOUS THERE.” lish, has been rewriting lawmaking rules to require an explicitly principled approach. Nick Smith, Maurice Williamson and Phil Heatley have been streamlining resources, building and aquaculture regulation. The biggest reform programme is Simon Power’s. That is part remedial and part forward-looking. So the Reserve Bank now includes in its prudential surveillance the few finance companies still standing. A new superregulator, incorporating the Securities Commission, will oversee the financial markets, with, belatedly, more powers. The rules on securities trustees, financial advice and financial advisers have been tightened (though financial advisers legislation is being reworked to meet difficulties facing large institutions). KiwiSaver schemes are to be supervised.

which one senior minister describes as “speculative” – a bit like the airy 1980s’ talk of a “Switzerland of the South Pacific”. Speculative it may be. But it is an attempt to think outside the box – to think ‘better’ rather than ‘more’. A fine-tuned financial sector should help. There will be hardly a word of disagreement at the conference on that. And when Nationalists come back for their second victory conference in 2012 they might turn their, and Key’s, attention to innovation. That, rather than conservative navigation by polls, would more safely deliver a third term in a turbulent and rebalancing global economy. M Colin James is New Zealand’s leading political commentator and NZ Management’s regular political columnist. ColinJames@synapsis.co.nz

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TOP 2OO A Bold Spirit

OPINION ECONOMICS

It’s fragile out there by Bob Edlin

he global financial markets remained “fragile”, Reserve Bank governor Alan Bollard said when releasing the latest Financial Stability Report. The sovereign debt concerns facing some European economies presented “a risk of further turbulence” and New Zealand happens to have a whopping external debt, making it vulnerable to any renewed deterioration in global debt markets. The good news for financial stability was that New Zealand households had increased their savings, but households must remain cautious about piling up more debt as the recovery continued. This theme was echoed in the Budget speech. Finance Minister Bill English said the economy had spent more than it earned and borrowed to make up the difference. New Zealand’s “largest single vulnerability” was its large and growing net external liabilities. New Zealand owed the world $168 billion, or around 90 percent of GDP. The dangers of too much debt, English warned, were well illustrated by a number of European nations where “painful changes” involved higher taxes, reduced public services, or both. The Key Government was committed to policies that would reduce our vulnerabilities “by tilting the economy away from debt and consumption toward savings, investment and exports”. But those policies will take time to kick in. The Treasury’s forecasts show the current account deteriorating over the next several years, not improving. At that time, the M3 money supply in the United States was shrinking at a pace unmatched since the Great Depression, mainly because regulators around the world were pressing banks to raise capital asset ratios and shrink their risk assets. The IMF was warning that the gross public debt of the US would reach 97 percent of GDP next year and 110 percent by 2015. Across the Atlantic, analysts were gaug22 www.management.co.nz Management JULY 2010

ing the prospect of Greece defaulting on its debt and musing on the implications for the global financial system (frightening, at best). Eurozone leaders were looking for ways to prop up weaker member countries and the long-term future of monetary union was under question. Murray Sherwin, director general of the Ministry of Agriculture and Forestry and a former deputy governor of the Reserve Bank, considered how these forces might affect the development of this country’s vital primary sector late in May at the New Zealand Agricultural and Horticultural Outlook Summit. Fundamentally, he pointed out that because New Zealand doesn’t save we end up selling our interests in all sorts of ventures offshore. More particularly, this

Fonterra was an example of a cooperative with good international capability and potential. But it could not make the most of that potential on debt finance alone. It would need more equity. “There is the challenge,” Sherwin said. Farmers’ primary assets were their farms. All they wanted from their cooperatives was the assurance they would add value to the farms. They were unlikely to want to pour piles of capital into the co-op. But if farmers didn’t want anyone else involved in their companies, the money would have to come from them. Growing the economy was one concern for Sherwin. Dairying (accounting for almost 25 percent of our export revenue) especially was a sector where New Zealand had a big comparative advantage, but the

“NEW ZEALAND’S ‘LARGEST SINGLE VULNERABILITY’ IS ITS LARGE AND GROWING NET EXTERNAL LIABILITIES.” was a difficult country in which to nurture strong capital-intensive, conventionally structured companies. If they were heavily export-oriented, they were exposed to the volatility of exchange rates, international economic conditions, and so on. If they tried to expand but were caught by a sudden downturn they would need a white knight from abroad to pick them up. Before too long, they were lost to us. Sherwin wasn’t surprised that New Zealand’s business sector was dominated by state-owned enterprises or by farmer-owned cooperatives. Cooperatives had their faults, but were effective riskspreading devices with the balance sheets of 10,000 or so dairy farmers (in the case of Fonterra) through which to spread the ups and downs. Because there was no competition for ownership, the cooperatives remained in New Zealand hands.

need for equity was a constraint. Balance sheet strength was becoming more important for another reason: competition for finance would become more intense as a result of the burgeoning sovereign debts troubling other countries and the scale of the fiscal deficits to be closed. Hence competition for savings would become intense. This put a premium on strong balance sheets back here in New Zealand, a country which must feed off the stock of international savings. New Zealand has a well-earned reputation for paying its bills (or paying its debts by selling assets to our foreign debtors). But when investors become more risk averse – Sherwin cautioned – they will back away from lending here “as quick as a flash”. M Bob Edlin is a leading economic commentator and NZ Management’s regular economics columnist.

AS I SEE IT

Steve Price Warriors captain Steve Price has recently added a new cap to his career – an MBA with Southern Cross University at Manukau Institute of Technology. How would you describe the New Zealand identity? Our identity is young, pure and fresh, and we are renowned for spectacular countryside and friendly, smiling people. But it is also tough and we punch well above our weight on the world stage, particularly in sport and business. The perception is built by the reputation of the country and its people, highlighted through the great achievements of many people, such as Sir Edmund Hillary, Peter Jackson and the Team NZ America’s Cup winners. Looking back, the courage and fighting spirit of the Anzacs has become legendary and this epitomizes, I believe, the true spirit of the people who are New Zealand and what makes this beautiful country so great. What will be the country’s next major challenge? Climate change. Born in Australia, I have seen first-hand how important this is. In Toowoomba, where I grew up, we had a climate very similar to that of Auckland. High rainfalls, cold winters and hot summers were the norm, until almost overnight all that changed. We went from having plenty of water to a serious situation where now the Toowoomba dam, which supplies the town’s water, is only 12 percent full. The fear I have, since living here, is that we take it for granted that it will always rain. In New Zealand, we complain when it doesn’t rain for two to three months. Where I am from, it hasn’t rained like it used to for more than 15 years. We are talking about a region which is only five hours away. We need to prepare and implement policies now instead of reacting after the climate turns to disaster, as they did with little success in Toowoomba. The other issue facing New Zealand is, I believe, retaining local talent and offering them opportunities and packages that will keep them living in New Zealand and keep them in business here. There are so many fantastic organisations in New Zealand screaming for great talent, but we see it being snapped up by overseas companies. As a result New Zealand is losing its greatest asset, the New Zealander. We need their valuable skills and expertise. What do we need to do to prepare for this? In preparation for climate change, I’d like to see policies and planning implemented with a vision for households to become self-sufficient so they don’t place pressure on local infrastructure and services. Subsidies and projects should fund residents to install rainwater tanks. Part of the consent requirements when building a new home should be to install a large rainwater collection tank under the driveway to store rainwater to service all of the household’s needs. This would allow the government to store water in dams or retention centres, making the power supply more consistent all year round. We would then be able to respond to climate change appropriately. The talent drain is a tough issue to tackle because the New Zealand market is small and I accept that companies can’t afford to pay high wages. It will be hard to solve while overseas companies can offer more attractive packages to skilled workers.

NZIM MANAGEMENT STRATEGIES

THE MANAGEMENT IMPERATIVE

Time to step up New Zealand managers are not up to scratch, so where do we go to from here? This is a significant economic problem for New Zealand, one that has not, historically, been seriously addressed either by business or political policy analysts, writes Reg Birchfield.

ew Zealand must “transform” both its level of management competency and the Kiwi workplace. Whatever other spin is put on the findings of the recently released, government-sponsored research report entitled “Management Matters in New Zealand”, that conclusion is at the heart of the matter. It is an important and tricky issue to resolve. Resolution isn’t made any easier by the fact that New Zealand’s economy is in large measure dominated by small, family firms which are, when it comes to measuring management competency scores, “consistent” underperformers. The survey, for instance, recommends that “family firms should make a longterm commitment to fostering management performance and capability and ensuring that key management positions are filled by merit and talent”. That, for a plethora of everyday reasons, may be too much to hope for. Still, Economic Development Minister Gerry Brownlee’s recent announcement on changes to government-subsidised training and development services, aimed particularly at small businesses, suggests an intention to act on the study’s findings. Under the changes, businesses eligible for training and development subsidies will get them directly through a voucher system rather than funding by third-party training providers and, there will be a move from full to partial subsidies for training and development services. The 29 ‘Biz Information’ walk-in centres set up under Labour will be closed

24 www.management.co.nz Management JULY 2010

over the next six months. According to the Minister, the services they provide will continue in other forms. “Businesses can apply for up-skilling vouchers which they can spend with service providers that best meet their needs,” he said in announcing the shift. Other initiatives are likely to be announced in coming weeks. The study, while it focused on the manufacturing sector, is important for all New Zealand. It is the first piece of substantial research into measuring the relationship between better management and enhanced economic performance generally. Treasury has consistently played down the importance of the

New Zealand Institute of Management’s own Management Capability Index. When other countries, such as India, Malaysia and Canada use the Index to measure their management capability, they outperform New Zealand on most measures. The Index also shows that, when Kiwi managers self rate their performance they acknowledge that they don’t perform up to their potential. New Zealand, like every other nation, now faces troubled and turbulent times. The management conundrum needs resolution as part of a coordinated and sustained programme to have us meet the obvious challenges ahead and

“SADLY, NEW ZEALAND MANAGERS HAVE AN UNJUSTIFIABLY HIGH OPINION OF THEMSELVES.” relationship, a stance that has often impacted policies that shape the business environment and encourage spending on management development. This survey says quite emphatically that: “We know that better management is associated with enhanced productivity performance at the enterprise and industry level.” What they don’t know are the drivers that lead to the adoption of best practice management. The findings don’t reveal much about Kiwi management that hasn’t already been identified. The mediocrity of our management is consistently highlighted by the

simultaneously exploit the quite unique advantages the nation has including our benign climate, relatively clean environment, energy and resource riches, agricultural and scientific knowhow, capacity for innovation and abundant water to name but a few. These riches cannot be exploited without wise leadership to develop the strategies and skilful management to execute the plan. According to the survey, multinational corporations (MNCs) “clearly outperform” domestic firms. A solid 70 percent of firms interviewed with below average management performance are domestic

enterprises. And management performance seems to be linked to ownership structure. Publicly owned firms exhibit superior management performance compared to other types of companies in New Zealand including privately and familyowned firms and cooperatives, according to the research. On the other hand, family and founder (managed) firms account for 79 percent of New Zealand’s most poorly managed businesses. If, as the report suggests, superior management is directly linked to higher productivity performance, then the calibre of Kiwi management is pivotal to improving organisational performance and innovation and “driving national economic prosperity”. It is, in other words, time for “both government and industry: to reflect on what needs to be done, including the scope for wellthought out policy initiatives” that need to be implemented. Sadly, New Zealand managers have an unjustifiably high opinion of themselves. One of the not-surprising but potentially debilitating truths to be uncovered by the research, is that Kiwi managers don’t consider management improvement a high priority. Managers were asked to self-assess their firm’s management performance based on how they perceived the calibre of the firm’s management overall. They were asked to exclude their own personal contribution when evaluating their firm. “Managers consistently over-rate their firms’ management performance,” said the researchers. And their self-assessed scores of how they saw their firm performing did not align well with the firm’s management score as assessed though the interview scoring grid. Mind you, the researchers found a similar trend in other countries where they have conducted the same research. It suggests, however, that managers are unaware of their firm’s actual management performance and so don’t focus on benchmarking against global best practice or other firms in their sector. Managers consequently operate in the dark and are unable to recognise areas for improve-

ment. Improving managers’ self-awareness would, they conclude, help drive improvements in management performance. So what are the implications of all this? The study suggests that instilling effective management practices and promoting a high-performance workplace culture would not only build the sustainable competitive advantage of New Zealand business enterprise but also boost national prosperity. It has, for the first time, provided an internationally comparable measurement of management performance for New Zealand manufacturing firms, though there is little that many of the conclusions reached and conditions uncovered would be true of most New Zealand’s other economic sectors. The findings can be used to inform policy aimed at lifting organisational performance and hopefully will be. The key drivers of good management practice are firm size, firm ownership, education and skills, the presence of multinationals and labour market structures. The big imponderable is Kiwi enterprise attitude. Governments, through better informed policy initiatives, can help shape the business environment, but- the ball and New Zealand’s economic future is now very much in the business leadership’s court. Business leaders, and boards in particular, must seize the initiative and understand that investment in management development is the key to their future prosperity, in some cases even their survival, and the health of the economy generally. “Management Matters” was commissioned by the Ministry of Economic Development, in conjunction with Treasury, the Department of Labour, and New Zealand Trade and Enterprise. The University of Technology Sydney (UTS) was engaged to review Kiwi manufacturing firms’ management practices using study methodology developed by the London School of Economics and global consultancy McKinsey & Co. For earlier analysis go to NZ Management June 2010, www.management. co.nz. M

LEADERS BUILDING LEADERS Our aim is to build management capability through, Research, Learning, and Recognition Our focus is to: • Research leading management trends and practice and promote a constantly developing model of best management capability for New Zealand. • Enable managers and aspiring managers to participate in learning programmes, mentoring, and events that provide the information and experience they need to develop their capability. • To identify leading management role models and provide awards that recognise the career and educational achievements of managers. NATIONAL BOARD PHILLIP MEYER FNZIM (CHAIRMAN) GARY STURGESS Life FNZIM JOHN SANDFORD FNZIM LYNDA CARROLL AFNZIM

BRIAN SOUTAR AFNZIM LLOYD DAVIES FNZIM CHERYL DOIG FNZIM

OFFICES NATIONAL OFFICE ACTING CEO PHILLIP MEYER FNZIM Box 67, Wellington 6140 Ph 0-4-473 0470, Fax 0-4-473 0479 Email national_office@nzim.co.nz National website http://www.nzim.co.nz NORTHERN President: JOHN SANDFORD FNZIM CEO: KEVIN GAUNT FNZIM, FAIM Box 6600, Wellesley St, Auckland 1141 Ph 0-9-303 9100, Fax 0-9-303 9109 Email kevin_gaunt@nzimnorthern.co.nz Website www.nzimnorthern.co.nz CENTRAL President: PHILLIP MEYER FNZIM CEO: KARIN CALLAGHAN FNZIM, FIPAA Box 11781, Wellington 6142 Ph 0-4-495 8300, Fax 0-4-495 8301 Email karin_callaghan@nzimcentral.co.nz Website www.nzimcentral.co.nz SOUTHERN President: BRIAN SOUTAR AFNZIM Acting CEO: TOM McBREARTY AFNZIM Box 13044, Christchurch 8141 Ph 0-3-379 2302, Fax 0-3-366 7069 Email tom@nzimsouthern.co.nz Website www.nzimsouthern.co.nz

NZIM FOUNDATION Chairperson: DAVID MOLONEY FNZIM Secretary: JIM THOMSON PO Box 67 Wellington, Ph 0-4-473 0470 national_office@nzim.co.nz

UNDERSTANDING THE NEW WORLD

The new face

of banking Just how close New Zealand came to financial disaster during seismic shifts in the financial world last year, we may never know. But the face of banking will never be the same, say those in the industry. Brenda Ward discovers after the shake-up, banks are going back to people.

s a small country, heavily dependent on offshore funds, New Zealand has been lucky to come out of the global financial crisis bruised but not beaten, say those in the banking industry. But the legacy of the meltdown – a reduction of confidence in the financial sector – means there have had to be some fundamental changes on the banking landscape. We escaped the worst of the crisis, unlike the US, where poor banking practices shook the financial world to its core. There was wild risk-taking within large US banks, says Professor Hélène Rey, head of economics at the London Business School. Regulators were too complacent or too indulgent in the face of the banks’ “charm offensive”, she says. “Ratings agencies, wishing to protect their ever-increasing profits from Wall Street, failed to properly assess the risk of the overly creative and complex financial instruments built on the shaky foundation of sub-prime mortgages.” However, here on the other side of the world, we can congratulate ourselves that the foundations largely remained strong. And for that, we have to acknowledge the stability of the Australian banks that make up a large part of this country’s lending institutions. Bruce McLachlan, Westpac’s Retail

26 www.management.co.nz Management JULY 2010

Bank general manager, says the Australian banking community remained strong through the global financial crisis. “They all held their AA rating right through that period, and there are only a handful of banks worldwide that have an AA rating.” [There are now only 13 AA-rated banks worldwide, down from 20 before the financial crisis.] “New Zealanders haven’t historically saved enough to fund banks, so we have a dependence on offshore sources of funding,” he says. “If the ratings of the Australian banks had gone down, we would have been exponentially more exposed. But the banks all remained profitable. They have all taken some bad debts, but it didn’t push any of us into a loss-making position.” ANZ’s managing director of institutional banking David Green says some of our survival was also due to New Zealand companies reacting early to the events that were happening globally. “Owners were pretty quick at cutting costs to get them through that environment. A number of large companies went out and raised equity and prioritised managing investment activity. Through taking costs out of their businesses and slowing down expenditure, they protected themselves against reduced earnings.” Andrew Thorburn, CEO of BNZ, agrees, although he says we are still facing

some ongoing challenges: “There is still volatility and uncertainty in the market. However, the economy is well placed in export and agribusiness, with rising commodity prices, and the long-term benefits of tourism. Rising public debt is a bit of a concern, but it’s not unmanageable. The banks are important sources of offshore capital, so we need to be consistently vigilant about improving our performance.” Kerri Thompson, managing director, retail, for ANZ National Bank, says there is a new sense of uncertainty after the finance company crashes, and there has been some ‘flight’ back to banks and into products like Bonus Bonds. “What we’re seeing now is people taking less risk with their money. They’re looking at bank term deposits rather than other more risky investments.” NEW FACES

With customers hungry for more secure investments, it’s a great time to turn a finance company into a bank, with the prospect of a consequently better credit rating. News just weeks ago of a ‘heartland’ bank proposed by the merger of Marac Finance, the Southern Cross Building Society and Canterbury Building Society came as no surprise to the industry. Jeff Greenslade admits he was recruited to Marac last year after 20 years as a senior

CEO of BNZ, Andrew Thorburn, says the bank has tried to be more customer-focused and innovative.

UNDERSTANDING THE NEW WORLD

executive in the ANZ National Banking Group to drive the project. It would have launched sooner, but he says he was sidetracked by a recapitalisation focus earlier this year. “Clearly being a bank does provide us with a more stable and secure business,” he says. Marac Finance currently has a BB+ rating from Standard & Poor’s, with a negative outlook, Canterbury Building Society also has a BB+ rating (stable) and Southern Cross a BB rating (stable).

The new proposed ‘heartland’ bank’s Jeff Greenslade.

28 www.management.co.nz Management JULY 2010

Says Greenslade: “I think that we need to get an investment-grade rating and we’re working on that. We have a high level of confidence that we’ll get there, based on Standard & Poor’s comments [on the launch].” But Greenslade adds that there’s more to the launch than just that: “There’s no point becoming a bank just to react to circumstances, but we believe there is a need out there. We can deliver a service, a heartland New Zealand concept that’s based around country values, local representation, having an empathy with the needs of middle New Zealand, farmers and the rural economy.” Greenslade says the new, Christchurchbased bank will not be trying to be all things to all people and will be focusing on specific parts of the economy, such as small businesses and the rural sector, as well as meeting the needs of families, not just individuals. He says customers want to speak to a person, “... and it will be the same person. There will be human interface and consistency.” If you ask people which banking channel they prefer to use, they will answer most often the internet, he says, but they still like to have other people around for the important things. “It’s about interpersonal skills and judgement skills.” It’s been suggested that if and when Marac gets the go-ahead to become a bank, other finance companies will follow. “Whether there’ll be others coming, I don’t know. That remains to be seen,” says Greenslade cautiously. Other banks say the process of becoming a bank is a rigorous one, tightly controlled by the Reserve Bank – and it will take time. And it begs the question of whether there are already too many banks in New Zealand – we have more per capita than Australia. Says BNZ’s Thorburn: “Four and a half million people, with five to six big banks and then there are the offshore banks...

It is a very competitive market but I think that’s a good thing for customers. It pushes everyone to be more innovative.” Clearly Greenslade believes there’s room for one more bank. “We’re never going to be a massive big bank, we’ll stay a small-to-medium sized bank, focusing on what we do well. If you get too big, you lose touch, and we think we can make the model work.” And it was the little guy who beat the big guns in the approval stakes this year. In February, the Roy Morgan New Zealand Banking Customer Satisfaction Survey revealed that small player TSB Bank was the clear market leader in client approval levels, with 91.4 percent. The top performers among the major five banks were National Bank (79.7 percent) and ASB (79.6 percent), followed by BNZ (74.3 percent), Westpac (73.8 percent) and ANZ (72.5 percent). NEW BANKING STYLES

The new proposed heartland bank isn’t the only institution to look again at the increasingly technological face of banking – and find it wanting. A raft of surveys across the industry shows customers are demanding dramatic changes to both business and retail banking, to make banking human again. BNZ’s Partners Business Centres concept is breaking new ground in the world of business banking. Each centre offers lounge-style facilities and meeting rooms for bank clients to use for their own business meetings, booked online. Clients can log on to the internet there, show presentations, write reports, have a coffee and network with other business owners. At 80 Queen Street in Auckland’s CBD, a whole level of the Deloitte Building has been set aside as a Partners’ business centre. Says Di Maxwell, BNZ’s head of external affairs: “They tell us it’s just like the Koru Lounge.” The bank sees the centres becoming commercial hubs within their communities. Seven centres have already opened, with 23 more due to open around the country over the next 18 months. “We’ve tried to be more customer-

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UNDERSTANDING THE NEW WORLD

focused and asked ourselves, how do we change to make the business more clientfocused, innovative and dynamic,” says BNZ’s Thorburn. “In business banking, this is much more of a professional services model. A ‘managing partner’ has people reporting to him, who work as a team to bring together products and services to the benefit of clients.” In the BNZ’s retail model, high street banks have become “stores”, with store managers running the operations as a retailer would. After research into innovative retail experiences, the bank devised the

more modern, boutique-style shops, where passers-by are encouraged to drop in and use the free internet. Instead of electronics or shoes, customers are tempted by packages of products and services, presented in handy boxes. Meetings are held ‘hip-to-hip’ in booths rather than locked away in offices and teller services are based in a central pod. Store managers have more autonomy: the power to recruit their own staff, pick and mix from a menu of facilities, and set their own hours. There’s a rolling programme of new

TOO TRUSTING Sadly for the banks, Kiwis are not a nation of savers. Nor are we necessarily all that smart about how we place our investments. Retirement commissioner Diana Crossan’s role is to improve New Zealanders’ preparedness for retirement. Understanding the need to save and invest, and how to do it, is critical to that process. Encouragingly, research shows there have been improvements in overall financial literacy levels over the past three years, with 43 percent of New Zealanders now scoring highly on financial knowledge and women and low-income households among the groups with the biggest improvements. However, Crossan says the research showed there has been little improvement in those with the lowest level of financial knowledge. “It’s going to take a concerted effort to lift the knowledge of this [lowest] group. Perhaps the survey demonstrates that a basic level of numeracy and literacy is required on which to build strong financial knowledge.” Westpac’s Retail Bank general manager Bruce McLachlan thinks we’re no less financially literate than many other nations, but what’s come out of the latest financial crisis is that perhaps we’re just too trusting. “I don’t think investors are doing enough of their own due diligence on where their money is going. They’re not demanding the differential rate of return required for the degree of risk they’re taking. Every day depositors say to us, ‘I can get 0.5 percent more up the road’. “What I would tell them is that you should be getting five percent more up the road! I can’t believe that they’ll move their money for that extra 0.5 percent. It’s time they started taking responsibility for their own investments.” And he says too many people think their investments are “guaranteed”. McLachlan thinks we’re quite trusting as a nation and many of us rely on brands that we know and which have been a long-term part of our financial history, even though many are in completely different ownership now. “Financial literacy is the answer for some, getting great advice from a trusted source is important for others, and thirdly they need to ask the questions. If, after all that, they choose a higher interest rate, that could be greed or turning a blind eye.” BNZ CEO Andrew Thorburn suggests we need to move away from our traditional reliance on housing investment. “We need to broaden people’s investment knowledge, grow a larger sharemarket, have more superannuation savings, and encourage people to start businesses and grow them.”

30 www.management.co.nz Management JULY 2010

branches opening at Westpac too, as part of a “Westpac Local” initiative to boost its profile in local communities. Says Bruce McLachlan: “We believe the future of retail banking is around a lot of the very traditional banking values including a strong local presence in communities, but combining that with 21st-century convenience. We are launching 10 new branches this year and we’re putting more expertise into local branches, giving managers full decision rights in their market.” He says studies show that even if you don’t use branches, your decision on where to bank is still based on whether or not you have a local branch. “I do everything online, but if I ever have a complex issue, it’s always nice to go in and see the whites of someone’s eyes,” he laughs. In the past every bank has followed the same trends – into online banking and ATMs. But, says McLachlan, the overarching trend now is differentiation. “We’re doing Westpac Local, because we believe that’s what customers and communities want. Others have taken a different view and are not replicating what we’re doing.” For example, at ANZ National Bank, Thompson says internet banking is continuing to grow at a terrific rate. A survey in 2005 showed 21 percent of ANZ customers were using the internet, but by 2009 it had grown to almost half of customers. She estimates it would be running at about 65 percent this year. However, everyone wants to speak to a human being sometimes, she says. “They do want a person for more complex interactions.” Thompson says a new 24-hour banking hub of intelligent ATMs that opened in Wanganui this year may be the way of the future. “When you used to make a deposit, you put it into an envelope and into a slot and some people never felt confident about that.” The new ATM machines will take your cheques, your banknotes or a handful of coins, count them and deposit them into your account, and then print out a copy of the cheques to prove they’ve been deposited.

“We found in the Wanganui pilot that within two weeks, 47 percent of transactions were going into the machines,” says Thompson.“One cafe owner was delighted he could shut the door, do his banking in just a few minutes and dash across the road again to open again without losing a customer.” THE GLOBAL FUTURE OF BANKING

Overseas, some banks are adopting social media to create online as well as real-time communities of customers. For example, at the Umpqa Bank in Portland in the United States, customers can log in to LocalSpace, an online community of businesses who bank with Umpqa. The site invites customers to showcase business products and services, share ideas and post questions to other LocalSpace users. If you go to an intranet map and enter ‘coffee’ it will show up the locations

of cafes that bank with Umpqa – Starbucks, Java Man and 15 others within a quick drive of Portland city centre. Support other customers and they’ll support you is the concept. Small banks are popular in the US. In California around 15 banks a year are created by Carpenter & Company, by recruiting investors and guiding them through the regulations to become community banks. “A small bank is the vein that carries blood to the heart,” Edward Carpenter, chairman of Carpenter & Company, told the New York Times. Globally, Harvard economic historian Niall Ferguson is concerned that structural changes that should be happening in the US and UK banking markets have not been made. “Serious regulatory reform needs to be done.” He told the BBC World Service: “I would not be at all surprised to see another crisis in a relatively short

space of time. In summer 2007 there was a crisis of personal debt that has now morphed into a case of worldwide debt... We haven’t seen deficits of this magnitude since 1942. The crisis isn’t over, it’s just moving from the private sector to the public sector.” ANZ’s David Green says he’s always thought that it’s not a straight line from financial crisis to recovery and Greece has shown that. “Events in major economies in the world will impact us. The advantage we have is that New Zealand is well positioned for a lot of opportunities and increasingly it will be about Asia and less about the rest of the world. “The strength of Asia makes it a logical market for our corporates. The big opportunity is getting a greater share than we have already in China, because we’re the only OECD country with a free trade agreement with them.” M

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JULY 2010 Management www.management.co.nz 31

FACE TO FACE

Wayne Besant

A BIT OF A LEGEND We need more authentic Kiwi leaders, says AIA's new group CEO, Wayne Besant. As he moves from banking to take a fresh perspective into insurance, Besant tells Brenda Ward the finance industry has to do more to help Kiwis understand money.

hen Tuakau boy Wayne Besant was the first in his family to pass School Certificate, they saw him as “a bit of a legend”, he laughs. When the bright-eyed young political science masters graduate flew for the first time at the age of 22, he admits he was excited. Best of all, when ANZ paid his airfare to Wellington for a job interview he was so impressed he took the job. Besant is completely unembarrassed about his early naivety and his roots far from the private school privilege of many of his peers. Maybe that’s why, now aged 46, there’s still a sense of wonderment in the way he sees the world, a freshness and enthusiasm that he’s brought to the banking industry as ANZ Bank’s retail managing director and that he’s about to take into the insurance industry as AIA Group Insurance’s New Zealand CEO. “Certainly banking was not something I thought of as a career,” he admits. “I was interested in going into foreign affairs, but a chap from the bank flew me down to Wellington for a second interview.” That led to over two decades with ANZ and “a fantastic career”, rocketing from ANZ’s Panmure branch, to managing regional branches, to corporate banking and on to lead ANZ’s branch network

32 www.management.co.nz Management JULY 2010

and SME business. He then landed a key role, as managing director of ANZ Retail, as the bank merged with National Bank. “To be involved in helping set that up was an exciting time for me,” he says. “We basically brought two large competing brands into the same family. For me that was a really fantastic opportunity.” In the banking world it’s rare to have two brands working together, with the retail divisions still operating under ANZ

on what he calls a crowded market. “What the banks are trying to achieve, in such a competitive market, is differentiation,” he says. “It’s not a big population in this country, so you have to have a differentiated service proposition.” For example, Kiwibank is pushing its identity as a Kiwi-owned bank. “However, Kiwibank shouldn’t be overplaying the anti-Aussie bank sentiment,” he notes. “In my opinion the global financial crisis has

“THE BEST THING THAT CEOS CAN DO IS ROLE-MODEL THE BEHAVIOUR THAT YOU WANT WITHIN YOUR ORGANISATION.” Retail and National Bank Retail, but the merger created greater reach, with each bank appealing to different parts of the market – and it also created a goliath in banking terms. The new entity became New Zealand’s biggest bank overtaking Westpac, which had earlier bought out the TrustBank group. Having recently stepped outside banking, Besant looks back with affection

shown Australian banks have been good for banking here in New Zealand.” National Bank’s black horse appeals to provincial and rural customers, says Besant, while ANZ has chosen the convenience space to play in, promoting its access to ATMs and branches. ASB plays the “one step ahead” card, with a progressive technology slant. “They’re all trying to appeal to different parts of the

Wayne Besant believes the global financial crisis has shown Australian banks have been good for banking in New Zealand.

FACE TO FACE

Transparency will provide more confidence, says Wayne Besant.

market,” he says. “That’s the challenge for the banking industry – to win you have to truly differentiate yourself.” Already after three months in the insurance industry, Besant can see there’s very little differentiation among insurance companies, in a similarly crowded market. That’s where he sees he can make a difference with plans to create a “brand promise” in the market that makes AIA stand out from the crowd. Another learning he made almost straight away was the discovery that Kiwis’ uptake of insurance products is only half that of OECD countries. “It’s almost a systemic thing. If you look at our school curriculums, there’s very little work that we do with kids around budgeting or financial planning. There’s a real responsibility, particularly on those in the financial sector, to help New Zealanders with financial literacy. “Retirement commissioner Diana Crossan’s mandate is all about preparing Kiwis for retirement, but there’s a real responsibility on corporates and the wider industry to do more to help. “For me, that’s what leadership in the finance industry should be striving to do more of.” New finance industry regulations should help, he believes. “There is a lot of regulation coming through the industry over the next 12 months. In my view, it’s been a long time coming. The global financial crisis may have intensified the need for it, but New Zealanders have been looking for this regulation for some time.” The regulations are about increasing transparency, he says. “Transparency will provide more confidence. My vision is a positive circle. You will get more confidence because of the transparency, and it’s more likely people will want to

learn about the industry and become better educated.” This is an issue he has been worrying about for some time. He fits spending time with his four children around being a volunteer for a budgeting service. There he sees real Kiwis with real problems managing money. “We need to get New Zealanders thinking about budgeting, about retirement and about their insurance needs – and that’s got to be good for New Zealand. I’ve got a real passion to do more to help New Zealanders.” He says there’s a lot corporates can do, getting alongside organisations like the Retirement Commission, running budgeting programmes with community groups and aligning to iwi groups to help people who would love assistance from businesses, he says. In his new role, Besant is paying special attention to this country’s small businesses. With almost half a million of them, their sustainability is important for the whole economy. In the past few months he says AIA has launched a highly successful range of products specifically to help small businesses, including ‘key person’ insurance, so if an owner is the main person generating revenue, the company is protected against losing that person from the business. Businesses could equally protect against losing a head of sales or a key manufacturing role. “If a key person falls ill in a small company, that could be your profit margin gone,” he says. “The policy is designed to get you back to business, covering recruitment costs and a percentage of the revenue of the business.” Yes, the future of insurance is in differentiation, but Besant sees the future of banking and insurance as also about technology and the human touch. “Businesses are all about relationships. That’s not to say that technology, the internet, all

WAYNE’S HEROES Wayne Besant says our future as a nation lies in what he refers to as an “authentic Kiwi leadership concept” and in this respect he has a lot of admiration for Rob Fyfe, Theresa Gattung and Stephen Tindall. Rob Fyfe: “Look at the way Rob handled the recent tragedy in France. He showed up, led from the front and demonstrated compassion and vision. That’s what leadership across all industries should be aspiring to.” Stephen Tindall: “Stephen invests in a lot of start-up businesses. People think that being socially responsible is not about profit, but the two can work together. He’s doing fantastic things and adding real value to New Zealand Inc.” Theresa Gattung: “It’s not just about Telecom. Look at what she is striving to do for the wool industry. What I like about her is consistency. She’s very passionate about everything she does – and she has a real love of New Zealand.” “To my mind, these are the three leaders who are working for New Zealand. They’ve got a long-term vision for this country and there are real lessons to be learned from them about authentic leadership.”

of these things aren’t vitally important for all industries, but communication is the key. People want more quality, authentic relationships with their banks and insurance companies. “It’s also about simplicity. The future is about having less clutter in your life, keeping things as simple as possible, particularly in the financial industry. Products have to be delivered in a way that the customer understands. For AIA, we see that as a massive opportunity in the insurance sector in New Zealand.” What is Besant’s view of where the economy is heading? “I think the property market is a good indication of the mood of the financial market at the moment too – it’s a bit more hesitant. “Credit criteria is certainly a bit tougher than it was, but equally, Kiwis are now more circumspect at taking on debt, adopting a wait-and-see attitude. “In this new environment, companies in all industries also have to be very efficient in managing the bottom line. This is what businesses should be doing when times are difficult – protecting the

revenue line and looking at costs.” He’s positive the way to effect change is to make role models of inspiring leaders and be a role model within your own organisation. “The best thing that CEOs can do is role-model the behaviour that you want within your organisation. My mantra is ‘Your staff have to feel first what you want your customers to feel’. It’s about trying to effect a better customer experience and a brand promise in the market that your organisation stands for. If the organisation doesn’t stand for anything, you won’t win. You should encourage your staff to talk about their successes, because it creates role models for the rest of the staff. If you talk about those great examples enough, that becomes the culture. “People love listening to and sharing stories – particularly personal experiences and insights. If those stories are aligned to the sort of customer experience you want your business to represent – you have a wonderful opportunity to differentiate yourself with that brand promise. That’s exciting.” M JULY 2010 Management www.management.co.nz 35

company First cab off

THE RANK Thinking differently about managing a fleet of cabs has worked for Kiwi company TaxiCharge, says Reg Birchfield.

he taxi business has been fare game ever since New Zealand deregulated the industry back in the 1980s. Resorting to Rafferty’s rules and free-for-all competition made life tough for many cabbies. So too have ballooning fuel prices and, more recently, increasing customer demands that taxis respond to their corporate carbon footprint considerations. Luckily for some, however, off the rank came TaxiCharge New Zealand with a smart taxi management software program that is delivering solutions for both drivers and cab users. And its clever management problem-solving approach is providing compelling evidence that responding positively to environmental pressures can pay handsome dividends. Auckland-based TaxiCharge general manager Mark Lines now runs a $100million business which, despite the global financial crisis, boosted turnover by 19 percent and profit by 46 percent last year. The company now has 90,000 cardholders which is, according to Lines, up almost 30 percent in a year. TaxiCharge was started in 2002. At its heart is a software program developed originally by fleet management company Cardlink Systems. Lines worked for Cardlink and, when it sold its specialist TaxiCharge application to five of the country’s cab company clients, Lines went with it. The company has a perpetual licence to use the Cardlink software and Cardlink retains a seat on the TaxiCharge board. “But,” says Lines, “the product is 36 www.management.co.nz Management JULY 2010

now vastly different from what it was when we took over.” Indeed, the company has developed one of the most sophisticated taxi industry transaction and management reporting applications in the world. The constantly enhanced software is, Lines says, the result of the company’s response to demands for greater accountability, reporting accuracy, transparency and cab customer demands for environmental efficiency. “These factors are all major issues for taxi users and their managers,” says Lines . “As a result we have developed 60 reporting options, each of which can be customised for the client.” The five original taxi company partners that own TaxiCharge has expanded to 22. The taxi companies concentrate on their core business of providing rides and TaxiCharge delivers the supporting cab company back-room infrastructure, including billing, reporting and managing driver payments. The demand for in-depth reporting is expanding rapidly, according to Lines. The recession has seen more companies using cabs. “But increasingly, the companies that use taxis want to monitor their spend more closely,” he adds. “And they want to know how environmentally efficient our cab companies are.” The company’s reporting and management system has created “virtual” paperless communication with its customers. Its 60 different reports include details of out-of-hours travel, non-compliance travel reports, weekend travel, “yet to be billed” transactions, year-to-date

Mark Lines.

spend by cost centre and card holder, GST consolidated invoices and special event billing. It also provides reports on kilometres travelled to measure greenhouse emissions, because cab users are getting picky about the efficiency of the vehicles they ride in. Corporate customers, in particular, want to know if TaxiCharge’s members’ environmental practices are aligned with their own environmental strategies. Consequently, TaxiCharge is now re-certified under the carboNZero small enterprise programme from Landcare Research. It is also working with all its taxi company partners on their certification programmes. TaxiCharge reports on fuel and energy use through distance travelled details have helped fleets develop planned cab replacement programmes, with many of them moving to hybrids. “Corporate clients in particular demand sustainable vehicles for their employees,” says Lines. “Client and consumer expectations are changing and we have had to change with them.” Not that Lines objects. His own employees have, he says, bought into the need to think and act environmen-

tally. Their “green” activities within the company have cut TaxiCharge’s own operating costs by 19 percent over the past year. “If we are going to offer environmentally certified services to our customers, we must walk the talk ourselves,” he adds. While the original drivers behind the success of TaxiCharge were increased efficiency and profitability through better management and reporting systems, it has moved on to re-focusing cab companies based on better customer service and meeting expanded demands. “TaxiCharge is a brand now,” says Lines, “and as a brand it tells you certain things about the services that it offers. We see it as means of significantly increasing the market appeal of our members.” Smart software and increasingly clever in-cab technologies are the stockin-trade of this enthusiastic and innovative business. But the quality of the reporting relies on SmartCard being pro-

vided with accurate information at the time of the ride. To do this, TaxiCharge has installed 2500 POS terminals in its partners’ cabs. And employees who use cabs when maybe they shouldn’t will become a thing of the past, says Lines. “The TaxiCharge card has virtually eliminated fraud-based expenditure such as unsanctioned employee entertainment,” he adds. “Transaction details captured by a cab’s POS terminal makes us a market leader when compared with other payment methods.” Lines is wedded to new technology as the route to managing and growing his business. “We are a get-up-and-go company that is applying professional business analysis, focused research and development and the understanding that what the customer wants is what we need to deliver. And new technologies allow us to do that.” The company’s 22 taxi partners in-

clude Auckland Co-op and Wellington Combined, two of the country’s biggest fleets. All up, they push through 300,000 transactions a month. The company has taken its software a long way from the original. It is, according to Lines, “just going through the next iteration of development”. Under a new business model, all profits made by TaxiCharge are distributed back to the company’s partners. “We pay all our profits out to the partners every month,” says Lines. Where does TaxiCharge go next? Wherever it is, Lines sees the third generation of in-car terminals now being installed as spear-heading the direction. “They will be more intelligent, will embrace more forms of payment and provide more information,” he says. How the company will use that information is not yet clear but, there seems little doubt Lines knows where the company is headed. M

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JULY 2010 Management www.management.co.nz 37

EXPORTS

Chinese

whispers Every Kiwi company should be looking at doing business with China, says a Kiwi who has experienced that country’s growth first-hand. Martin Freeth finds out why.

hina is too big and too energetic to be ignored by New Zealand companies, even relatively small ones, says David Mahon. The Beijing-resident Kiwi has a boxseat view of the developing economic relationship between China and New Zealand and he has a simple challenge for business decision-makers in his home country. The investment manager, consultant and adviser to New Zealand Trade and Enterprise says: “Every New Zealand company that sees itself as medium-sized or bigger should hold a board meeting in China within the next 12 months, even if the outcome is a clear decision that ‘this isn’t the market for us’.” The scope and scale of opportunities for doing business in China and for attracting new investment is that big, he says. After living in China since 1985 and watching its economy grow at doubledigit rates most of that time, Mahon knows what he is talking about. In fact, his company, Mahon China Investment Management, has been actively involved in that growth, connecting local partners with foreign companies – mainly from

38 www.management.co.nz Management JULY 2010

Europe and North America, but also an increasing number from Australia and New Zealand – who seek a foothold in China beyond the sale of commodities or finished products at the border. The opportunities arise, of course, with China’s sustained boom in business activity, in consumption and in savings. Match these with New Zealand’s small market, scarcities of capital and the hugely constraining effects of these on business growth, and Mahon is in no doubt that our Free Trade Agreement (FTA) with China is the single biggest development for the New Zealand economy since CER with Australia in 1981. He says New Zealand companies, with the exception of Fonterra – a Mahon China client – and a few dozen others, have yet to recognise this. Mahon is certain that many New Zealand businesses are creative and innovative enough, and have sufficiently strong management, to prosper in China given time, perservance and a commitment to learn. He is particularly hopeful for companies in our small but world-class high-technology sector – companies like Christchurch-based Commtest Instruments which opened a Beijing office in

2006 and now has seven staff there. Commtest develops and makes instruments that detect vibration in high-performance machinery, so enabling the most timely and cost-effective preventive maintenance. In China, the company is focused on instruments for the fast-growing wind-power generation sector. “They are intent on shaving off a market segment that is worth pursuing and they’re getting on with it,” says Mahon. He urges every other company of medium size or bigger to think hard about some form of involvement in China, or perhaps with Chinese investors in other markets, as part of its long-term planning. “New Zealand’s physical isolation has promoted the myth that there is a domestic market in the country separate from the rest of the world, when actually there isn’t,” says Mahon. The free trade agreement should underscore that point, he adds. (Note: the value of New Zealand exports to China jumped 43 percent during calendar year 2009, after the agreement came into force on October 1, 2008.) Mahon says exporting more volume of current products to China is well and good, but the real value will come from finding out exactly what customers want and becoming involved in supply chains within the border. Fonterra is showing the way in its development of consumer brands – notwithstanding setbacks from the SanLu milk contamination crisis

In the booming Chinese economy, new high-rise buildings have transformed Beijing.

in 2008 – and in its own milk production from feed-lot farming in northern China, he says. “It’s a great example of New Zealand business applying its know-how in new ways, being highly adaptable and getting involved in the supply chain of a food industry that is very important to China.” Mahon China, operating from offices in one of the hundreds of new high-rise buildings that have transformed Beijing, manages private equity invested in companies within China, and offers corporate advisory services and market research for foreigners entering the country. The business is testament to David Mahon’s own know-how and adaptability. He arrived 25 years ago on a contract from Feltex Carpets to lay floor covering in the then-new Great Wall Hotel, and stayed on to teach himself Mandarin and become a trader in carpet, meat and other goods.

He quickly recognised the pivotal role that finance would play as China opened its business sector for investment and growth, and began generating large surpluses. Today, Mahon also chairs the advisory board for a NZ Trade and Enterprise China Beachhead programme which offers information and advice to Kiwi companies entering the market. He says there is no one best model for New Zealand businesses wanting to get involved in China, but that all new entrants must start by doing plenty of homework on the structure and dynamics of specific markets and regions, and on the relationships between businesses and government agencies. “China is different, but not all that different. The differences are hard to quantify,” says Mahon. He urges New Zealand companies not to balk simply at differences in language and custom, which can be

overcome if there is a genuine commitment to understanding China and to building relationships. For companies starved of new equity or debt-funding at home, China can be a great source of capital, thanks to the emerging wealth of its burgeoning middle class. “Chinese investors can be very patient and they value well-managed companies with products they respect,” says Mahon. “Their expectations of return can be surprisingly modest and long term. This is definitely not a nation of asset strippers.” One tip, however: China has a welcoming and friendly culture, but that does not mean business contacts automatically become friends or that deals can be concluded without significant relationship-building. M Martin Freeth is a New Zealand business writer who recently visited China.

JULY 2010 Management www.management.co.nz 39

ETHICS

Tackling bribery and

CORRUPTION

When it comes to anti-corruption policies, New Zealand companies may not be as good as we think we are, finds Reg Birchfield.

ith recent government-backed moves to encourage Kiwi manufacturers to pitch for US defence equipment contracts and consider a free trade deal with Russia, New Zealand companies should be re-thinking attitudes toward their anti-bribery and corruption policies. New Zealand boards and executives, particularly those listed in the NZX50, may be taking comfort in the fact that New Zealand is seen as the least corrupt nation in the world by Transparency International’s (TI) annual Corruption Perceptions Index. The complacency this ranking evokes was revealed recently when a report conducted by the local arm of TI met with a collective corporate shrug, stony silence from the Government and indifference from our stock exchange regulators. The study, a review of the approach to bribery and corruption by New Zealand businesses, was carried out by the Canberra-based Australian Corporate Analysis, Enhanced Responsibility (CAER) research group. Its findings suggest we may not be as good as we are perceived. The study, done earlier this year, shows that only 44 percent of companies on the NZX50 have policies prohibiting bribery and only 18 percent have policies on regulating “facilitation” payments. This does not, says the report, “compare favourably with the percentage of companies prohib40 www.management.co.nz Management JULY 2010

iting bribery in comparable markets overseas”. For example, of the top 100 companies by market capitalisation in the United Kingdom, 72 percent have explicitly prohibited giving and receiving bribes. In Europe the figure is 57 percent and in the US it is 69 percent. And it seems few Kiwi companies boost their policy with an adequate system to encourage compliance with anti-corruption policies which, quite frankly, may be putting many New Zealand executives working in offshore markets at serious personal risk – witness the Chinese treatment of Rio Tinto executives. Out of the NZX50, only 16 percent of companies have a code of ethics system that CAER rated as “advanced”. Only five percent had a code of ethics that prohibited facilitation payments. The report suggests the NZX should

try to increase the number of companies that address the issue directly. But no one from NZX has shown any interest so far in lifting their game by asking companies to smarten up their act. Companies are more likely to include ethics elements suggested by the NZX than policies that are not NZX-endorsed. Corporates seem to think either that we are not corrupt or that we must go along with underhand practices in markets to secure business. But working with known corrupt countries and companies – such as Russia, which is considered one of the most corrupt markets in the world – may not wash much longer. Many countries are now cranking up their anti-corruption regulations and laws. Besides, New Zealand enterprise should be voluntarily embracing best anti-corruption and bribery practices

as an overall market differentiator, along with sustainable management practices, according to TI members in New Zealand. The bottom line of the CAER research appears to be that many of New Zealand’s largest listed businesses don’t pass some fundamental best-practice ethics tests. Transparency International’s message is: “Laggards need to take action and get the ethical dimensions of their businesses sorted out if they are to justify the confidence of their stakeholders, including shareholders and the public. “As the global financial crisis highlighted, there is a lot of risk – including shareholder wealth, employees’ jobs and New Zealand’s reputation. We need more ethical leadership from New Zealand business in relation to these issues.” M

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JULY 2010 Management www.management.co.nz 41

HEALTHY LIFESTYLES

Why working is good for you by Peter Tynan

When you get sick, you should take time off to recover. Yes? Well, maybe not.

ost of us believe that when we get sick, we should take time off work to recover. But how long is too long? Could we actually be doing our health a favour by returning to work before our recovery from illness or injury is entirely complete? You may be surprised to find these issues are being looked at again in the light of a new research paper, Realising the Health Benefits of Work. In it, the Royal Australasian College of Physicians has pointed to evidence-based research, which concludes that “work, in general, is good for health and well-being”. This is good news – after all, the health of our workforce is absolutely fundamental to our country’s prosperity. Smart companies are already investing in the health of their workforce through workplace health and wellness initiatives, but what about helping people return to work after a long period of illness or injury? There is growing awareness that longterm work absence, work disability and unemployment are harmful to physical and mental health and well-being. The report points to evidence that shows unemployment is bad for you. It actually causes, contributes to or accentuates a number of negative health impacts, says the report, including increased rates of cardiovascular disease, lung cancer, susceptibility to respiratory infections, poorer general health, poorer mental health and psychological well-being, increased likelihood of suicide and higher rates of medical consultation, medication consumption and hospital admission. The health effects of work versus unemployment are generally most marked in middle-aged men, especially those with dependent families. It’s important to note that it doesn’t only affect the in-

42 www.management.co.nz Management JULY 2010

dividual, but often their families suffer as well. For young people, unemployment can lead to a range of psychological problems including depression, anxiety and low self-esteem. Work can help to reverse the harmful effects of long-term unemployment and prolonged sickness absence, says the report, and it offers benefits such as: • Ensuring some level of physical activity is undertaken on work days. • Providing a sense of community and social inclusion. • Allowing people to feel they are making a contribution to society and their families. • Giving structure to working days and weeks. • Providing financial security. • Decreasing the likelihood they will engage in risky behaviours such as excessive drinking. Unfortunately it appears that the message that work is good for health is not widely recognised or understood. The report identified: • In 2007, one in eight households in New Zealand had no one in work. • In the 10 years to March 2010, the number of people receiving a sickness benefit grew by 23,663 (73 percent) to 56,000 and the invalids benefit ballooned by 31,681 (59 percent) to 85,000. • Of those receiving a sickness benefit at the end of March 2010, two in five (41 percent) had psychological or psychiatric conditions, and 15 percent had musculo-skeletal disorders. • Nearly two in five (38 percent) had received a sickness benefit continuously for between one and four years, while two percent had received a sickness benefit continuously for 10 or more years. • According to the Ministry of Social Development, very few people move from an invalid’s benefit into paid work.

• Last year, one in four workers in New Zealand was not in paid employment six months after making an ACC claim. New Zealand has recorded an increase in requests for sickness certificates and disability support pensions driven by people with common, treatable health problems being permanently certified as unfit for work. This is concerning, as work absence tends to perpetuate itself: that is, the longer someone is off work, the less likely they will ever return, and the greater the health implications. In fact, if the person is off work for: • 20 days, the chance of ever getting back to work is 70 percent. • 45 days, the chance of ever getting back to work is 50 percent. • 70 days, the chance of ever getting back to work is 35 percent. The important point the report makes is that people think they need to be fully recovered before returning to work, but this is not necessarily always the case – in fact, often this delays recovery. Even work-related health problems have been shown to benefit from activity-based rehabilitation and an early return to suitable work. Social Development Minister Paula Bennett says changing attitudes to work will be critical in helping to address welfare dependency in New Zealand. She says while some will never be able to work and must be supported, others can be living a better life in work, which this research shows is mentally and physically beneficial, on top of the obvious financial benefits. The focus must be on what people can do, not what they can’t, because research shows recovery is faster and more successful when people work towards wellness. The Accident Compensation Corpo-

ration, recognising how critical it is to get long-term claimants back to work, has recently assigned four case management companies, including Southern Cross’ Care Advantage, to help manage 600 ACC clients with long-term claims. The aim is to help these people get back to their normal lives as far as practicable and as quickly as possible, because they recognise that the longer people receive help from ACC, the harder it is for them to get back to their normal lives, including work. Dame Carol Black, the UK National Director for Health and Work, and author of Working for a Healthier Tomorrow, has been a major force in changing attitudes towards workforce health and in influencing policy in the UK. She says that a range of people, including health professionals, need to try to reverse the belief that a person needs to be totally fit and well to work, or that recovery from injury or illness must be complete before return. She says restoring working life is closely allied to clinical goals. It should be embedded in health professional judgements and in the drive to better the public health. To succeed, she says, we need everyone working together – health professionals and government agencies, but also employers, who play an important role in terms of the influence they have on workers’ health and well-being. Recognising the many health benefits of work, employers should embrace employment practices that encourage employees to start, remain at and return to work.

If you are off work for just 20 days, the chance of ever getting back to work is only 70 percent, according to a new Australasian study.

Employers have a responsibility to: • Ensure workplaces are safe. • Provide a workplace culture conducive to health and well-being. • Accommodate ill or injured workers back into the workforce as much as possible. Workplaces can improve injury management practices through: • Good individual case management. • A positive workplace culture. • Training staff, such as supervisors, in how to manage the return to work process. • Showing senior management leadership. • Auditing return to work systems and outcomes, and making improvements where appropriate.

• Actively seeking input and fostering collaboration between injured employees and co-workers. • Encouraging workers to play an active role in their own rehabilitation and return to work. • Helping employees access high-quality medical care. • Adopting sensible policies and procedures – and visibly sticking to them. • Opening the workplace up to workers with disabilities and helping those with long-term health conditions to manage their conditions in the workplace. M Peter Tynan is chief executive Health Insurance, Southern Cross Medical Care Society.

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JULY 2010 Management www.management.co.nz 43

STAFF RETENTION

MORE THAN

just a job Increasingly, companies are using methods other than pay to reward and motivate staff. Brenda Ward looks at two companies – BDO and Vodafone – pursuing different initiatives to increase staff engagement

orkplace surveys are showing that staff are finding more job satisfaction in new challenges and social responsibility schemes. Two that are increasing in popularity are international secondment and charity placements. Secondments have been popular for many years, particularly in accounting and law professions. But in today’s rapidly changing global economy, they are increasingly seen as crucial to not only training and development and talent retention, but also to organisational positioning and strategy. BDO New Zealand, part of the world’s

BDO New Zealand’s international liaison partner David O’Connor.

44 www.management.co.nz Management JULY 2010

fifth largest advisory and chartered accountancy group, is keenly focused on secondments. With access to more than 1000 offices in 110 countries round the world, it offers a wide range of experiential choice. BDO has accepted that all young New Zealand professionals will want to escape on their ‘OE’ at some time, and with talent shortage an ongoing issue for New Zealand employers, the company sees being able to offer secondments globally from Paraguay, Peru and Portugal to the Bahamas, Indonesia and Cayman Islands as a sure way to retain and grow talent, says BDO New Zealand’s international liaison partner David O’Connor. O’Connor, who was seconded to London in 1987, says: “Staff can have their OE – and earn more than they would in a pub.” However, he says things have changed dramatically since the days when he did his secondment. “Back then, it was all very much about gaining life skills and it didn’t really matter what work you were doing or what type of client you worked with; for that matter no one really asked much about your work experience when you came back. “Now it’s a much more formal and structured process in which we are focused on key development and strategic outcomes. We look very carefully at where we’re sending people, what work they’ll be doing, client exposure and importantly

what relevance this will have when they come back.” While secondments have taken a back foot over the recessionary period, as organisations recover and look once more to grow talent and international markets, the people market has fired up again. And for BDO New Zealand this is a definite strategic focus in 2010. “Everyone is acknowledging that Europe, which is a traditional route of secondment, is no longer a growth area. Asia is where the future work will come from, particularly China, India and Indonesia.” BDO is keen to encourage secondments into these emerging markets to set up links, open opportunities and provide insights for their mid-market client base in New Zealand. “Asia is a big challenge for this sector and we have to ensure they understand that to grow their business they may need to expand offshore. So it’s very important that our overseas secondments get exposure to not only bigger market issues, but to these emerging markets,” says O’Connor. However, all international exposure is seen to be of benefit to BDO, not only in terms of improving its skill base, but the value it brings to clients. “Because our clients are predominately mid-market, they rely on us to service their accounting and to bring them best practice; they are constantly asking for benchmarking

It's a given that staff want to travel. Offer them richer working experiences abroad, with a secondment.

against what market leaders are doing overseas. So, after three years’ exposure to the international network and resources of BDO, a secondee has a lot of great value they can impart to our clients.” With such high importance placed on secondment as a strategic and training and development tool, the selection process is well defined – unlike the 1980s when anyone could go without any particular focus on work or skill development. “Ultimately we want to be growing and shifting partners from one country to another. That’s where the real value comes in developing people,” says O’Connor. “So, we are looking for people who are committed to a career in chartered accounting and have strong potential to move throuzgh the ranks to partnership. That’s key. Indeed, these days we’d rarely make someone a partner who hadn’t done an international secondment.” Selection of country and work stream is then focused on specific core competencies that BDO is seeking to strengthen and develop in New Zealand. “An area where we see potential is outsourcing; the BDO office in India is very strong on this. So sending someone there to get first-hand knowledge and bring it back as a new core competency would be beneficial for us in New Zealand. “This is very much about training and development, but it comes back directly to the strategic development of BDO

New Zealand and where we want to be for our clients.” BDO is also focused on encouraging secondments into the corporate or public sector, an invaluable experience that will develop competencies not found working within chartered accounting firms. “Being seconded to work as an accountant on the other side – with a bank or major corporate for example – is a fantastic learning and work experience, something which you’ll never gain working in an accounting firm no matter how big it is.” The reciprocal side of secondments is equally beneficial with high-calibre people coming here and imparting a new level of skills and knowledge to the New Zealand workplace, says O’Connor. “We had one young senior manager here from London, an extremely high-achiever, high-calibre young guy, indeed, the 69th Englishman to climb Mount Everest! “He brought cutting-edge training and management skills that can only come from working in a much larger office like London with more than 100 partners. He imported a completely different work ethic that again can only come from working in the highly competitive environment of Europe. That really rubbed off on us and our people definitely grew working around him.” Ultimately, O’Connor says secondments take people out of their comfort zones, improve technical competency and

life skills while growing BDO’s skill base, global capability and in turn its level of client service. And, while there is a very small risk of losing people overseas, he considers the ultimate outcome is nothing but beneficial – return or not. “My view is that if we lose staff but have treated them in the best way we can, it is not a bridge burnt but a bridge cemented. Down the track that is an alumnus who will be a referrer of work, or employment or even becomes a client. Even if we lose people after a secondment, they do on occasions come back to us, as even more developed and skilled people.” PLACEMENTS

At Vodafone what’s good for staff is also good for the community. As part of the Vodafone Foundation, staff are offered two-week charity placements, without any impact on their pay or holiday entitlements. Says Sum Tran, the foundaton manager: “The Vodafone Foundation has quite a few charity partners that we support through grant programmes. One of the ways we get employees involved is through offering charities a staff member with specific skills for two weeks of work on a project.” She says, for example, a charity could ask for a strategist to help with a specific plan, or an event manager to help set up a fundraiser. She advertises the placement internally, and then staff volunteer by filling in an application. “The successful person can take up to two weeks off work, fully paid, for the project. The feedback is that employees find it really refreshing being in a different environment, especially in a not-forprofit. It can be quite a reality check.” Vodafone also allows staff to choose their own charities, and will approve placements that are supported by a statement from the organisation. It’s rare for staff to take a full two weeks away from the office, says Tran. It’s more likely for them to do a couple of days at a time, or work at their own desks on the charity project alongside their own work. M JULY 2010 Management www.management.co.nz 45

FLEETS

Alastair Sloane test drives practically every new car in his role as the NZ Herald’s motoring editor. He runs Brenda Ward through some of the top cars for you and your business.

here’s an old quote floating around about executive cars, says Alastair Sloane. “You take a Merc to a summit meeting and a BMW to a rock concert.” Despite the perception, Sloane is adamant either car would suit a modern executive for either purpose, having recently driven models from both the high-end luxury marques. “Certainly, the new 5-series might just be the best car BMW has ever made,” he says. And across at Mercedes Benz, the E-class is a return to the excellence of the Mercs of yesteryear, he says. “It’s a traditional, masculine design, both in interior and exterior design.” Sloane says Audis have broad appeal right across the age range, from the upand-coming young exec to the family guy who likes to head off to the ski fields. He says that’s largely due to the design skills of Stefan Sielaff, who was responsible for the stand-out Audi interiors of recent years. Hot on the heels of the Europeans is the Jaguar, both the XJ and the XF. “With the XJ, Jaguar has finally caught up with the Europeans. They will have to watch out – it’s a bloody good car! “It’s the same with Lexus, which is also doing some good things,” he says. Subaru Legacy wagons still appeal to many executives with outdoorsy lifestyles, he says, while crossover SUVs like the Audi A4 Avant and the VW 4Motion series suit the sporty CEO. 46 www.management.co.nz Management JULY 2010

Jaguar's XF is one of Alastair Sloane's top executive car picks.

The big news in fleet cars, says Sloane, is ‘green’ cars and the hybrid. Companies should expect to have to install charging equipment into their fleet garages in the next few years, he says. According to Sloane, there’s a lot of scepticism about electric cars in New Zealand, but with roughly 70 percent of our electricity generated by sustainable sources, it puts us in a pretty good position. “Whether you like the electric concept or not, they’re going to be here, because everybody’s making one – even Ferrari!” With fleet cars, there’s a world of choice depending on price and the driver’s needs, says Sloane. “At the top end, there’s the Honda Accord and the Nissan Maxima is also very good. Nissan is a very good engineering company. The new Toyota Camry is moving into the $50k range and the Camry hybrid is actually a better drive than the petrol-only car.”

Sloane says Kea and Hyundai are making big inroads into the fleet market. “The Koreans have come a long way.” The traditional fleet cars, like the Ford Mondeo, are still reliable and sound, and he says sales of Holdens show that New Zealand buyers are still supporting the down-under economy. Sloane says there’s been growth recently in small cars. Toyota Corolla is the best-selling car in New Zealand, he says. “All the manufacturers are starting to make small cars. Audi will release its A1 in Europe later this year and BMW has its new range of small cars, smaller than the 1-series.” So there’s only one question left. He drives so many cars, but which one would Sloane pick if budget was not an issue? “I’ve always had a yearning for a 2CV Citroen van like the one Peter Sellers drove into the swimming pool in The Pink Panther movie,” laughs Sloane. M

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EXEC TECH

t s i m o n o erg SPEAKS

THE

The wrong peripherals and workstation set-up can be damaging and costly. Pauline Herbst gets to grips with ergonomics.

f you’re in management, you’re in a dangerous job. Ignore the obvious culprits like stress or that person you fired last year who still holds a grudge. You’re staring right at a potential trouble maker – your computer. New Zealanders stare at screens for six hours a day, sit in office chairs for 40 hours a week and use keyboards and mice more than their pillows. It’s fairly important that the technology you’re most acquainted with is set up properly. This applies equally importantly to your staff. ACC pays out $28 million on occupational overuse syndrome (OOS) injuries each year and according to research from Ergonomics, Work and Health by Stephen Pheasant, if you want to boost individual performance by 25 percent, get employees an ergonomically tested workstation. Microsoft Hardware’s in-house design ergonomist and user researcher Dr Dan Odell explains what you can do to try 48 www.management.co.nz Management JULY 2010

to stave off potential lower back pain or carpal tunnel syndrome. “The first and most important thing is to realise it is important to set up your work station properly,” he says. “There is so much pain associated with work stations, the most important thing is to take it seriously and understand the issues. After deciding to do something about it, the next thing is to get some education. It’s usually not very hard to make adjustments that can make big improvements and you don’t have to spend lots of money. “The main thing is to have some dedication to ergonomics. Raise the issue with employers and let them know that this is important. Tell them to take some time to learn about their work station and set it up. If some extra configurations are needed, definitely support those.” Odell does more than just offer good advice; in addition he also sets the targets for posture and performance during the

Dr Dan Odell.

design phase of each new product over the 12- to 18-month research and development cycle. Industrial designers will sculpt each product in clay, “do sketches and play around with it for a while”, before reviewing and testing the “non-functional hunks of foam” in front of users. Once they’ve studied where people are making contact with, for example, a mouse, they can modify the design over a number of cycles before settling on a final direction. “Some of our products are stamped ‘ergonomist-approved’ and we work with an independent research group, like a university, to evaluate our designs once we’re done,” says Odell. “We’re looking for significant benefits from a wrist perspective. If the university says we found something and the wrist posture is better, then we’ll go ahead.” If they don’t, Odell says, it’s “back to the drawing board”. NZ Management put one of Micro-

Test driving the Natural Ergonomic Desktop 7000 keyboard and mouse.

soft’s ‘ergonomist-approved’ desktop sets through its paces to see what difference ergonomics makes, while bearing in mind it is “easier to perceive comfort than discomfort”. THE VERDICT

The Natural Ergonomic Desktop 7000 keyboard and mouse, is a little out of the ordinary. Take it out of the box marked ‘Ergonomist Approved’ and it looks suspiciously like one of Salvador Dali’s melted clocks. This is not to say the black and silver accented device is unattractive, just unfamiliar and slightly daunting. The first thing to get your head around is the bulge about a third of the way to the left of the keyboard. Sloping gently down on either side is a split keyboard. More gravity bending comes in the form of the front padded edge of the keyboard, which is tilted upwards by a five centimetre lip. So why the strange ripple effect? Ac-

cording to Microsoft, this “promotes a more natural hand, wrist, and forearm position for greater comfort”. You initially tend to pop up the legs on the back of the keyboard in an attempt to raise it to a more familiar level, but soon move it back to the tilt position. The trick with this is like anything that’s good for you, you have to persevere. Fortunately, we had been forewarned by Odell, who said: “There can be some barriers to people learning to use a split keyboard. On average it takes people two weeks to get up to speed on a split keyboard. If you’re a full touch typist this is a little faster, if you cross over the centre when you type it may take a bit longer.” Hot keys include single button access to the web, email, volume controls and particularly handy, the calculator. You can also set up five keys to access your favourites, for example, a work folder you access daily, a website or file. This was

extremely useful and is very simple to set up, even for a novice, using the starred ‘My favourites’ key. The mouse felt a little high for smaller hands, but this is apparently deliberate to once again offer support for the wrist. Features include a magnifier, four-way scroll wheel and five customisable buttons, but the highlight is the instant viewer. Click on the scroller and thumbnails of all your open documents appear in a pane, extremely useful in the age of multitasking. A battery status LED indicator glows red when the battery is running low but it would have been good to have a solid light to know the devices are operational during initial set-up (while realising the corresponding effect on battery life). Conclusion: While the 7000 may be too daunting for everyone to master, a maximum two weeks of adjustment seems worth a healthier working environment. M JULY 2010 Management www.management.co.nz 49

VOICE / PUBLIC RELATIONS

Love that harbour link! C

reating a positive perception among Bay of Plenty people over one of New Zealand’s largest roading projects won The New Zealand Transport Agency the Supreme Award at the 36th Public Relations Institute of New Zealand (PRINZ) Awards. Janette Wise and the transport agency team won the award for communications around the three-year Tauranga Harbour Link campaign, which relied on public opinion. The sustained public relations activity helped to deliver one of New Zealand’s largest roading projects while maintaining the strong relationships the transport agency has fostered with Bay of Plenty residents. Among the awards, PRINZ also introduced a new award for 2010, the Workbase Literacy Award for a campaign’s recognition of the audience’s literacy, language or numeracy levels. The inaugural award went to Canterbury District Health Board and Convergence Communications for their work in lessening the effects of swine flu on Canterbury. PRINZ national president Graeme Purches said the awards featured strong entries, particularly from the winning teams from the NZTA and Professional Public Relations, which won or were highly commended for nine awards between them. The PRINZ Awards are an opportunity for the public relations industry to recognise and reward great communications work among consultants and in-house practitioners. Purches says he was impressed with the calibre of entrants this year. He said award-winning entries reflected sound public relations and com50 www.management.co.nz Management JULY 2010

The Tauranga Harbour link communications campaign really worked.

munication objectives, showed high standards of performance, production and presentation and represented the pinnacle of PR practice in New Zealand. THE WINNERS WERE

Supreme Award: Janette Wise of New Zealand Transport Agency for the Tauranga Harbour Link communications. Corporate Public Relations: Emily Davies and Frederika Walls of Professional Public Relations for New World’s sponsorship of Netball New Zealand and the Silver Ferns. Marketing Public Relations: Jeanette Colman and John MacDonald of the University of Canterbury for the UC Philanthropic Bond. Government or Quasi-government Public Relations: Janette Wise of New Zealand Transport Agency for the Tauranga Harbour Link communications. Limited Budget Public Relations: Kristie Penwarden and Mary-Louise Dare of Professional Public Relations

for the Durex Valentine’s Day survey campaign. Not-for-Profit Public Relations: Heather Claycomb of HMC Communications for the ‘A Piece of NZ’ campaign. Special Event/Project (joint winners): Suzanne McNamara of Convergence Communications for Splore 2010 and Victoria Murray-Orr of eveNZ, for the 100% Pure New Zealand Winter Games. Sustained Public Relations Programme: Tim Marshall and Rob Warner of Communication by Design for Operation Paramount: To Become New Zealand’s Leading Franchisor. Sally Logan-Milne Young Practitioner of the Year: Leah Evans of Icebreaker NZ. Crystal Clear Literacy Award: Michele Hider and Rachel Solotti of Canterbury District Health Board with Erin Jamieson of Convergence Communications for Reducing The Impact of Swine Flu on Canterbury. M

“ Before Project K I didn’t care what happened to me - now I do”

“ Stars has helped me in lots of ways. I’m more confident at school now”

“ Kiwi Can teaches us to be kind to each other”

(Year 9 student)

(Year 6 student)

(Year 10 student)

Every year FYD helps over 18,000 kids, from ages 5 to 18, through our programmes Kiwi Can, Stars, Project K and MYND. FYD’s programmes work! They give kids the tools to make the most of their lives, bringing out their potential, boosting self belief, improving educational achievement, reducing truancy and reducing anti-social behaviour. We are largely reliant on fundraising, corporate donations and sponsorship and that’s where we need your help. Your company can support FYD and New Zealand’s young people by: Training to become a mentor Supporting us through personal donations Inland Revenue payroll giving

“Our young people have the potential to change this world, but first we need to help them with theirs”.

For more information Ph (09) 477 6237 or visit: fyd.org.nz

TRAINING

: Y D U T S R E CYB

the future? As online training takes off, Brenda Ward looks at the benefits of virtual learning versus traditional face-to-face methods.

s employers look at the real costs of taking staff out of their workplaces for courses, online training is becoming the new boom area for learning. Canterbury business RedSeed says it now has some of New Zealand’s biggest companies on its books using its online training for salespeople, including Warehouse Stationery, the Royal New Zealand Navy and Hallensteins. Managing director Anya Anderson says a tough period for retail has seen the company land some important clients. “They realise that their marketing dollar is only of value if their sales staff knows how to convert that traffic into sales.” Anderson, a veteran sales trainer with more than 15 years’ experience, says she saw a gap in the market for an online training business to overcome the geographical constraints of training large sales teams while also allowing them to measure the return on their investment.

Operations manager and director Glen Duffield says advantages to online learning also include the fact that it is instantaneous, that students can join a course as soon as they start (for example, an induction course) – and generally lower costs.“There are expenses in sending people around the country to courses. And you lose salespeople off the floor.” Duffield says online training is very flexible and can be done around the clock. But how do they make sure courses are completed? He says over a typical three-month course there are many checks and balances. Online worksheets have to be filled in and managers have to engage the trainee in role-play practice and the sales techniques students will have seen in online videos. The University of Auckland faculty of Business and Economics designed and built the world’s first online computer-

Project Plus believes face to face, real-time learning will remain the most popular for professional development.

52 www.management.co.nz Management JULY 2010

supported learning system. “The use of the term ‘computer-supported learning’ was a genuine objective to use technology to support learning, not to pretend that technology could teach students,” says associate professor of information systems Dr Don Sheridan. “Even at its best, the content of online learning is only as good as its author and learning is successful because the technology embodies the best practices of excellent teachers.” He sees ‘blended learning’ as the future. For example, a programme might begin by presenting material in an online format, then present the next set of content through a live virtual classroom or in a traditional classroom. Kevin Gaunt, of the New Zealand Institute of Management, agrees there are benefits to online study. “It enables students to choose their own time and place for their learning experience. For example, a busy mother can study at 9pm and a manager who spends time away from home travelling can study in their hotel room. “It fits very well with the needs of people today, as our lives are more fragmented than in the past.” He says the institute mainly uses face-to-face learning at present, but he believes that very shortly online learning will be as common as our use of emails. But there are still real benefits to traditional face-to-face learning, he says. “It is generally more interesting than online learning as you get to interact with other people. There are also benefits from being able to learn from the experience of

Auckland University designed the world’s first online computer-supported learning system, but still runs traditional face-to-face courses.

others and explore questions, which is true learning that can’t easily be done online.” Gaunt believes the future will see both methods of training: “We see both being prevalent, with the learner having significantly more choice over what they learn and when and where.” Stuart Sinclair, joint managing director of business training company David Forman, says online learning is clearly a form of learning that is increasingly accepted with a more technically savvy workforce, but he believes face-to-face learning remains a vital aspect of any learning that requires more than simply

the imparting of information. “Face-to-face learning is essential where discussion and interaction are key components of learning. Another hugely important consideration is that skilful facilitation can elicit self-discovery from participants. It is the most powerful form of learning, as it creates a strong buy-in where students can say: ‘I figured it out for myself!’.” David Forman currently uses minimal online learning methods, but Sinclair says the organisation is evaluating options on how it could incorporate online into its offerings.

To celebrate 40 rewarding years, we’re giving your business a very special gift.

Iain Fraser, group managing director of Project Plus, says online learning may be available 24/7 but that does not mean that it has any impact on skills development or retention. Face-to-face provides the “story-telling component that revolves around applicability in the workplace”. He believes face-to-face, real-time learning will remain the most popular for professional development and indepth learning. “Online will support this, however, via podcasts and other techniques for pushing supplementary information out.” M

Since 1970 David Forman has been providing both the tools and the inspiration that have enabled thousands of people and organisations to succeed in their endeavours. In addition to the iconic David Forman training programmes, we are now the New Zealand provider of the world renowned Franklin Covey programmes, featuring ‘The 7 Habits of Highly Effective People’. In recognition of these milestones, we’re making you an unparalleled offer.

Book now and save 25%*! Book and pay in July for any 2010 David Forman or Franklin Covey programme and you’ll get 25% off the normal programme rates. Considering how valuable and uniquely effective these real-world courses prove to be, we’re certain you’ll agree that’s a very special gift indeed. To take advantage of our 40th anniversary celebration offer, simply call us on 09 912 9770 or visit davidforman.co.nz to choose your programme from our comprehensive online listing. But be quick – offer expires July 31, 2010.

*This offer is available on any 2010 David Forman or Franklin Covey public programme, booked and paid for during July 2010. Places are offered on a ﬁrst-come basis only. No transfers or refunds are available.

JULY 2010 Management www.management.co.nz 53

LEADERSHIP

FROM ROCKETS

to cataracts

Ray Avery.

AT THE TOP It’s not rocket science... or maybe it is. Winners of the Sir Peter Blake Leadership Awards showed inspiring leaders can come from fields as varied as medicine and astronautics.

ay Avery modestly says his job is all about applied research – taking existing technologies and applying them to a different paradigm. Although his development work is done in a lab, it is his wider, groundbreaking work on improving the lives of millions of the world’s poorest people with Medicine Mondiale, that has won him the prized Blake Medal at this year’s Sir Peter Blake Leadership Awards. Avery calls New Zealand the “clever country” and says our number-eight wire mentality, forced on us by the long wait for parts created by our geographical distance, means that innovation is in our DNA. The Aucklander told a seminar in Auckland earlier this year: “If I was running this country, I would do an

Dr Karen Willcox.

Ngarimu Blair.

audit in technology. No one is as clever as all of us.” Avery’s own innovations include lowcost intraocular lenses, which have made treating cataracts affordable in developing countries. He joined the other winners in receiving their honours at a dinner in Auckland on June 25.

CHRIS QUINN, 43, is the CEO of Gen-i, a leader in information and communications technology in New Zealand. JAMIE TUUTA is a self-employed

consultant, negotiator and communicator, who has worked in many fields. CATRIONA WILLIAMS, 38, a tetraplegic,

DR KAREN WILLCOX, 38, has won a Sir

Peter Blake Award for her work as associate professor of aeronautics and astronautics at the Massachusetts Institute of Technology (MIT) in the US. NGARIMU BLAIR, 34, works on behalf of

Ngati Whatua o Orakei. Over the past 10 years, Blair has been promoting tangata whenua issues.

Chris Quinn.

Jamie Tuuta.

created a thriving charitable trust, the CatWalk Spinal Cord Injury Trust for research to enable spinal cord injury sufferers to walk again. DR RENEE LIANG, 38, is a specialist in community, child and adolescent health. She leads the study, the Asian Advisory Group for Growing Up in New Zealand. M

Catriona Williams.

Dr Renee Liang.

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HEALTH AND SAFETY

Managers AT RISK If managers don’t want to end up in court, they should be looking seriously at new changes to our health and safety laws, says lawyer Grant Nicholson.

hanges coming soon to the Health and Safety in Employment Act are likely to have a big impact on managers. The National-led Government has adopted a bill first introduced by Labour in 2008, which means that technical changes to the definition of ‘serious harm’ will mean employers have to report more injury incidents to the Department of Labour. This is a risk issue, as more reporting will also mean more chance of being investigated by the Department of Labour’s inspectors. A new law will also be introduced, requiring businesses to collaborate on health and safety management when employees from multiple companies are required to work together. Almost all directors and senior managers understand that health and safety is a risk management issue in their businesses, but 2010 is a time for a renewed focus on this, as these law changes and international best practice improvements raise the bar for local companies. In March, a senior British politician, the Conservatives’ Lord David Young of Graffham, spoke at an international health and safety conference in Scotland about the need for health and safety laws to be simplified and to reflect common sense. This call was widely rejected by industry experts. Common sense is not enough when you’re running a complicated business. Many workplace injuries occur when employees cut corners and ignore common sense. The Department of Labour and the courts are clear that businesses must take steps to protect employees from themselves, even if this means

protecting against things that should be common sense. In process terms, New Zealand directors and managers usually seek to manage risk and ensure legal compliance by doing what the Health and Safety in Employment Act requires – identifying all risks and taking steps to eliminate, isolate or minimise those risks. This often involves a combination of equipment, processes, training and supervision. The British Institute of Directors has introduced a guide for directors to help them address their health and safety responsibilities. The guide has been important in the United Kingdom because the introduction of corporate murder and manslaughter laws in 2006 has meant that after workplace fatalities the police are now routinely leading investigations, rather than health and safety regulators. There’s nothing like being compelled to attend interviews at a police station to focus the mind of a senior manager or director... New Zealand does not yet have corporate murder laws, so you may ask ‘why do I care?’ The reality is that New Zealand’s health and safety landscape is shifting, and directors and senior managers are now in the frame in a way they weren’t even five years ago. Just ask Wayne Grattan, the managing director of Icepak Coolstores. Everyone will remember the tragic coolstore fire at Tamahere in Hamilton in April 2008, because one fire fighter died and others suffered serious burns. Grattan was prosecuted personally for acquiescing in the failure by his company to com-

Manager Wayne Grattan was fined $30,000 for breaches of health and safety regulations over the tragic Tamahere coolstore fire.

PHOTO: NZ HERALD

HOW THE LAW AFFECTS YOU

ply with its health and safety obligation. He was ultimately fined $30,000. Minister of Labour Kate Wilkinson has challenged businesses to improve health and safety performance, and the Department of Labour is looking for cases where it can take enforcement action against directors and senior managers. So, what should directors and senior managers do? The clear message from the Scotland conference is that the most important thing is building a positive health and safety culture. This requires accountability, and visible support from senior management. The challenge for 2010 and beyond is to ensure your business takes sufficient steps to manage risks and, equally importantly, that you can demonstrate compliance. After all, do you want to be the next manager or director facing personal prosecution? M Grant Nicholson is a partner at Kensington Swan and heads the firm’s health and safety work group.

JULY 2010 Management www.management.co.nz 55

ADVICE TEN TOP TIPS

How to match Australia By Grant Amos

uch has been made of Australia’s superior economic performance and the ways New Zealand can catch up. In workplaces around New Zealand, managers can also do their bit. So, based on years of advising managers on both sides of the Tasman about achieving the perfect team performance, here are my 10 tips for improving your organisation’s productivity – and helping your country.

FOCUS ON INVESTMENT, NOT COST Like many Kiwis, I grew up thinking I could buy something only if I’d saved up for it. This attitude encourages thrift, but it also leads to a focus on cost rather than return on investment. Many Kiwi managers focus on what salary job candidates want, rather than on the value they bring to the business. But it’s the return on salary investment that matters, a philosophy that Australian managers are more likely to embrace.

DON’T HIRE A BUNCH OF CLONES Too often, managers hire people just like them. But people just like you have your weaknesses, and you want staff who can cover those weaknesses. When hiring, identify the strengths you are missing and then set out specifically to hire people who can fill them. Organisations should always reflect on what is working and what can be improved on. For example, if the team is extroverted, you may look at getting some more quieter staff just to tone down the atmosphere. Conversely, if your team is subdued, one live wire might pick up the tone, and spark others’ ideas.

REALISE THE NUMBER-EIGHT WIRE MENTALITY ONLY GOES SO FAR Another common mistake is to hire anyone with the basic skills, assuming they’ll learn on the job, just because that’s what Kiwis do. Instead, typically larger Australian businesses are much more likely to have formal training and development plans, setting out what this person can do now, how we’re going to train them and what they’ll be able to achieve in three or six months. The number-eight-wire mentality is great for dealing with crises that must be solved now, but not for building highperformance teams.

CHOOSE THE RIGHT PEOPLE FOR YOUR ENVIRONMENT Sixty percent of what makes people successful is the environment around them. So while the tasks might be the same, people will behave differently in different environments. For example, you may have a group bonus scheme while your competitor, from whom you just poached a “star performer”, based bonuses on individual behaviour. Understand what shapes your business and hire people who will thrive in your environment.

56 www.management.co.nz Management JULY 2010

DON’T EXPECT EVERYONE TO LEARN THE SAME WAY Some people don’t learn through written or verbal instruction – they have to learn by doing it on the job. Others will understand the instruction, but then need to practise on the job. Still others will need to ask lots of questions. And finally, some will just get on with it. By making allowances for different learning styles you’ll enjoy a lot more success in training your staff. UNDERSTAND WHAT MOTIVATES YOUR STAFF Pay gets your staff to work, but mostly it doesn’t drive extra effort or stand-out performance. Some people are motivated by team spirit, some by “making a difference”. If you don’t find out what motivates your staff you will face high staff turnover or a demotivated team full of people who never really perform.

GIVE YOUR STAFF THE FEEDBACK THEY NEED Most people need feedback and encouragement to do more than the minimum necessary. And even in mundane jobs, good leadership and management can help stave off boredom. Some people are happy just to get on with a job. But others will always need to come back to you and ask questions. If you don’t meet that need, they won’t get any better.

WORRY LESS ABOUT BEING LIKED Many Kiwi businesses have grown up from family firms, and everyone wants to be liked by their family. But for businesses to grow, it’s much more important for managers to be effective. Staff won’t respect managers they think are playing the popularity game. They will respect, and work harder for managers who are honest, straight up, and who aren’t seen as having a hidden agenda.

USE YOUR GENERALIST’S SKILLS TO BE A GOOD MANAGER If you have grown up with the firm, you will have started as a generalist, having to do a bit of everything and make decisions about all sorts of things. That means you have learned to look at a situation from many different angles and make decisions in the interest of the business, not from a narrow perspective. Use that strength to balance the sometimes-competing preferences of your team.

PLAY TO YOUR STRENGTHS You are not the architect, accountant or receptionist. You hired these people because they are good at their jobs – so set their goals and reporting criteria, then let them get on with it. Far too often, people try to manage their staff, when what they’re looking for, is leadership skills. M Grant Amos is a registered psychologist at Selector. He has more than 25 years’ experience in providing psychometric-based selection and evaluation advice to a wide range of clients in New Zealand and Australia.

Vol 8 No 3

July 2010

Female quotas on boards: Should we have them?

What to do about overpaid CEOs

It’s lonely at the top: Depression and CEOs

EDITOR Brenda Ward

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Women on boards THE CASE FOR MORE FEMALE DIRECTORS As Australia adopts rules on women board members, Susan Hornsby-Geluk speculates that New Zealand may well follow suit – and on what that will mean. COMPANIES IN New Zealand may soon have to provide details of the number of women directors, senior managers and staff they have, if moves over the Tasman are adopted here. The Australian Stock Exchange has recently announced proposals to expand the Corporate Governance Principles and Recommendations to require every listed company – on an ‘if not, why not’ basis – to adopt and disclose a diversity policy that includes measurable objectives on gender. Subject to the public consultation process, it is expected these changes will apply from the start of this month. Meanwhile, in France moves are afoot to mandate women’s participation in boards, following a model already in place in Norway which has achieved a participation rate of 37 percent. So why is this so important? Credible international studies have established that a balance of men and women on boards

results in significantly better company performance, with the Catalyst Report, “The Bottom line: Corporate Performance & Women’s Representation on Boards, 2007”, finding that it resulted in an average 53 percent higher return on equity, 42 percent higher sales performance and 66 percent higher return on invested capital. If it’s that obvious, then surely New Zealand, with our exemplary record of promoting women’s issues – first to give women the vote, two female prime ministers, a chief justice, a Women’s Affairs Department – must be doing okay in this area? It seems not. We are significantly behind the rest of the world – and we are going backwards. Just this year Women’s Affairs Minister Pansy Wong said New Zealand had a “dismal record” with only 8.6 percent of women on boards of the top 100 listed companies and she argued that

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THE ASPIRING DIRECTOR

Confidence is one reason there are not as many women as men on boards, says Debra Chantry, an aspiring board member currently studying to become an accredited director. “Men are always so confident in their own abilities,” she says. Having recently attended two days of directors’ courses where around a third there were women, Chantry says, “The men looked very comfortable but the women were saying, ‘I’m not sure if I’m ready to do this’. But I believe those women were no less qualified nor experienced than the men there.” Chantry, 39, says she’s aiming to become an accredited member of the Institute of Directors, which will mean apart from a written exam, she needs to undergo a rigorous selection process and have five years’ experience on the board of a significant company. “I don’t have to be an accredited director, but by doing the courses and accreditation, you get a full understanding of the legislation, how a board should run and what your responsibilities are. In theory, that should give companies a lot more faith in your abilities.” Chantry’s current role is in marketing for Tower Insurance, but in the past she was one of the youngest general managers in the country, at InterCity, and she’s been the CEO of a software development company. She also ran her own company for a

couple of years until the business was forced to close when a key contract fell through. “It was the worst experience of my life. But then I realised I could bring learnings from that to other businesses, so I became a consultant, helping other people avoid the pitfalls.” Chantry says there are two ways Debra Chantry. of getting onto a board: if you know someone (“the old-boys’ network”), or through the Institute of Directors, by doing the training and networking with existing directors. Being quite new to the world of governance, she has chosen the second route. Chantry is in favour of more women on boards in New Zealand, but is unsure about enforcing a quota. “I would always wonder if I got my role because of my skills or because of my gender.” Ultimately it’s not just about having women on boards, it’s about having diversity on boards, she believes. “You should have men and women, accountants and lawyers, industry specialists, differing ethnicities. You just need the right people to offer value to a board.”

Susan Hornsby-Geluk is a board member and partner at Kensington Swan specialising in employment matters.

THE SENIOR BOARD MEMBER Business was part of her “daily life” as a child, says Janine Smith. Her family invested in shares and talked a lot about business, so she was always going to be passionate about companies and how they worked. Now she has shares in the business The Boardroom Practice, sits on a number of boards in a senior role Janine Smith and is involved in tertiary education advisory boards, including for the University of Auckland Governance Centre. Smith says she doesn’t believe a government-determined quota for women in boards in New Zealand would be a good thing. “A quota has the potential to undermine the abilities of any ‘quota woman’ sitting around the board table, when in fact the person may have the ability in their own right. Trust and mutual respect amongst board members are important for board relationships and for the board to be effective. A quota system could potentially undermine this dynamic. “Also more women on boards can be achieved without a quota system. The Government state owned enterprises have about 35 percent women on their boards. This has been because they have focused on finding women for the boardroom.” She says she also thinks it is important to look at the board’s role. “They are there as agents of the shareholders to build sustainable shareholder wealth and the strategic plan is the mechanism to achieve this. This should identify which board skills are required to benefit the organisation and it is within this framework that one should look at the diversity aspects of boards.” Women do bring different skills to the table, says Smith: “As an observation, women tend to be more comfortable and more direct in asking questions at the board table and more prepared to engage in a dialogue. They also bring a different approach to looking at problems. Both these characteristics are important for directors to contribute in the boardroom.” Smith says she first thought about becoming a board member when she was enrolling for London Business School in 1989. “My commerce degree involved both marketing/ strategy and finance and I felt this was a good combination for boards, as it gave me the ability to understand the figures in looking backwards (monitoring) while at the same time marketing or strategic focus is looking at the trends going forward. I had also by that time spent nearly 10 years in the manufacturing sector in New Zealand and had been exposed to board functions.” She is currently on the board of The Warehouse Group, deputy chair of Kordia Group and chair of McLarens Young New Zealand. Smith says she spends all of her time on work related to governance and boards.

JULY 2010

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more women should be appointed to boards. In Norway, the government mandated participation on the basis that ‘diversity is a value in itself, and it creates wealth’. There are a number of factors that drive this outcome. Firms that have strong women as role models attract the best female employees. These also tend to be firms that take into account issues that affect women such as work-life balance, ensuring that they retain and get the best performance over time from these staff. Let’s not underestimate the power of the woman consumer. Eighty percent of consumer purchasing decisions are driven by women, and they like to support firms that are women-friendly. Businesses need investors and women are increasingly becoming shareholders. In Norway, it was acknowledged that board members were generally selected from a small circle: “their buddies”. Ironically one of the reasons women are successful is that they are usually outsiders and as such are more likely to challenge and extend the thinking of the board without concern for politics or personal loyalties. They are also more likely to ask questions men don’t think to ask and tend to be inclined towards risk mitigation and policies and procedures. A total of 72 percent of boards with women on them have formal performance appraisals compared to only 49 percent in boards with only men. Boards often complain it is hard to find suitable women candidates. A quick Google search of “women on boards” is all it takes to find the Ministry of Women’s Affairs (www.mwa.govt.nz) and the Institute of Directors (www.iod.org.nz), both of which have databases of qualified women. Perhaps the problem is that many board chairs are still looking for people just like themselves to sit alongside them on the board. These assumptions need to be broken down, and they need to consider the gaps the board may have in skills, ideology and approach. It is true the pool of experienced women may be smaller, and this does pose an issue. It is also true that women are less likely to rate themselves as having value to add to a board, and are less likely to put themselves forward. I too am guilty of this. When I was first appointed to the board of Kensington Swan I wondered what contribution I could make and when I would be found out! It seems, though, that I am not entirely odd. This is in fact an acknowledged condition, appropriately named the ‘imposter’ syndrome. However, without wishing to devalue the role of board directors, most of it is not rocket science – some decent preparation and common sense goes a long way. Whether New Zealand adopts the Australian proposal requiring the reporting of women participation rates remains to be seen, but in the meantime women could help themselves by making themselves more visible and valuing their own contribution. It won’t necessarily be the same contribution as a male colleague, but that is precisely the point!

THE DIRECTOR

It’s lonely at the top WHAT TO DO ABOUT DEPRESSED CEOS

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Are boards responsible for the emotional well-being of their chief executives? Or should they, at the first sign of stress, bundle their high-paid CEOs out? Clive Plucknett tells Reg Birchfield how boards should react. World Health Organisation, depression will deliver the world’s LISTEN TO CLIVE PLUCKNETT, a self-confessed “type next health crisis in the 2030s. A” chief executive who spends far too much time in his office, US statistics suggest that stress and depression are now and you might be forgiven for thinking that depression among that country’s number-one reason for sickness. Nine out 10 chief executives is spreading like a volcanic cloud. He calls it American companies claim that workers’ performance and a “silent, spreading epidemic”. productivity is undermined by stress-related issues. A study by The Challenge Trust CEO says no one is doing any meaningthe New England Journal of Medicine says stress contributes ful research into the incidence and effects of executive stress to 85 percent of all medical problems. in New Zealand, but he bases his conclusions on his charitable The increasing incidence of depression and stress in executrust’s building workload and US and European research. He tives is, in Plucknett’s opinion, different from the incidence also points to research that claims 52 percent of top executives pattern in the general population. die of stress-related diseases. He blames the New Zealand psyche Challenge Trust offers specialfor the spiralling trend, which is ist mental and physical disability “We are so macho. Even our coupled with an ingrained instituhealth services for organisations tional and individual resistance to and individuals from every sector. women are macho. We don’t do anything about it. And the incidence of executives sufshare personal stuff with “We have a bullet-proof menfering from depression and stressother people.” tality,” he says. “We are so macho. related illnesses is growing demand Even our women are macho. We for his organisation’s services. don’t share personal stuff with other Plucknett recently told the people. And that adds to the problem in New Zealand.” National Business Review that stories of CEOs and directors He is also critical of New Zealand’s approach to health mangoing bush or attempting to commit suicide are “just the tip” agement generally. “We do not look at wellness,” he says. “We of a very large iceberg. For every one incident that spikes media look to fix things once they have broken.” This approach, he interest, he believes 100 go unreported. believes, applies right across the health system, not just when The statistics and predictions on the growing global inciit comes to dealing with stress and depression among CEOs. dence of depression are, frankly, depressing. According to the The recession, says Plucknett, has triggered a dramatic increase in stress-related incidents among high-level executives. LOOK OUT The problem is worsened by CEOs who internalise and bottle There are five warning signs of depression, says Clive up their pressure problems. Plucknett: “They can appear to operate effectively for some time, 1. Feelings of anger or rage at small things that would then all of a sudden they hit the wall,” he says. But before the not normally upset you. crunch, CEOs stop performing and that becomes expensive for 2. Difficulty with going to sleep or, more commonly, the enterprise – regardless of what happens to the individual waking up at 2am or 3am and not being able to get back and his or her family. to sleep. His comments are backed up by the new book, The Stress 3. Forgetting things that cause embarrassment and Effect, by leadership expert Henry L Thompson, which explains looking for elaborate ways to cover up. how senior executive stress undermines good decision-making. 4. Drinking more alcohol than usual. Thompson argues that stress and depression are often the real 5. Feeling unable to cope, even if only momentarily. culprit behind leadership failure. Being panicked by deadlines. When leaders’ stress levels are too high – whether in the boardroom or on the management front-line – using their

JULY 2010

PHOTO NZ LISTENER

John Kirwan has been the face of depression for Kiwi men.

the director

emotional intelligence and cognitive ability in tandem to make wise decisions is impaired. New Zealand boards are, in Plucknett’s opinion, not facing up to the problem and often irresponsible and callous in their approach to dealing with CEOs that confess to any stress pressures. “After the NBR story, I had one chair ring me and asked to meet to talk about his CEO who had admitted he was stressed. I agreed to meet, thinking we would talk about ways of helping the CEO. All the chair wanted to do was work with me to provide ammunition to get rid of him. This seems to be the prevailing mentality in New Zealand.” Plucknett believes there has been a major shift in both the US and Europe in the way boards work with CEOs suffering from stress and depression. Apart from any humanitarian consideration, Xerox estimates that it costs the company $1.5 million every time a CEO dies on the job. “There has been a real awakening to what it costs to lose or replace a CEO,” he says. “Looking after the CEO is a wise business decision and not just a benevolent one.” The best companies are, he says, implementing comprehensive wellness programmes for their CEOs. They provide, among other things, diet, vitamin supplements, fitness, psychological “Our boards should take and mentoring support. a look at what is done for “Our boards should take a look at what is done for our All our All Blacks,” says Clive Blacks,” says Plucknett. “We need to treat our top CEOs in the Plucknett. “We need to treat our top CEOs in the same way. We have a culture that is based on a belief that CEOs same way.” are paid big bucks and must therefore perform. If they don’t, the board’s answer is to get rid of them.” Too few local boards recognise or care to understand a wellness concept, according to Plucknett. “They opt instead “I have one CEO who is paranoid that his board might find for sending the CEO for an annual medical check-up. That is out that he talks with me. We meet out of town. He believes not sufficient. It is all about mindset. Our boards, generally that if they find out that he is meeting with a consultant like speaking, do not think about me that he’s dead in the water. anything other than financial That adds even more stress.” analysis. They are not too Plucknett is also critical of “A CEO’s life is pretty lonely and interested in the wellbeing New Zealand’s director training of the individuals involved in programmes. “It is all about the particularly in a country where the running the business.” hard stuff,” he says. “It is about culture mitigates against talking The CEO’s work environrisk-management, about figures about personal problems.” ment has changed significantand meeting key performance ly, says Plucknett. What has indicators. There is nothing worked before is not working about leading to get the greatso well now. The pressures from global competition, technologiness out of people. To teach anything else might be an admission cal change and tough economic times are conspiring to make of weakness and that is something we prefer to cover up. the CEO’s life more difficult and demanding. Combine these “The most important value-add decision a board can make factors with our inclination to “tough it out and not talk about is to ensure that a CEO is performing to his or her best and personal problems” and we have a recipe for more problems in leading in a way that ensures the whole team is performing to the future, he adds. its best,” says Plucknett. Boards have to think differently about what CEOs need to “Boards must wake up to the truth of what is happening help them lead today’s more complex enterprise. out there. They first need to understand that it is through the “A CEO’s life is pretty lonely and particularly in a country CEO that they can make their greatest positive impact on their where the culture mitigates against talking about personal organisation; then they need to ask how they can best support problems. I don’t see a lot of evidence that boards are yet willing the CEO. In my opinion the answers to that are vastly different to think differently about how they tackle issues like this. from what they have been in the past.”

JULY 2010

THE DIRECTOR

Paid to fail WHAT BOARDS CAN DO ABOUT OVERPAID CEOS The public is outraged by CEOs who get big payouts even as their companies are failing. Iain McCormick looks at how Australia handled this issue – and what boards can do here.

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“SHAMEFUL” IS HOW President Barack Obama described companies now earns $1.29 million – 29 times the median the recent behaviour of Wall Street bankers as they awarded income of full-time salary and wage earners of $44,200. themselves nearly US$20 billion in bonuses at a time when The recent Australian Productivity Commission Inquiry the economy was going downhill and the US government was Report on Executive Remuneration echoed Obama’s view that using billions to bail out huge financial institutions, according there is a perception that the structure of pay in the financial to the New York Times. sector was a major contributor to the global financial crisis. Obama said that senior executive pay packages fostered the The inquiry report suggests that there was strong growth excessive risk-taking that had led in part to the financial crisis. in Australian executive pay from the 1990s to 2007. A number His administration declared a salary cap of US$500,000 for of examples of large payments, despite poor company performemployees with companies that gained the largest bail-outs. ance, have led to concerns that senior executive salaries are Not only are some senior executives grossly overpaid, out of control. but there is a range of cases where they have been paid for Despite the concerns, the inquiry found that the pay for failure. CEOs of the top 100 companies has grown by 13 percent a The NY Times also reported on CEO Robert Nardelli’s pay year, from the mid-90s to 2000, and then increased by around for poor performance at the US firm Home Depot, as a classic six percent annually in real terms to 2007. Since 2007, averexample of excessive executive pay. He received about US$45 age salaries have fallen by around 16 percent a year, returning million a year over the six-year the average to 2004-05 levels. It period when he was CEO, as the appears that the rise and decline in share price plummeted from more executive pay over the 2000s largely “The average Kiwi chief than US$50 a share to US$41.16 reflects increased use of pay strucjust before his resignation was antures that are linked to company executive officer of the nounced. performance. 44 largest companies now When he was removed from the But the inquiry concluded that earns $1.29 million.” role, Nardelli was given a US$210CEO pay levels do sometimes apmillion golden handshake. Rivals of pear inconsistent with the labour Home Depot paid their CEOs about market and the levels of company a third less than Nardelli during the same time, and investors performance. It suggests that incentive pay systems modelled gained significant increases in their share prices. on US processes and introduced without appropriate controls Henry McKinnell left Pfizer with an exit package of US$213 produced large pay rises, but more recent and sophisticated million, including an US$83 million pension, after the comincentive pay systems had slowed the growth. The inquiry also pany lost more than US$137 billion in market value in the six reported that some senior executive termination payments do years he was CEO. Morgan Stanley rewarded its CEO Philip look excessive, perhaps caused by overly compliant boards. Purcell with an exit package of more than US$113 million The answer to the issue, the inquiry suggested, was to when he was forced out in 2005. Both Tom Freston of Viacom strengthen the corporate governance framework. and Carly Fiorina from Hewlett-Packard were awarded tens WHAT THE BOARD CAN DO of millions of dollars when they were fired. It does sound like There are a wide range of actions any board can take to ensure pay-for-failure! that CEO pay is appropriate and fair. The inquiry has five Fred Whittlesey, chief compensation officer at PayScale, major suggestions. which provides access to compensation data, reports chief executive pay in the US may be between 250 and 500 times IMPROVING BOARD CAPACITIES that of the average worker. As boards provide the bridge and balancing mechanism The situation is rather different in New Zealand where stabetween management and owners, they must be filled with tistics show the average chief executive officer of the 44 largest

competent and independent decision makers. They need the right mix of skills, knowledge and experience to balance the pay levels of senior executives with the interests of shareholders. The ability to balance diverse interests can be threatened by the thin ‘gene pool’ of company directors when recruitment is done within the ranks of the ‘directors club’ and the small group of known senior executives. When recruitment works like this, there is likely to be a very strong board identification with the interests of the senior executive. Improving the diversity of boards could also assist in more balanced debate and decisions. The Inquiry reports that women constitute just over eight percent of directors of ASX200 companies. The situation is similar here where 60 of the top 100 companies on the New Zealand stock exchange have no women on their boards and only three of the top 100 companies added a woman to their boards in the past two years. Women hold only 8.65 percent of board directorships of the top 100 companies on the NZX with 54 female directorships held by 45 women out of a total of 624 directorships. Female representation on boards is 5.73 percent in the listed New Zealand Debt Market companies, and 5.07 percent female board representation in the 28 companies listed on the New Zealand Alternative Market (NZAX). Board diversity should consider not only gender, but skill, experience, background and mindset mixes. It’s wise to do board capability audits before recruiting to ensure diversity. It would also be useful to adopt and disclose a diversity policy statement by all larger companies that includes measurable objectives relating to gender, experience and skill mix. AVOIDING CONFLICTS OF INTEREST

Conflicts of interests can easily arise in the area of pay. The use of board remuneration committees consisting of nonexecutive directors allows a single focus on setting executive remuneration and addresses conflicts of interest that happen when executive directors can directly influence their own pay. CEOs and executive directors should not participate on remuneration committees. The inquiry recommends that remuneration committees should have at least three members, consisting of non-executive directors, a majority of whom are independent, be chaired by an independent director and have a charter that sets out procedures on non-committee members attending meetings.

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IMPROVING REMUNERATION DISCLOSURE

The inquiry suggests that remuneration reports in annual reports have become of lesser value because of their complexity and lack of detail. They suggest boards produce a plain English summary of pay policies, set out the actual pay levels and total company shareholdings of individuals named in the report. Conflicts of interest can arise when remuneration consultants are employed who have strong links to the senior management or the board. The inquiry says companies should disclose the names of remuneration advisers, who appointed them, and the nature of other work undertaken by the advisers for the company.

JULY 2010

DEVELOPING EFFECTIVE REMUNERATION POLICIES

Linking pay to performance is useful to align the interests of executives and shareholders. However, these systems need to be carefully designed and highly complex systems can easily lead to perverse outcomes. It is useful to have clear, simple remuneration systems that have a mix of short- and long-term incentives, and with a deferral of payments to enable performance to be validated over time. Boards need to develop clear links between strategy implementation and pay levels so the balance with shareholders interests can be achieved. FACILITATING SHAREHOLDER ENGAGEMENT

Voting at annual, special or extraordinary general meetings is the main method that shareholders have to hold boards accountable. Voting can be by shareholders attending these meetings or by proxy. The inquiry recommends the use of electronic voting for proxies, as it would remove most of the downsides of the paper-based system, such as lost votes, illegible proxy forms and processing error. An electronic system would also enable a full audit trail, which would give further confidence about the results of contentious or close voting results. Shareholders are able to vote against company remunerations reports and the inquiry suggests that where a company’s remuneration report receives a ‘no’ vote of 25 percent or more at an annual meeting, the board should explain in its subsequent report how shareholder concerns were addressed and, if they have not been, the reasons why. In addition, where the subsequent remuneration report receives a ‘no’ vote of 25 percent or more of eligible votes cast at the next annual meeting, a resolution should be put that the elected directors who signed the report stand for re-election at an extraordinary general meeting. In conclusion, the public perception of CEO and senior executive pay is a critical matter for companies to consider. The financial crisis has brought to light a number of unacceptable practices that have reflected badly on the competency of corporate governance. While there is little evidence of overpayment of CEOs in New Zealand, it is important for boards to actively grapple with the balance between senior executive and shareholder interests. Boards can do a lot to improve the perceived fairness of CEO remuneration including ensuring they have a diverse range of independent thinkers as members, actively managing potential conflicts of interest, improving remuneration disclosure, developing effective remuneration policies that reward longterm company performance and ensuring effective shareholder engagement over remuneration matters. Iain McCormick PhD runs www.DirectorEvaluation.com an Auckland-based governance evaluation consultancy that offers free paper-based evaluations, a comprehensive range of web-based evaluations and full consulting-based services.

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