Good governance isn’t “nonsense”

Sunday, 30 June 2024

Kirsten (KP) Patterson is chief executive of the Institute of Directors

Opinion: The collapse of a Transpower pylon north of Auckland, leading to widespread power cuts across the region, has once again put the state of New Zealand’s infrastructure in the news.

There have been suggestions the Northland region is a second-class region in terms of infrastructure investment. There have been calls for an investigation, or investigations, involving Transpower, WorkSafe, the Electricity Authority or even an independent government review.

Auckland Mayor Wayne Brown, a former mayor of the Far North District Council, took the debate a step further in an opinion piece in the Sunday Star-Times a week ago, arguing that governance failures are at the root of this significant incident. Sort of.

In his column, Brown speculated the pylon fell over because of an error by maintenance contractors. He was right. Transpower quickly confirmed this, saying workers removed too many bolts at the base.

But Brown also called for an unspecified number of Transpower directors to be replaced by people with a technical background instead of “all the Institute of Directors’ nonsense” and that “heads should roll”.

An investigation (or two, or three) will undoubtedly note if governance failures contributed to the power outage. I’m not going to prejudge that, so let’s leave the fallen pylon to one side for a moment.

I agree with Brown that the Transpower board needs directors with a technical understanding of the industry they operate in. In fact, at least two of the seven current directors have such a background, so to blame the make-up of the board would seem to be drawing a long bow. But I do take issue with his reference to “all the Institute of Directors’ nonsense”.

As chief executive of the Institute of Directors (IoD), advocating for good governance on behalf of our 10,500 members, and helping directors deliver it, is our organisational purpose. I am also a director on a number of boards.

I know from both my executive and board roles that good governance supports the success of organisations large and small, public and private, for-profit or for-purpose. At the IoD, our members may sit on an NZX-listed entity or a local charitable trust. Many do both.

But good governance will not prevent all accidents or incidents. No amount of board-mandated process, policy, technical competence or monitoring can completely eliminate human error.

A good board will define their organisation’s purpose, establish a strategy to deliver on that purpose and set their organisation up to thrive. This includes appreciating the sector their organisation operates in, its business model, and a deep understanding of its people and capabilities.

With the appropriate technical and governance capability, they monitor compliance with regulations and pursue long-term financial stability. They engender a culture of trust and ethical behaviour that benefits everyone from their chief executive to the newest hire, from their customers to the stakeholders and shareholders, to the communities they operate in.

Director health and safety responsibilities also loom large in this case. IoD has been front and centre in supporting directors to improve their focus on health and safety governance practice, notably understanding strategic and critical risks, policies, processes and systems, management and mitigation of risk, and the way work is done in the business.

If that is “IoD nonsense”, then let’s have more of it.

Where I fully agree with Brown that that a company board needs to have industry knowledge in the mix, it also needs other skills – financial, communications, stakeholder engagement, strategic thinking, ethics and legal expertise among them. Boards need to reflect the organisations they serve.

So, by all means have engineers on electricity company boards. But ensure the board has a diversity of knowledge and experience that enables it to become more than the sum of its parts, and a chair able to harness that diverse skill mix effectively. After all, it’s not just engineers that can figure out removing too many bolts might mean whatever they were holding will likely topple over. You don’t need to be an engineer to ensure strategic risk management approaches are in place to avoid these situations.

And by all means have engineers on other boards as well. They are likely to bring a culture of evidence-based decision making and an ability to chunk down technical problems into manageable parts, and support management in doing this.

Where you may run into trouble is if the board is all engineers. Or all accountants. Or all lawyers (as Mayor Brown suggests occurred with both Vector and Transpower after the end of his terms as chair of those entities). Or, heaven forbid, all ex-politicians.

The best board decisions come when there is a diversity of thought and experience. At the IoD, we work closely with boards to help them identify what mix of skills might be most effective for their particular organisations.

Directors need a high-level understanding of the pressures and opportunities facing an industry, and the ability to work together to solve complex problems.

If issues continue at Transpower, it will be fair to ask the board what they are planning to do about it; why haven’t they learned from the current incident from a governance perspective; and whether operational lessons were learned by management. Repeat issues are usually a red flag.

In the meantime, it pays to remember boards are important, but not the only factor in organisational success. And good governance is certainly not nonsense.