New Zealand is exposed to a weak and unpredictable global economy and the consequences of its own poor economic performance. Over the last decade its productivity growth rate has halved, the current account and net foreign liabilities have deteriorated markedly, the state sector has grown rapidly without much sign of corresponding benefits to New Zealanders – and there is much more.

Professor Paul Callaghan highlighted these serious problems in his address to the IoD’s AGM and challenged directors to respond. Others have also identified these problems over recent years but there has been little policy response to embrace solutions and consequently, New Zealand’s situation continued to deteriorate.

Currently however, there are positive signs of Government’s willingness to address economic issues, and business, including directors, needs to re-engage with the challenge of New Zealand’s poor economic position and performance. Continuing down the slippery slope of economic mediocrity is simply unacceptable – it is already seriously damaging to the situation and prospects of its citizens.

Directors are well placed to make a difference and, indeed, have a responsibility to do so. Their role means they are unequivocally responsible for the performance of the business – its strategy, profitability, performance of management, and so on – and business success is critical for the whole economy, not just shareholders and employees.

Beyond that, best practice highlights the vital role of directors, and particularly chairmen, in exercising leadership to positively influence the business environment. In practice this means a strong focus on actively seeking to improve government policies that impact on business competitiveness and profitability and its ability to compete effectively and prosper. So it seems to me, we directors have strong grounds for accepting the distinguished professor’s challenge.

What can the IoD do to assist?

The IoD helps to train and develop directors, advocates best practice, encourages directors and boards to adopt processes that lift performance and advocates soundly-based, astute and effective regulation. Its BetterBoards is an excellent tool for assessing and improving the performance of boards and directors, its accreditation programme encourages proficient directors and its board appointment service helps identify good directors for vacancies. However, it is up to directors and boards to decide whether they embrace higher standards and the necessary improvement processes – and I strongly advocate that we all do.

Regrettably, there are more than a few recent examples where directors and boards have not performed well and also where regulators have failed to act responsibly and effectively. Business is about risk and there will always be failures, but there is no excuse for incompetence, negligence, poor practice and fraud – or the weak regulatory oversight that decimated the finance company sector.

The IoD can also encourage and facilitate the appointment of good external directors to small and medium sized businesses. Experience strongly indicates that the addition of even one good external director to an executive or family board of an SME can add substantial value to a business at low cost and without disruption. This can be a very efficient and effective move, without needing the trappings typically associated with boards of larger companies and the IoD is actively working on options for encouraging more such appointments.

The current global situation is not one where substantial, sustainable improvements can be achieved at the flick of a switch, but it is a critical one, one which justifies a major improvement effort and where the philosophy of the Japanese improvement process Kaizen – continuous change for good – is particularly appropriate.

Kerry McDonald is President of the Institute of Directors

(Source: IoD Boardroom)