Aiming for a talented mix
14 May 2015 / Franceska Banga, NZ Herald
Board diversity - particularly the low ratio of women to men - has, quite rightly, been a focus for corporate New Zealand over recent years. Important as that is, there is another dimension that needs to be considered - the innovation component.
Large companies in traditional industries need more innovation and entrepreneurial talent at board level, if they are to survive through the rapid and continuous technology disruption that has become the norm over the past 10 years. It is no longer sufficient to have a board comprised of financial, legal and industry based capability. Without a deep understanding, at board level, of the impact of major technology trends and disruptors, it is difficult for boards to develop a coherent business strategy which adequately responds to the challenges of rapid disruption.
Small fast-growing companies tend to err the other way. They have plenty of entrepreneurial talent befitting companies at the forefront of industry disruption. They often lack the governance structures and disciplines of larger, established companies. And yet if these companies are to succeed in achieving rapid growth, they need experienced directors who can assist them in traversing the many challenges and risks they face, including financial, legal, and regulatory and market entry.
It might seem paradoxical, but we would do better to put more experienced directors on the boards of start-ups and more innovators on the boards of established companies, to increase the future success of both sets.
Large publicly listed companies, typically, have no difficulty in attracting people with broad and deep governance experience. These directors understand their role in setting the strategy, appointing the chief executive and ensuring the company stays on course. They tend to have deep financial, legal and commercial experience, are conservative and adept risk managers. But what tends to be lacking is an entrepreneurial perspective.
Many industries have or are facing the consequences of massive technology disruption - telcos, retail, and media being obvious examples. Some survive and thrive, but many go to the wall because they underestimate the extent of disruption to their industry and do not respond quickly enough.
Technology disruption continues apace, and not just in these industries. Disintermediation - the shortening of supply chains - and disruption is also occurring across banking and finance, travel, entertainment, advertising, education, manufacturing, and energy, to name a few. Company boards would do well to include a more diverse talent pool on their boards, to ensure they understand how technology disruption - and the associated significant business risk - will impact on their industry's future. The technology risk can also be an opportunity.
Small fast-growing companies on the other hand are typically at the bleeding edge of technology disruption and innovation, and well understand the risks and opportunities. Their boards tend to include the founders and major investors. These are often experienced business people who believe in the opportunity and the entrepreneur. But often the companies lack the full suite of governance capability to take the company forward.
What they need are more experienced "professional" directors who manage risk (financial, legal, regulatory, industry specialists) and demand more formal governance structures.
I have recently had the opportunity to observe this set of dynamics through my own governance roles, from start-ups through to a publicly listed company. When fast growth companies bring independent directors on board, with skills complementing the entrepreneur, this can be a game-changer for the company. It can be empowering for the founder/entrepreneur of the company who otherwise wouldn't have the time or even inclination to focus on the disciplines imposed by good governance. When large established companies allow for diversity at board level, which encompasses not only gender but also relevant technology or entrepreneurial experience, this too can be a game-changer.
A challenge for growth companies is that they simply don't have the revenues to pay directors well. One way to address this is to provide for directors to have some skin in the game, - if the company is ultimately successful, there is the potential to share in the upside.
For professional directors wishing to build a portfolio of directorships, exposure to one or more fast growth companies - start-ups and successful mid-sized companies - will provide experience and perspectives that could not be replicated in a large well-established company. The experience gained can be invaluable for other director roles. What is striking is that the call for more diversity on boards is absolutely true, but broader than what is usually articulated.
Franceska Banga is the chief executive of the NZ Venture Investment Fund, and a director of Auckland Tourism, Events & Economic Development, the Fred Hollows Foundation, and start-up Frogparking. She is also an observer on the Fisher & Paykel Healthcare board as part of the Future Directors programme.