Institute of Directors brings more holistic approach to governance guidelines overhaul

Monday 4th September 2017

The Institute of Directors has updated its governance guidelines, bringing them in line with emerging business practices that have seen investors demand greater transparency and information on the long-term sustainability of an entity.

The new edition of the governance group's guidelines is built around what it calls four pillars by defining the purpose of the entity, installing an effective governance culture; holding management to account, and effective compliance, it says. The latest refresh has added sections on sustainability and human rights, and the emergence of digital risks.

"We're adding in a whole lot of new stuff to reflect the modern world and what you would expect of a modern board - a lot more of the holistic approach to governance," said Felicity Caird, the IoD's governance leadership centre manager.

The revision follows NZX's refresh of its governance code for listed companies and the Financial Markets Authority's governance guidelines. The NZX consultation raised the issue of broadening reporting requirements beyond simply financials, something institutional investors are increasingly demanding to help determine the long-term sustainability of a business.

Caird said there's a growing acceptance that "people have to have a longer view" and that one of the underlying ideas behind the four pillars was ensuring the board adds value to the entity.

An area of concern for the institute was a growing aversion to risk from directors due to the increased personal liability they face. Chief executive Kirsten Patterson said those sanctions were appropriate, but that it could deter people from volunteering for not-for-profit and charitable entities which face the same penalties. In its latest sentiment survey, IoD found 43 percent of those surveyed were more risk averse as a result of the increased liabilities.

"There are not too many other industries where if you make a mistake at work you could lose your house or end up in jail," Patterson said. "They are carrying a pretty heavy liability load - we think that's appropriate, so we're not suggesting that that should be reduced, but it is an interesting tension point."

However, there was no shortage of talent coming through for companies and entities to choose from, she said.

Patterson said some of the best value was derived from directors sitting on a wide range of entities and "cross-pollinating ideas" from an array of different industries, something which wouldn't happen if a limit was set on how many boards an individual can sit on.

"For me as a CEO you get great value from board members who are bringing you great ideas from different industries," she said. "If we set a hard limit it wouldn't reflect the nature of boards, and it would be the not for profit sector who would lose."

(BusinessDesk)

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