WELCOME to the third issue of MEttle, the Minter Ellison Rudd Watts publication that curates the experiences and investigates the aspirations of those leading the charge for NZ Inc.

This issue is about the grit, commitment, determination and passion that businesses must possess in order to be successful. You’ll read features on striving for constant improvement, about how we can cultivate hunger and restlessness – and what it takes to overcome the inevitable challenges of international business. It is clear that NZ Inc. must be hungry and well-equipped to strike hard at the opportunities we create for ourselves.

CATHY QUINN, CHAIRMINTER ELLISON RUDD WATTS

feedIng the wOlfHungry businesses are never satisfied, never complacent. We find out how to satiate that hunger.

tRue gRItWhat it takes to get through challenging times

sPeakIng the languageChina’s growing importance as our key trading partner puts pressure on Kiwi schools to deliver Mandarin language courses

WateR, wateR, eveRywheReHow does New Zealand strike the balance between a booming dairy industry while protecting our international reputation as clean and green?

RIsky busInessViews from the top governance table cont.

04

10

16

20

26

FeedIng the wOlf

“THE HUNGRY WOLF WALKS FAST” BOUWE BEKKING, VETERAN OCEAN RACER.

Hungry businesses are those which are never satisfied, never complacent.

It is a time when many Kiwi businesses are doing well, but some could do more to be better and bigger, so MEttle sought out insight into what makes a business hungry – and what they’ll do to satiate their hunger.

Is there enough of a thirst across the Kiwi business sector? Are there lessons that large, listed businesses and smaller, more agile organisations can learn from each other?

4

5

“Hunger and passion is what gets you out of bed in the morning. The more pressing question is; what will you do to satisfy that hunger?”Craig Turner, Sleepyhead

INGRAINED HUNGER Ross George, Managing Director of Direct Capital, says hunger is a necessity in the private equity industry.

“For the private equity sector manager, our measure is akin to getting exam results back: you work out what you invested into a company and what return you got back from that company, which means you’ve got very stark numerical pressure. You have absolutely got to be hungry to make that work.

“We effectively have to reapply for our jobs every five years when we raise a fund. We are assessed then on the numerical equation for that period, so being hungry for success is ingrained in the PE model.”

That sentiment is echoed by Nigel Bingham, Executive Director of Pencarrow Private Equity, who says that private equity is a somewhat Darwinian model of the survival of the fittest.

“As such, we have no choice but to be hungry. Our investors are looking for around 20% net return per annum and we generate that by backing great New Zealand businesses. As a private equity firm, we’re only interested in businesses that have high growth aspirations, because we are only as good as our last fund’s returns.”

Craig Turner, Joint Managing Director of Sleepyhead, says it’s not just private equity firms who are hungry for growth. He says his business is constantly hungry:

“Hunger and passion is what gets you out of bed in the morning. For me, the more pressing question for our business is; what will you do to satisfy your drive for more? Sleepyhead takes a multipronged attack because we never want to be known for just one aspect of hunger. A successful business attacks all aspects of its hunger, not just a few.”

“New Zealand has really upped its game over the last 20-30 years and, as a nation of businesses we are certainly hungrier than we used to be.”Nigel Bingham, Pencarrow Private Equity

6

SWAPPING NOTESBingham and George both agree that there are some key lessons that listed firms could take from the PE model.

George says that listed firms would benefit from involving business line managers in a quasi-equity set up, where they share the up and down-side of their decisions.

“We have bought many businesses from large listed companies and multinationals, and that business has always done better under our ownership. I think the relevant piece however is that the managers of that company always subscribe for equity too.”

He adds: “If listed firms could somehow replicate that environment, managers are part owner of their divisions, they would act differently in relation to risk growth and profit.”

LISTED LESSONS FOR PRIVATE EQUITY Bingham says that one of the most challenging elements for the smaller organisations Pencarrow invests in is the need for bigger and better organisational structures.

“When we invest in a business, we’re usually backing the CEO who is about to charge the organisation up for growth. That growth necessitates a bigger, larger and better organisational structure, often starting with filling out a second tier of management.

“Larger, more established and listed organisations are far better set up and are more willing to accept that they have to invest in a second tier of management. Smaller organisations on the other hand would do well to look at the positions that need to be filled in order to drive and sustain growth.

“This can mean getting rid of some people, replacing them with others, and creating entirely new positions, because if we’re looking to grow a business from a $20m entity to a $100m entity, a strong and experienced structure of people is imperative.”

TUG OF WAR: COLLABORATION AND COMPETITION Turner notes that a central pillar of Sleepyhead’s business operations is collaborative, T-shaped behaviour. He explains: “There’s no place for ‘I-shaped’ behaviour in our team. Ego is good because it drives you, but it can get in the way of collaboration between people and so we insist upon T or team-shaped behaviour.

“I don’t think there will ever be enough collaboration in business – we constantly work on it. It also comes down to leadership because if management is happy with silos and keeping people and ideas apart, that presents an ongoing challenge for collaborative thinking and outcomes.”

Bingham says that there is already a fair bit of collaboration in the private equity sector.

“There is of course healthy competition between firms but, in the same breath, there’s lots of collaboration with the New Zealand Private Equity & Venture Capital Association Inc., which benefits and improves the whole PE sector.

“I think what we need to focus on with regards to collaboration is asking if we have the necessary forums to help people leverage and learn from one another. Kea is quite effective in creating those forums and opportunities, by encouraging networks and collaboration around the globe among Kiwi expats.

“So when we talk about collaboration, let’s examine the systems and frameworks we have in place – or need – to leverage relationships. There is some great collaboration between the portfolio of companies that we invest in, be that getting CEOs and CFOs to talk, or utilising each other’s services particularly in a small country that struggles to get that critical mass of talent, we need to collaborate and learn from each other.”

PIVOTING TO THE MARKETGeorge reasons that the businesses that are best at adapting and pivoting to the market are the ones who are closest to the front-line action, saying: “If you are smaller and at the front line you are picking up direct information from customers, rather than through a survey company, meaning you are likely to adapt to that a lot quicker.

“The best example I can give of a business that pivoted successfully would be Scales Corporation. They saw the winds change in Asia. They created their strategy and executed it quickly, and changed their product for that market.”

7

LOOKING INTO THE DEN George says that a critical difference for private companies and listed companies is the level of information that can be sought out from private companies prior to investing.

“The difference between us investing in private companies versus listed companies is that we get to look at all of the company’s dealings over several months. We talk to suppliers, staff, competitors and customers so by the time we make the investment we are well-equipped to make a call as to the overall health and direction of that business.

“For a listed company, there are so many more restrictions. You could do all your research only to be told you can’t invest because of insider trading issues. In the private equity and privately-owned businesses, you essentially only operate with inside information.”

TOO MANY SHEEP – NOT ENOUGH WOLVES? New Zealand’s GDP remains at an all-time high of around 3.9%, with only a slight slow-down in sight. But the rhetoric from early 2014 of the rock star economy has noticeably fizzled out. So, are New Zealand businesses hungry enough for more growth and success?

George says that as a generalisation, mid-sized Kiwi businesses are hungrier and growing faster than a lot of the larger organisations.

“Many of the larger Kiwi businesses are in entrenched positions, because of the market share that comes with their size. There may be finite market share for them, but they don’t have to be as hungry as a younger organisation operating in a crowded and competitive market.”

Bingham takes a different stance, namely that New Zealand has come a long way and continues to move in the right direction, but still has to grapple with some fundamental hurdles to growth.

“New Zealand has really upped its game over the last 20-30 years and, as a nation of businesses we are certainly hungrier than we used to be. To my mind, New Zealand is now more capitalist in nature, with fewer organisations looking to the Government for hand-outs.

“As a country however, New Zealand will forever have to deal with the tyranny of distance and the reality of being a small market. As such, businesses seeking growth generally have to go out of the country to be successful.

‘BIG BANG’ MOMENT VS INCREMENTAL INNOVATION For many start-ups and entrepreneurial businesses, the dream is often breakthrough performance or a major unveiling of a new project, idea or venture. But is a big bang moment better than incremental improvements over time?

Bingham says it can be quite hard for New Zealand companies to try and do the ‘big bang’ business moment.

“I think what’s best for Kiwis is incremental changes and improvements, playing off our comparative advantages. Without the critical mass of talent and scale, and with the tyranny of distance still ever present, the companies doing well are those adopting a culture of incremental innovation.

“Take Fisher & Paykel Healthcare, which is a world leader in respiratory masks. This business line is constantly innovating and developing its products, and has carved out a growing and international market as a result.”

Turner says that innovation is a form of hunger, and that no piece of hunger should be treated as more important than others, because it all bolts together.

“We are investing heavily in innovation and R & D because it’s more than a side issue for us. It’s a central focus for our business as we move into challenging times of change. The only way a business can move through it is by innovation, and it’s got to be across all areas of the business, not just some areas. We are also innovating our thought-processes and our manufacturing operations, because it’s about a whole-of-business approach not just piece meal actions.”

“Without the critical mass of talent and scale, and with the tyranny of distance still ever present, the companies doing well are those adopting a culture of incremental innovation.” Nigel Bingham, Pencarrow Private Equity

8

“As such, we tend to back companies that are looking to expand globally, and from quite a young age. For example, Phil & Teds do 96% of their sales in offshore markets – that’s the kind of company we like to invest in and I do think there are more entities with global aspirations around nowadays.”

Turner echoes Bingham’s views in some ways, saying: “We don’t see a lot of New Zealand businesses reaching out as far as they could. I put New Zealand right up there with the best with our ability to compete, but that lack of confidence on the global business stage is holding us back.

“There are of course great examples of Kiwi businesses doing well, but I’ve seen some terrible examples of businesses going to Australia and getting absolutely cleaned out. Sleepyhead has been guilty of it because we’ve been naïve in the past and were looking at the rest of the world. We’ve learned a lot from those experiences though.

“Kiwis are innovative and extremely hard-working, but we often don’t realise how hard the job of being successful overseas is. You get knocked about but you can’t let that stop you. Right back to the start of New Zealand, we didn’t know what the conventions were so we’ve always had to problem solve – and that approach is still very much evident today.”

“Many of the larger Kiwi businesses are in an entrenched position where life is a little more comfortable. They don’t have to be as hungry

as a younger organisation operating in a crowded and competitive market.”

Ross George, Direct Capital

BREAKING DOWN THE FENCEGeorge says that one of the greatest risks to business growth is the absolute demarcation between management and directors.

“If you have got a really diverse board, and you have a Chief Executive and Management group with diverse experience and skills, as well as a different perspective and skill-sets from the Head of Marketing, Sales and IT etc – all of that diversity is taken away if there is a single point of communication between the board and those other roles – the Chief Executive.

“There’s so much talk about the board playing its role and letting management get on with running things, with a good level of oversight of course. And yet, I am not convinced keeping the two separate is a good thing. If a director is very experienced in what the company is about to embark upon, then they should absolutely be sitting on that subcommittee, or at least actively in the debate. By its very nature, a board should comprise a diverse mix of skills and backgrounds, and if the only connection between that diverse board and the diverse management group is the Chief Executive, you’ve broken down a substantial part of your greater knowledge base.

“An analogy I often use is that of the egg timer with the board at the top and the management group at the bottom. But all the sand funnelled through the middle where the Chief Executive sits. If this is the case you create the danger of reducing the diversity of both parts.”

9

tRue GRIt

WHAT IT TAKES TO GET THROUGH CHALLENGING TIMES

“Only those who dare to fail greatly can ever achieve greatly.” Robert F Kennedy

The challenges of others can often be our biggest inspiration. Some of the world’s leading companies even have awards that honour failure, or celebrate when a deteriorating project is brought to an abrupt end, because it fosters a culture of learning, innovation and risk-taking.

MEttle asked business leaders from three sectors spanning telecommunications, infrastructure and tertiary education about the hardest moments they’ve come up against in their careers. We wanted to know what it takes to get through a corporate crisis, about the relationship between management and the board when all hell is breaking loose – and the mettle, grit and innovation it takes to emerge triumphant on the other side.

11

MY TOUGHEST SITUATIONDr Rod Carr, Vice Chancellor of the University of Canterbury, says there’s no doubt what the most challenging things have been for him.

“Workplace fatalities are the absolute toughest. A long way behind that would be compulsory redundancies and the prospect of running out of cash.”

Mark Ratcliffe, Chief Executive of Chorus, says that he’s faced several challenges in recent years including the Canterbury earthquakes and a period of intense media spotlight on the business.

“The earthquakes were of course very challenging and loss of life is always the toughest situation. However, as I was involved with the fallout from the earthquakes rather than being responsible or personally affected, it was a little different from a crisis perspective – for me, the scrutiny that Chorus came under in the second half of 2013 had a more personal and direct impact upon me.”

Jim Quinn, professional director and the former Chief Executive Officer for Kiwi Rail, says that for him, picking up the various elements of the business, unifying a fragmented team, and getting shareholder support to take the business forward was a challenging – but exhilarating time.

“When I came on board, the business was in a pretty sad state in terms of the investment made in it. We had to unify a huge group of around 4000 staff, who rightly felt like they had been pushed from pillar to post. They all loved the business but felt frustrated and let down at times during the previous 30 years.

“The challenge was to bring all those people, interests and plans together, harnessing the passion and really making the business work for customers and of course for shareholders.”

“It’s a natural desire to help and be involved when the going gets tough, but the best people in challenging situations are the ones who are willing to do anything but don’t try to interrupt

or intervene with the plan.” Mark Ratcliffe, Chorus

12

“It can be incredibly isolating when you are wearing the burden as the leader. Things move faster than you could ever imagine in a crisis and the best thing you can have in a challenging situation is options.” Dr Rod Carr, University of Canterbury

THE KEY TO GETTING THROUGH TIMES OF CRISISQuinn says the first and most important thing to do as a leader in a crisis is to be true to yourself, and believe in what you are trying to do.

“You need to bring your stakeholders and shareholders with you, and if you don’t believe in yourself when you look in the mirror then it can be extremely difficult to do that. You need to be able to know you have acted honestly, been forthright with information and that you’ve done the best you can in the circumstances.

“During this time, you have to communicate relentlessly. You’ve got to keep explaining why you’ve chosen a certain course of action, what it means for people, and why they should be prepared to follow you down that path. There will be a level of debate that someone has to front up to, and if you can’t explain to others why it’s the right direction then you probably haven’t done all the work to convince yourself either.”

Dr Carr adds that his key learnings from challenging times are to reach out, slow down, and communicate.

“It can be incredibly isolating during times when you are wearing the burden as the leader of an organisation or entity. Things move faster than you could ever imagine in a crisis and the best thing you can have in a challenging situation is options.”

Ratcliffe says the most important thing to do in a challenging time is to keep calm.

“If you start panicking, the whole organisation will too. Secondly, you have to try to get the facts of what’s going on – even if you can’t get all of the information you still have to have a clear understanding so you can make a judgement about how best to move forward. And lastly, always tell the truth. If you don’t tell the truth you will get found out and when people find out you’ve lied as well as messed up, things become infinitely worse.”

WHO’S GOT THE POWER? Dr Carr says clear lines of authority and decision-making are a prerequisite in times of hardship or crisis.

“You also need to create and preserve those options too, because in emergencies, your options disappear fast, and in other cases you’ll be blinded by the options and think you’ve only got one path out.

“In a crisis, power is often aggregated in the hands of a strong individual – and they may or may not be the best individual for the role. Other times of crisis will see power dissipate through a lack of leadership, and the organisation doesn’t get the direction or leadership needed.

“Perhaps the most imperative thing is to make good decisions quickly. People shape a situation, so it is critical to know very quickly what you do now and what comes next.”

13

CONNECTING THE BOARD AND MANAGEMENT: KISS Ratcliffe says that in hard times, it’s imperative that the board and management stay connected.

“That is particularly applicable for the Chair and the CEO. Moreover, in a crisis it’s best that the board and management continue to play their designated roles. Play your part: if the board gets into management then there’s nobody governing and vice versa.

“It’s a natural desire to help and be involved when the going gets tough, but the best people in those situations are the ones who are willing to do anything but don’t try to interrupt or intervene with the plan.”

Dr Carr says the key to productive interaction between management and the board is simplicity.

“In a crisis, there simply isn’t time to do documented evidence to support a board’s decision making, so the board has to allow itself the authority to aggregate power around the Chair and the Chief Executive, who will exert more power and responsibility than they would in a business as usual situation.

“It also comes down to the strength and quality of relationships: there are a smaller number of people involved in those circumstances because everyone simply can’t know everything in such a short space of time. All of those mechanisms work better if there is already an underlining good relationship between the board and senior management.”

Quinn says that the board is integral in helping management to get through a crisis.

“The great thing about a board is that it brings in a set of skills which, when combined with the diverse personalities and backgrounds that by definition the board should have, creates a great testing ground for thinking, suggestions and multiple perspectives on risk, actions and options.

“While the Chief Executive ultimately has to be the one who has to deliver on the final call, you should come out of that board meeting with a better answer and one that has been thought through and pressure tested.”

#BREAKINGNEWSAt a time when stories and crises rapidly emerge on Twitter and the NZ Herald online before they hit the morning newspapers, we asked what our interviewees think about how business, media and increasingly, social media, interact in challenging circumstances.

Quinn notes how drastically the media continuum has changed.

“In the past, we’d have a few days to carefully craft a press release or statement, but those days are far gone. You have to be able to think on your feet in this incredibly fast-paced environment. Some businesses have adapted well to the new realities of the media but others have fallen by the wayside.”

The general consensus on social media from our contributors is that if, as the head of an organisation, you don’t use or have a full grip on social media channels, make sure you’ve surrounded yourself by a team of people who can navigate the space on your organisation’s behalf.

Quinn notes that, like corporates, traditional journalists are facing a new reality.

“For journalists who like to do their research and take a considered point of view, they are now under enormous pressure to keep up with the pace of social media publishing. In some ways, reporting becomes sensational and in some cases, thoughtless, because of the necessity to break a story first and as a consequence of this environment.”

By all accounts, navigating the communications landscape via social media will continue to add time and resource pressure to corporate organisations, whether in times of challenge or normal operations.

FINAL THOUGHTS, PARTING WORDS In a crisis, the last thing one can do is read screeds of text on how to stay on top of it all so we asked our interviewees to share with us, in one sentence, what their single most important piece of advice would be to other leaders dealing with a crisis.

Dr Carr says to trust your Chief Executive: “Not blindly of course, but trust your leader until proven otherwise.”

Quinn says that being prepared for a crisis starts well before any event.

“Have the foundations in place for quick, effective decision-making with a diverse range of perspectives at hand so you can make the most informed choice when push comes to shove.”

Ratcliffe says it’s simple: “Tell the truth.”

“Perhaps the most imperative thing is to make good decisions quickly. People shape a situation, so it is critical to know very quickly what you do now and what comes next.” Dr Rod Carr, University of Canterbury

14

“There will be a level of debate that someone has to front up to, and if you can’t explain to others why it’s the right direction then you probably haven’t done all the work to convince yourself either.”Jim Quinn, Professional Director

15

sPeakIng the language

CHINA’S GROWING IMPORTANCE AS OUR KEY TRADING PARTNER PUTS PRESSURE ON KIWI SCHOOLS TO

DELIVER MANDARIN LANGUAGE COURSES

With China’s growing importance as New Zealand’s largest trading partner, an influx of Chinese investment into Kiwi businesses and properties, and a constant wave of Chinese students entering our education system, there is tangible economic and cultural value to be found through Mandarin being taken up as a language by more Kiwis, starting with formal education in school.

The Government’s recent announcement of a NZD$10m fund for schools to start or expand their Asian language programmes sent a strong signal of its priority of enhancing relations with the region and gave a clear direction to educators.

We spoke to Principals Byron Bentley (Macleans College), Heather McRae (Diocesan School for Girls), and Tim O’Connor (Auckland Grammar School), to get their lesson plans on teaching Mandarin to tomorrow’s young business leaders – and the hurdles faced by schools looking to ramp up the availability of the language.

A VESTED INTEREST FROM GOVERNMENT SENDS STRONG SIGNAL

The Government sent a strong signal with the funding announcement that an improved level of Asian language in Kiwi schools benefits everyone – and schools are hearing the intention loud and clear. But is the $10m fund enough of an investment? Education budgets are hotly contested and they don’t always go a long way when there are many mouths to feed…

Heather McRae says, “I think that the recently announced $10m government fund for Asian languages in schools is enough of an investment at this stage, as I know there’s a lot of competing demands for funding. Funding of $10m is actually quite substantial for schools to utilise and get up and running with resources, setting up courses and so on.”

“I would think the Government will continue to invest over time, and with feedback from the sector they will ensure there is a good amount of funding to get programmes up and running, as long as schools are delivering results.”

Tim O’Connor agrees the fund is a good start. He says it will also act as a useful barometer, provided schools give an indication as to whether the Government is in the right ball park with the fund amount or if more is needed.

“Additionally, I would say it is very positive that the Government has identified Asian languages as an area for investment, and it demonstrates that they have a vested interest in encouraging schools to be able to offer it.”

Byron Bentley adds that as China’s influence on New Zealand swells, schools too are looking internationally, so strengthening and supporting languages that are driving business and cultural relations forward is important.

“We will be applying for the grant and immediately putting it to use to get more teaching expertise into the school. I think the Government’s recent announcement signals a good initiative and it’s certainly a sound direction to be pursuing at both a national and local school level.”

“The difficulty when you prioritise one language over another is that you immediately give it a higher status. We have to be careful to ensure we are not presenting Mandarin as more worthwhile than anything else. ” Tim O’Connor, Auckland Grammar School

17

GET IN QUICK FOR BETTER LANGUAGE ACQUISITION

THE EARLY BIRD GETS THE WORM. CHINESE PROVERB: A FAST FOOT IS FIRST TO CLIMB.The common viewpoint of our contributors is that the earlier people start learning Mandarin, the better – and it makes a lot of sense. According to critical learning theory, kids are most receptive to new languages before the age of six or seven, and they continue to be receptive until the end of adolescence.

Beyond that period however, it can be incredibly hard to successfully acquire and integrate a second language (as some of our readers trying to learn Mandarin or te reo Māori might appreciate).

“To my mind,” says Bentley, “more resource should go into teaching Mandarin at primary school level. If you start getting young people familiar with the language earlier on, giving it more resource and emphasis, then they will arrive at secondary school with increased familiarity of the language and that can only be a good thing.”

Perhaps it’s not just increased enrolment in early childhood learning that the Government should focus on – could we one day see basic Mandarin introduced next to story time and play school?

PAVING A CAREER? With greater educational emphasis being placed on hard skills like IT, engineering and financial acumen, do students recognise language as an advantageous skill for their CV and career planning?

McRae says that Diocesan students do view language as an important skill for career building, but the level of discussion goes beyond the school yard.

“The business sector and wider community are taking on more of an international mind set, and we are completely in tune with that as a school. We offer the International Baccalaureate Diploma, which prepares our students for the rapidly changing world around them and places emphasis on refining a second language, intercultural communications and community service.

“As a country, we’re not as isolated anymore and we must respond to that. We communicate across boundaries in so many ways already, so our students are very into being globally minded and are interested in international issues and their role within them going forward.”

O’Connor says that for students and parents, they have a lot of competing thoughts about what may be important in their future. “I’m not convinced there’s a strong awareness of the importance of language and the humanities in career planning. There’s certainly a focus on maths and science subjects, and while we know a well-rounded student is best-placed for their post-school experiences, languages can go by the wayside in favour of other seemingly more valuable subjects.”

Bentley supports that sentiment, saying: “In truth, there does need to be more awareness from students about the value of language for their careers, and that’s an important job for us to do. What puts many students off studying languages, particularly a complex verbal and written system like Mandarin, is how difficult they can be to learn and master.

“However, our students are very focused on their career paths, so I feel a lot more of them would take on Mandarin if they felt confident going into secondary school with a good grip on the language already.”

“We need to be offering and teaching Mandarin from primary school level, so that kids come to secondary school with a foundation of the language and a hunger to enhance their mastery further.”Byron Bentley, Macleans College

18

ROAD BLOCKS If it’s agreed that Mandarin can act as a strategic driver of New Zealand’s economic aspirations, and is a valuable tool for wider career options, and that it’s best for language to be taught early on, then why is it that supply and demand for the language are still at relatively low rates?

We asked Bentley, McRae and O’Connor to outline some of the barriers preventing Mandarin from being taught and learned more widely in New Zealand.

O’Connor says it’s about resource and fit. “To my mind, the number one barrier is finding the right teaching expertise to fit your school. Beyond that, educating both students and parents about the worth of a language – whether that’s Mandarin or any other language – is critical.

“The difficulty when you prioritise one language or area over another is that you immediately give it a higher status so we have to be careful to manage that view and ensure we are not presenting Mandarin as more important or worthwhile than anything else.

“In saying that and considering where the global economy is going, there is significant value in understanding Mandarin. Combined with the changing ethnic makeup of Auckland and what will come in the next twenty years, we will be paying close attention to the development and take up of the language.”

Bentley says there are several practical barriers to increasing the prominence of Mandarin in schools. “It’s a very hard language to learn and therefore you need highly skilled, bilingual teachers in the classroom who possess the ability to enthuse and engage learners. We also need to be offering and teaching Mandarin from primary school level, so that kids come to secondary school with a foundation of the language and a hunger to enhance their mastery further.”

It is clear that any and all barriers largely come down to a question of resource; there appears to be a fundamental lack in the availability of skilled, engaging teachers of Mandarin for our young learners. Perhaps it’s time for innovative or technological solutions to address this issue.

LOOKING AHEAD Questions that will surely emerge in the short term around Mandarin will include: how can we incentivise more bilingual teachers to deliver effective and tailored Mandarin courses to students?

Will a divide emerge between the schools that can afford those skilled teachers and those that cannot – and what are the implications for students when it comes to expanded or limited career options? At a broader level, will Mandarin ever become compulsory and if so, at what level of schooling?

There is a shared responsibility for educators, learners, families and business leaders to lead this debate and encourage continued support and funding for targeted language programmes, if we are to capitalise upon the many opportunities for trade, investment, employment and mutual cultural exchange with China.

“The business sector and wider community are taking on more of an international mind set – and we’re responding to that as a school. The Government will continue to invest in Asian languages as long as schools are delivering results.” Heather McRae, Diocesan School for Girls

19

WateR, wateR, eveRywheRe

HOW DOES NEW ZEALAND STRIKE THE BALANCE BETWEEN A BOOMING DAIRY INDUSTRY WHILE PROTECTING OUR INTERNATIONAL REPUTATION AS CLEAN AND GREEN?

As two of the backbones of New Zealand’s economy, our dairy industry and our natural environment are recognised as key drivers of future growth, job creation and quality of life.

With national demand for fresh water almost doubling from 2000-2010, and a Government commitment to have 90% of electricity generation sourced from renewable sources by 2025, the pressure on and demand for quality waterways has never been greater. However, a recent report from the Parliamentary Commissioner for the Environment found that 62% of New Zealand’s lowland waterways are now officially classified as being unsuitable for swimming.

We spoke to Kevin Bowler (Chief Executive, Tourism New Zealand), Dr John Quinn (Principal Scientist, Freshwater Ecology, NIWA) and Theo Spierings (Chief Executive, Fonterra) to get their views on the quality of our waterways and what needs to be done to protect them. We wanted to find out: Is it possible to have a strong, growing economy while maintaining or improving the quality of our waterways, lakes and streams?

Our contributors’ answers may surprise you…

20

21

OVERSTATING THE CASE? It’s hard to go a day without hearing a news report about the degradation of our waterways and how it’s going to send the country up the proverbial creek.

But is it accurate to make those claims? We asked our interviewees what they think of the current situation.

Kevin Bowler says that while we should never take our clean and green reputation for granted, he wouldn’t describe it as at risk: “None of our research suggests visitors think we aren’t delivering against the clean and green message. In fact, the highest scoring attributes in our most recent visitor survey were for the natural landscape and the environment.

“Concern from visitors about any loss of quality in the natural environment is not showing up as a factor in today’s data. There are some people who are perhaps overreacting to the current situation but even so, they are right that as a country we should strive to protect the air and waterways, and efficiently manage rubbish and waste.

“With our global reputation as a beautiful place to live and visit, New Zealand should do more than most to protect our environment, simply because it is more important to us than most other countries.”

Dr Quinn says the question of overreaction is a complex one.

“It is difficult to say for sure whether people are overreacting with concerns that a failure to improve things could hurt our sales of dairy, agricultural and horticultural products and negatively impact on tourism and how markets would react to knowledge that our waterways are continuing to be degraded by intensive land use.

“However, I consider that failure to resolve this problem will create serious risks for NZ Inc. There is much at stake because agricultural exports account for around 35% of our merchandise export earnings, international tourism earnings are equivalent to around 20% of these exports and both benefit substantially from national branding related to a well-managed, healthy, environment.”

Theo Spierings says that despite any degradation, the quality of our rivers and streams still rates well internationally and this was confirmed by the Auditor General’s report in 2011.

“However it is true that water quality is declining in some areas and that’s something we need to work on as a country. New policies around freshwater quality and the setting of limits underline this.”

BLAME GAME: IS WATER DEGRADATION THE DAIRY INDUSTRY’S FAULT? Spierings says: “There is no single cause of water quality deterioration and it does not happen overnight. Over decades we have seen wastewater from industry and sewage treatment plants discharged to streams, rivers, and lakes, stormwater from urban areas affecting waterways and beaches and soil erosion, chemical pollutants and septic tanks have all played a part. Farming intensification has played a part and we have not shied away from taking on the challenge to ensure dairy farming is more sustainable and together we care for the health of New Zealand’s waterways.”

Dr Quinn says that farming is certainly one of the contributors to the loss of freshwater environmental values – but the industry is also taking significant steps to invest in remediation and improvements.

“Farmers are making contributions to preventing pollution and environmental remediation through actions such as those required by the industry to meet the Sustainable Dairying Water Accord, and additional actions done either voluntarily or with assistance from regional councils in sensitive catchments.

“However, these ‘accord actions’ involve quite substantial investment in things like dairy milking shed effluent management, stream fencing and riparian planting, and stream bridges/culverts. Many of these actions have direct economic benefits to the farm through things like nutrient use efficiency (dairy effluent irrigation to pasture), ease of livestock management/reduced losses (stream fencing), and shelter during extreme weather (riparian buffers). Some farmers tend to be reluctant to implement environmental actions that are not at least cost-neutral.”

TOURISTS LOVE AFFAIR WITH THE KIWI ENVIRONMENTBowler says that from where he’s sitting, New Zealand’s pristine natural environment is as attractive and appealing to overseas visitors as it’s ever been.

“Our research shows that ‘landscapes and scenery’ and ‘clean and un-polluted’ are among the top six reasons holiday-makers choose New Zealand. 

“However, while these high levels of satisfaction with New Zealand from recent visitors are very positive, we should not become complacent and we should continue to do everything we can to protect this reputation”.

22

“It is both possible and imperative that we resolve the challenge to maintain or improve the quality of our waterways while maintaining a strong, growing economy – and it will require a concerted effort involving diverse players.” Dr John Quinn, NIWA

23

REPUTATIONAL RISKS Bowler is the first to point out how damaging any loss in reputation would be for New Zealand: “We are incredibly fortunate here because we have a relatively small population, good infrastructure, and Kiwis generally care about the environment. It seems to be inherently in our DNA and we don’t tend to do things like throw rubbish out of car windows and so on.

“However, while we are in a good position with respect to those points, any loss in reputation would be extremely damaging and difficult to repair, which is why we absolutely cannot afford to be complacent.”

When the multi-faceted and complex reasons that the quality of our water is so vital (economic, health, eco-systems, reputation, employment, trade relations, tourism to name but a few components), the importance of striking the right balance becomes increasingly – even worryingly – evident.

SITTING ON THE FENCE: A BALANCING ACTSpierings says that balancing the economic, social and cultural values we assign to our waterways requires everyone at the table, working together to develop sensible limits and sensible timeframes to achieve them.

“Clean water and profitable dairying comes down to balancing environmental and economic expectations in each region. We could take every cow out of the Waikato, but data produced by DairyNZ, for example, shows that this would also take over $2.7b out of the regional economy, based on a $6.40 payout – not to mention the loss of employment.

“We need to work on minimising farming’s effect on water quality but maintaining the economic contribution. It can be done. Our farmers have done great work and I am confident we are on the right path and we are seeing good results already.”

“Our research shows that ‘landscapes and scenery’ and ‘clean and un-polluted’ are among the top six reasons holiday-makers choose New Zealand. However, we should not become complacent and we should continue to do everything we can to protect this reputation”. Kevin Bowler, Tourism New Zealand

“Dairy has played a part and we have not shied away from taking on the

challenge to ensure dairy farming is more sustainable and together we care for the

health of New Zealand’s waterways.”Theo Spierings, Fonterra

24

WHAT’S IT GOING TO TAKE? Dr Quinn is adamant that we can improve the nation’s waterways: “I contend that it is both possible and imperative that we resolve the challenge to maintain or improve the quality of our waterways, lakes and streams while maintaining a strong, growing economy.

“In many, not all, cases it is scientifically feasible to improve the health of degraded waterways or to protect those in a healthy state currently so that many of the services they are valued for are sustained.”

Bowler agrees there are lot of things that businesses should be doing: “It all starts with measuring outputs and environmental impact more accurately. With accurate data businesses can then take more strident steps towards reducing their environmental footprint across all settings. There’s certainly capacity for things like the fuel that vehicle fleets burn to be offset and minimised, so businesses should focus their efforts on practical steps they can take to limit the impact of their operations.”

Spierings highlights several key ways in which Fonterra is already targeting improving the quality of New Zealand’s waterways.

“Our farmers were the first to step up to fence waterways to exclude stock. We have mapped our farmer shareholders’ farms and detailed the waterways on them; this shows that over 95% of the significant waterways are now permanently stock excluded. Fonterra farmers have erected and paid for more than 23,000 km of fencing to achieve this. A number of farmers have also gone beyond these measures and excluded stock from smaller waterways and progressed riparian planting.”

COLLABORATION IS THE KEY TO IMPROVING WATERWAYSEach of our interviewees agrees that only by working together collaboratively and across sectors and interests can New Zealand’s waterways be protected from further degradation.

Bowler notes that in order to maintain and enhance the natural environment, we do need to invest in it and operate businesses in a sustainable manner – and not many people would disagree with that approach.

Dr Quinn notes that a collaborative, linked-up approach is the key to addressing waterway issues, saying: “It will require a concerted effort involving diverse players including marketers, farmers and the farming industry, agricultural and aquatic scientists, geographers, climatologists, iwi and planners, lawyers and of course community action groups and interest groups.”

Spierings is looking to the future: “The only way we will improve the health of New Zealand’s waterways is through collaboration and everyone doing their part. Our farmers have been taking part in the collaborative approach to develop environmental limits and many regions are developing policies to implement the required limits.

“Some of these changes through the National Policy Statement for Freshwater Management will be tough for farmers, but they are acutely aware of the challenge we all face to improve water quality in New Zealand and are not just playing their part but are in some cases leading.”

Collaboration, cost-neutral or cost effective improvements, supported by targeted Government funding and a linked up, best practice approach to continually improving waters is evidently the way to bolster the quality of New Zealand’s waterways – so the question is, who should lead the charge, how long will it take – and can we do enough before it’s too late?

Facts abOut OuR wateRways:70+Number of major river systems in NZ

49%of NZ’s river length has been modified by agriculture, plantation forestry and urban settlement

62%of NZ’s lowland waterways are classified as being unsuitable for swimming

35%of NZ’s merchandise export earnings are from agricultural products

25

WAS ANYONE BOLD ENOUGH TO GIVE YOU ANY ADVICE ABOUT HOW TO LEAD YOUR GOVERNANCE CAREER, AND IF SO, WHAT WAS IT? TONY CARTER: I was fortunate to have a bit of governance experience during my executive career, which was a good bridge and I observed a lot about how others operated. I was invited to join the Board of Vector while I was still the CEO of Foodstuffs and I spent three years doing both roles – I learned an enormous amount from that time.

I am an advocate for CEOs taking on governance roles in another business – which might be controversial to say – but in my experience it’s good for the CEO and good for the company they serve on the board of. Of course, others will have the view that a CEO should be 100% focused on their own company but I think the richness of different perspectives is invaluable.

JOAN WITHERS: I had been exposed to the board in my capacity as CEO, so the environment wasn’t unknown to me.

RIsky busIness

VIEWS FROM THE TOP GOVERNANCE TABLE CONT.

Following the positive reception of the first ‘Risky Business’ article on governance in the previous issue of MEttle, and our well-attended Corporate Governance Symposium in August, we decided to catch up with several more of the movers and shakers of the New Zealand director community to get their views from the top table – and where governance is heading next.

We spoke to professional directors Tony Carter (Chair, Air New Zealand / Chair, Fisher & Paykel), John Palmer (Chair, RaboBank) and Joan Withers (Chair, Mighty River Power / Deputy Chair, TVNZ) for this special MEttle feature on governance.

I also did the IOD residential course quite quickly, and governance was covered in my MBA course, so I was well versed in the major responsibilities of governors.

For me, some of the most valuable advice and guidance I gained was from sitting next to experienced directors, first at Ceramco and then on the Auckland International Airport board. Peter Clapshaw and Tony Frankham were both incredibly helpful during those times, and Tony became a bit of a mentor to me over the following years. They would both offer me pointers and always welcomed my questions, which was invaluable.

JOHN PALMER: I didn’t receive much advice when I started out in governance, perhaps given that I started 30 years ago when governance training was largely unheard of.

However, what I did find useful early on in my career was observing how I thought good people worked. It was very helpful and instructive to be aware of the people who were effective in their roles and those who weren’t.

26

27

WHAT DO YOU WISH YOU HAD BEEN TOLD AT THE START OF YOUR CAREER? JOAN WITHERS: With governance, there are things you know intellectually but until something happens to you, you don’t really know how it can play out. I was aware of the risks involved with being a director and knew that I was honest, diligent and well qualified – but things can still go wrong and when they do it can be catastrophic, and can take years to sort through.

JOHN PALMER: The one thing I wish I’d been told at the start of my career is that when people say to you ‘I have this small job, it won’t take long but could you do it for us?’, it will always take up a greater amount of time, effort and concentrated thinking than you first anticipate.

I advise treating all of those ‘it’s just a small job’ requests with a healthy level of suspicion as to the true time involved. For directors who take their role seriously, the time and thinking involved particularly around and in key roles and transformative roles is in fact far in advance of the time an average person thinks the job may take.

ARE THERE ANY PARTICULAR APPROACHES OR CHARACTERISTICS YOU SEEK TO EMULATE OR AVOID IN THE BOARDROOM?TONY CARTER: A board’s role is to help management do their job better. Therefore, an approach I’ve found to be very constructive is to not embarrass management. The best boards are the ones that management looks forward to seeing at a board meeting because they know their ideas will be tested, so they approach it not with dread, or fear of getting ‘beaten up’, but they welcome the constructive, positive conversations.

There is certainly a danger of not being in the right place on the governance-management continuum which is in equal parts unhelpful. That is when there’s an adversarial relationship between management and the board, or when there’s rubber stamping, where everyone is just too friendly and there’s lots of group think.

JOHN PALMER: To my mind, the thing that makes the difference between effective and ineffective boards is the relationship between people which is what I call the chemistry around the table, and the behaviours of the directors in the boardroom and elsewhere.

You can usually predict when companies – and boards in particular – are going to get into difficulty, and that’s when there’s a difference between what directors say openly in public and what they do, often covertly, and sometimes behind the scenes. This kind of behaviour is obvious to people inside the company and it cultivates an environment of distrust, disruption and general dysfunction between boards and management.

JOAN WITHERS : After 17 years, I have seen the best and the worst in governance. Seeing that full raft of behaviours informs your own approach, especially as chairperson. I always knew that being a director is not a role you can walk in and out of; you have to commit time, energy and intellect into the position and sometimes it requires an enormous amount of sustained effort.

There is a very small faction of directors who see the Chair's role as predominantly one of a figurehead and running the meeting agenda. There has also historically been some sentiment that because of a previous and successful role as an executive that you can walk into a directorship as a semi-retirement option – but that is absolutely not appropriate and just doesn't happen nowadays.

An approach which I would advocate is to do your due diligence when you are considering joining a board, not only on the company and industry but to carefully evaluate the

“You can usually predict when companies are going to get into difficulty, and that’s when there’s a difference between what directors say openly in public and what they do, often covertly, and sometimes quietly behind the scenes.”John Palmer, RaboBank

28

reputation of the people with whom you will be sitting around the table. I advise the young professionals I mentor to be very careful in their first governance role. It can be tempting to take up a directorship just to get on the ladder but it can be very hard to extricate yourself from a position once you’ve taken it up.

ARE THERE ANY LESSONS YOU WOULD PASS ON TO PEOPLE WANTING TO GET INTO GOVERNANCE ROLES, OR THAT MAY BE OF BENEFIT TO EXISTING DIRECTORS? JOHN PALMER: For a lot of young professional people who are technically well-qualified and would have something of value to offer in the board space, what they often lack is a broader understanding of what you need to do to be influential in a diverse group.

Aspiring directors can seek out that type of experience by joining for example a school committee, where there is a diverse group represented, resources are often scare, and there’s a real need to be innovative to get the best results for the school and for the kids.

Most people think that you have to be technically skilled to be in governance, but the reality is you need to be able to see to the heart of issues, and more importantly, you need to be able to advocate and persuade a group of strong-minded people and influence an outcome, and then effectively communicate to management what’s happening and why.

TONY CARTER: Firstly, you are on the board to represent the shareholders and your primary reason is to add value for them.

Secondly, I’d say never be afraid to ask a dumb question – I ask heaps of them. Particularly in the context of new directors, often you can feel like everyone else understands something, but don’t be shy if you don’t know, just admit it and get to know it quickly.

Even at this stage of my career, I take counsel all the time from people, and people search me out on things, so I think that within governance there is an enormous amount of informal mentoring.

HOW CAN COMPANIES IMPROVE THE PIPELINE OF TALENT COMING UP TOWARDS GOVERNANCE LEVELS?JOHN PALMER: A recent topic of debate has been replacing exiting directors and the time it takes to do that smoothly and effectively. It is better to find a replacement director well in advance – in some cases even two or three years ahead – and allow sufficient time to have honest discussions around the board table, questioning the mix of skills in place, and debating how less experienced directors with potential can be given the opportunity to increase their experience and add value.

JOAN WITHERS: Board’s typically have seven to eight directors and churn out perhaps one per year, so diversity is not going to happen overnight but it does need to happen. Boards are getting better at composition but they also need an ongoing plan to ensure that their skills mix is not just for the business today, but for executing the strategy going forward as well. I am a big supporter of schemes that increase the pipeline of more diverse incumbents, such as the Future Director initiative.

TONY CARTER: What has happened traditionally is that you ask a recruitment agency for a list of possible candidates and you get the same names popping up each time.

Things are changing: I’ve recently been in situations where we outlined the skillsets we're looking for, and then added in criteria to find people who had those skills. What this leads to is finding completely new people.

This has unearthed a wealth of new governance talent like Geraldine McBride (now a SKY TV Director) and Linda Jenkinson (now on the Air New Zealand Board of Directors), who were both outside our normal sphere, but who will and have already added value because they think of things differently and bring a fresh approach to the table.

Sadly, some board appointments will continue to be a product of serendipity – but that's life.

“With governance, there are things you know intellectually but until something

happens to you, you don’t really know how it can play out. Things can go wrong and when they do it can be catastrophic, and

can take years to sort through.”Joan Withers, Mighty River Power / TVNZ

29

WHAT DOES THE IDEAL BOARD LOOK LIKE – IS THERE ONE?TONY CARTER: The ideal board is about the combination of people and background – and diversity is critical. It’s not just about gender diversity, and in fact I think the debate has been a little bit hijacked by that aspect.

It’s about diversity of thought; someone who thinks differently to how I think, with different ages and ethnicities, and yes gender profile is part of that too.

JOHN PALMER: Is there an ideal board? I don’t think so. The board should reflect the requirements of the business for the foreseeable future. Different board approaches are needed for those different businesses, sectors, stages of company growth – and therefore, what’s needed around the board table changes over time and by sector. That’s why rotation is so important, because it enables a process by which you can question if the mix of people and skills is right for the current circumstances.

I am not in favour of having a quota for the board. Instead I think there should be a focus on getting the skills and experiences needed.

JOAN WITHERS: Boards should be bespoke and tailored specifically to the needs of that company. Of course, all directors should have a good level of financial literacy.

The key component of any board is diversity of thought. The case for diversity itself is well documented and proven. The culture of the board is also paramount because the tone of the organisation is set from the top. Therefore, values of honesty, integrity, fairness, and a commitment to health and safety are non-negotiable.

WHERE DO YOU WANT TO SEE GOVERNANCE GO OVER THE NEXT 5-10 YEARS?JOHN PALMER: Looking ahead, the focus on governance training is undoubtedly improving the quality of governance in New Zealand – that’s a real plus.

We are in a phase where well-qualified young professionals see governance as a natural path and, while they do have a lot to add, I would say that a board table with very experienced operators around it who understand the nuance of what it means to manage a business day-to-day better provide the skills that every board needs and that’s where the valuable balance is.

TONY CARTER: Attention should be directed towards the productivity of boards. The amount of work that goes in on the days the board packs go in is astonishing. It is generally an inefficient process, so to my mind utilising electronic platforms for board meetings is a no brainer.

I think that another big issue regards smaller companies, where fees for directors are much lower than their larger or listed counterparts. For smaller boards, the work load and risks are potentially much higher and yet there isn’t the internal resource that the larger end of town has to manage it all.

The traditional response to this dilemma is that directors take on a larger number of roles to compensate for the shortfall of being involved with a smaller business, which again can mean the board has even more limited resource as directors split their focus and attention.

“I advise treating all of those ‘it’s just a small job’ requests with a healthy level of suspicion as to the true time involved.” John Palmer, RaboBank

JOAN WITHERS: Corporate governance has improved materially over the past 15 years – but it needed to. High standards of corporate governance are now demanded appropriately by shareholders and investor groups and I think that with the increasing number of companies being listed and greater interest in capital markets more generally because of Kiwisaver, more attention is being paid to corporate governance.

Digitisation is changing industry landscapes and driving competitors in ways we have never even dreamed of. Even if those competitors don’t get to scale, they can damage your business in the interim. Therefore, boards must work on their understanding of what digitisation means in the 21st century and the implications for businesses.

Over the next five years I would expect to see much greater diversity around the table, including the average age of most boards reducing. I would also expect more formal, regular, and independently facilitated board reviews, as well as more rigorous and formal processes around vacant board positions. Lastly, I would hope and expect to see the director community have an improved reputation, which will be assisted by the ramifications of finance companies collapses washing through in both governance practice and process.

30

31

CURATED BY MINTERELLISON.CO.NZ