Mainzeal tumble exposes flakey celebrity directors

Dame Jenny Shipley
Former Lombard director Sir Douglas Graham
Former Dorchester Pacific board member Sir William Birch

The Mainzeal collapse is yet another salutary reminder that having former politicians on company boards can be an extremely risky business.

Despite her status and connections as a former prime minister, Mainzeal chairwoman Dame Jenny Shipley could not prevent the construction company from going under.

Financial commentator Brian Gaynor told NBR ONLINE Dame Jenny is the latest in a long line of former politicians who have been on the board of companies “that have been incredibly unsuccessful”.

“They don’t really have a lot of experience or judgment but get asked onto boards looking for a figurehead.

“A lot of companies like to have ex-politicians on the board because it gives them respectability and makes them look better than they really are.

“And the politicians go onto them because they are offered a sum of money which is quite attractive, typically $60,000 to $80,000 a year, with some having multiple directorships.”

'Decent perks'

Mr Gaynor says many directors also get “decent perks” with free overseas travel, ostensibly on company business but often to visit friends or family.

“So there’s often a lot of things like that, which encourages people to go on boards.”

He says Richina Pacific, the parent company of Mainzeal, “made a huge thing” about Dame Jenny’s appointment to the board a few years ago.

“I was at the annual meeting and I remember it well as the chairman said how good it would be to have her on board because the Chinese are very big on protocol.

“He said it would open huge doors for them in China and she would get access to politicians. They probably believed that but I’m not so sure in the end that it did get them anywhere.

“She might have met a lot of people up there but I’m not aware that resulted in any business opportunities there.

“I think people like that open doors for people but once you open the door you have to execute whatever you want to do and they just don’t have the execution.”

Mr Gaynor says ex-politicians “generally make poor decisions”.

“Bill Birch was on the board of Dorchester Pacific, Doug Graham and Bill Jeffries on Lombard, there’s just one after another and just a succession of poor decisions that they make.

“Just look at Wyatt Creech and John Luxton and the poor decisions they made when they agreed to become directors of Blue Chip.

“Blue Chip was a back-door listing through Newcall and directors, particularly former government ministers, have to be particularly careful about accepting positions with back-door listings because they are rarely successful and celebrity directors are a blatant attempt to give these companies respectability.

“They jumped ship, of course, before it sank – they were suckered into it to begin with, then they realised that the ship was leaking, but they were completely enamoured with it to begin with.”

Concerns shared

Mr Gaynor’s concerns about former politicians serving on boards are also shared by financial commentator Rod Oram.

He told NBR ONLINE that having a long and distinguished political career “doesn’t necessarily equip you very well for commercial disciplines and commercial governance”.

“I think it’s overblown how useful these politicians can be on boards in terms of their connections.

“It might give you a bit more access but that wears very thin if the opposition party is now in government.

“I’ve always been immensely sceptical of the value of having people on your board unless they can show very direct commercial experience."

Mr Oram believes most former politicians are appointed because “it looks good but I think it gives companies very spurious credibility”.

“Clearly, there are some immensely capable ex-politicians who are useful on boards, but you have to look at them very carefully, individual by individual, to work out whether they have any relevant skills to bring to the board.

“I think investors and other stakeholders need to be very careful on that.

“Rather than just say “oh that’s nice to have a distinguished ex-politician on the board, they should be asking very hard questions about what direct commercial and governance experience they bring to the board.”

rvaughan@nbr.co.nz

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17 Comments & Questions

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Watch with interest the SOEs. How is NZ Post going ? Bolger then Cullen!!

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Director accountability here is warranted please.

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Easy for Gaynor to sit on sides and throw stones. He has little appreciation of the skill sets that former Cabinet ministers can bring to a board table.

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Which would be what exactly?

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Agree that BG is probably going slightly too hard when he says: "ex-politicians generally make bad decisions". There may be a number of examples of bad decisions that he can point to, but that doesn't mean that doing the opposite of what a former politician would do is the way forward.

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Is that you Michael?

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What skills ? Mrs Shipley was a kindergarten teacher before she decided politics was more exciting; Bolger, a farmer for all of five years; Clark, a university lecturer etc..Most of NZ's MPs entered local and national politics in some capacity in their 20s and 30s. They're careerists. That's how it works in NZ.

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Yes, do tell, Bankside Resident...

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I've seen things from both sides. As always it is horses for courses. Connections and introductions are the least relevant. Shrewd judgment and long experience matter. Who would complain about Mainfreight's performance, where Richard Prebble's board membership has been forever.
Some companies are in businesses that absolutely need the insights (and authority about them) that come only from direct experience. If the Telecom Board a few years ago had included a shrewd ex-politician, it would not have careered on for as long as it did, not appreciating that all their schmoozing and Corporate Box stuff, and the oily thanks from politicians, was masking a political recognition that Telecom had become loathed, and no one would bat for it when it became a political target.
Former politicians who can keep a board from being blind-sided may be worth more than all the others at times. I'd venture that Michael Cullen and Jim Bolger and Bill Birch have done that over and over for the bodies they've served.

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I agree with Mr Franks. It is not whether or not someone is an ex-politician, it is whether or not they bring something of real use to the particular Board/Company. The point of the article seems to be that if what they bring to the Board is simply the fact that they once were a politician, then that is hardly a qualifying trait. One cannot argue with that. Perhaps the problem in NZ, because of all the factors Mr Gaynor has identified, is that all too often the wrong type of people are attracted to Board's for the wrong reasons. People interested in perks and people who cannot or have not succeeded commercially in a relevant way in their own right outside of a Board environment. In a commercial environment two things moust matter more than anything else - firstly , that Board appointees are honest stewards of other people's capital and secondly, that the Board member has a track record of commercial success/talent in some sphere other than just simply being on other Boards or sitting on a comfy chair in Parliament.

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It is a moot point how avoiding being "blindsided" politically is of critical importance to a commercial organisation when there are so many other financial, legal and market opportunities to be blindsided.

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The govt will subsidise Whanganui Collegiate to continue at a loss but won't support Mainzeal?

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Nothing to do with political experience . It's the $100 haircut , tummy tuck, and Industrial glasses that got her the job

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Well said Rod Vaughan. You have summed it in one. There are so many "flakey' directors and managers in business here and the public of NZ are getting sucked in at all levels (politically included).NZ really is a cowboy country .We are living in a fools paradise

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If they had any decency they would refund directors' fees and be content with the side perks as remuneration for services not rendered.
WG

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Yes, Bankside Resident (or Jenny) please elaborate if you can.
Many of us would like to hear just what skills celebrity directors bring to the board table, if any.
liberte

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Jennifer Shipley. For goodness sake these know-it-all politicians just can't help themselves. Power. Control. Self-interest. Sickening arrogance - and so it goes on - and on.

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