Governance Bites #61: economists on boards, with Shamubeel Eaqub.

In this episode, Mark Banicevich talks to Shamubeel Eaqub about the value of an economist on the board. He asks about what an economist brings to a board that differs from lawyers and accountants, and what timeframes he considers in the boardroom. Mark asks about divergent thinking, and any similarities among divergent thinkers he has encountered. He also asks about the best advice Shamubeel has received as a director. 
Shamubeel Eaqub is an independent economist who is not afraid to take a contrarian view. He is a director of Positive Capital and Community Finance, and a former director of the Central Economic Development Agency (CEDA), Simplicity and the Aotearoa Development Cooperative. Shamubeel has lectured at the University of Otago MBA, and has been a regular media commentator with MediaWorks and Fairfax Media. Shamubeel is a Chartered Financial Analyst (CFA) with experience at the New Zealand Institute of Economic Research (NZIER), Goldman Sachs JBWere, ANZ and Statistics NZ. 
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Transcript

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My name is Shamubeel Eaqub. I'm an economist by training and profession. I also do quite a lot of advisory work, so I'm on boards, on charitable trusts. I advise charities, philanthropies, and other folk as well. I tend to see the world in lots of different settings and circumstances. Today, I guess we're going to talk about economics, economists, board governance, and the overlap of all those things. Great. Hi, I'm Mark Banicevich. Welcome to Governance Bites. As you just heard, today I have the pleasure to spend some time with my friend Shamubeel Eaqub. Shamubeel, thank you very much for your time. Pleasure. I really appreciate it. I have a couple of questions for you today about the value of an economist on a board, as you said. And boards are sometimes heavily populated with industry specialists — people who have often come through the company— and then independents will often be lawyers or accountants. What does an economist bring to the board that is different? Yeah, well, I think there's something about just having somebody independent in the first instance — so having somebody who's outside of that, kind of, key areas of expertise, who can bring in a different perspective. I think there is that. But an economist is not just an economist, right. It depends on the person. I think it's often a mistake to define somebody by their profession, and I say that because I've met lawyers who are amazing. And I've met lawyers who are so narrow and sticklers for rules that miss all the important parts of doing governance. Same with accountants. I've met accountants who are very good strategic thinkers, and I've met accountants who are very narrow — really, you know, bookkeeping-type accountants. So, I don't think economists, there is a general kind of thing. It's more about the individual and what the individual can bring to the chemistry of the board. But I would say that I deal with a lot of boards, as a professional, and I deal with them because they need the advice of an economist. Not necessarily always on the board. So my interactions, more often than not, with a board will be through their strategy days, when they're dealing with some big issues, trying to understand some big new complexity or uncertainty that they're trying to navigate. Economists are quite useful because they bring a new or a different perspective that's not available to a specialist. Yes, right. Okay. You just brought to mind that old Rob Muldoon quote — was it something along the lines of,"If you give me a dozen economists, I'll show you twelve people that will never agree with each other." And that divergent thinking is very much... Yes, I think, you know, some people think that's a bad thing. And I'd say, "You haven't thought about that." Because the whole purpose of having people on your board, are people who bring expertise and ideas and ways of thinking about things that are different. And it's that interaction of those different ideas. As long as you're able to navigate the difference and come to a decision. Yes. So I think economists, by their training, are quite good at disagreeing with each other, but with reason. And the whole purpose of our profession — and I think the benefit of our profession — is we get to bring a lot of theory and data and evidence to bear in the things that we're talking about. So that's the kind of value that we should all bring from whatever background we come from. But economics has a particular expertise, which is that we are interested in the social science; we're interested in society, we're interested in business and the economy. And that actually does make a really useful contribution for a lot of boards. And businesses, like economies, are very complex beasts. There's a lot of moving parts. So you wouldn't expect people to have similar views. You'd expect to have some divergence, because people put focus on slightly different areas. They do, and the way I think about it is a little bit tiered. So, there is the wider kind of economy, then there's the sector, and then there is your business. Each of these layers, it's like layers of the onion, right? Each layer is a little bit different. For a business, you need to understand the wider context, but that's not you. After you've understood the context, it's really about understanding what levers do I have and what should I do? So, even in a recession, for example, my advice to boards is not that the economy is going down, so you're screwed. My advice is: this is what's happening in the economy; what's your strategy to deal with it? Is your strategy to go for market share? Is your strategy to downsize your business? Is your strategy to do something in between? What is it? But you have to be deliberate, and you have to know you've made a decision understanding the wider context. Yes, okay. Well, I want to pivot a little bit to timeframes. Adrian Orr [Governor of the Reserve Bank of New Zealand], I remember, spoke at the FSC [Financial Services Council] conference a number of years ago about short-term thinking, and about how companies tended to be quite short-term in their thinking. Particularly when you had a CEO [Chief Executive Officer] that maybe had short-term incentives. What timeframes are you pondering when you're sitting on a board? Look, I mean, I think Adrian is wrong in the sense that, yes, the CEO might be incentivised to think short-term, but if you're on a board and you're thinking short-term, you're not doing your job. The job of the board is to have a strategic perspective of the business. So, you know, on the boards that I'm on, I like to have a 50-year plan, a 20-year plan, a 10-year plan, and a budget. You know, these are all kind of nested within this wider, kind of, vision. To me, the vision is, kind of, the big long-term picture of, where do you want to go? And having some metrics around it so you know that you're heading in the right direction. So, no, I don't think boards by and large are short-term. I think good boards are incredibly long-term because they're very clear about their vision; they're very clear about the pathway to get there, but they're pragmatic. They will change as circumstances change. As you say, it's the job, you know, when you're acting in the best interest of the company, that necessarily requires a long-term view. A good board does that. I've seen plenty of boards that don't do that, and I'd say that that's a strong indicator of a very poor-performing board. And you only have to look at our NZX [New Zealand Exchange] today to see many boards that have fundamentally failed in their duty. Yes. Yeah. Well, one of the things I really like about you is, you're sometimes a contrarian thinker; you're not afraid to be contrarian. Do you often find yourself as the divergent thinker on the board? Sometimes. I think I see myself in a position where it's a challenge I set myself. You want to have a question that somebody else hasn't asked. Yes. And if you're asking the obvious question, you're not adding value; you shouldn't be on the board. If you're saying the same thing, and everybody knows what you're going to say, what's the point? I've had this experience in the past where I've retired from a board because, after a while, people knew what I was going to say, you know, because I had already kind of exhausted, I guess, my expertise in that particular setting. And that's fine. There, a time comes when you have schooled up your colleagues, your other board members, and the officials, or whoever the people are, in terms of how you might think about things and what tools they should use. But that doesn't mean that you haven't added value. It just means that you don't need to be there yourself anymore. Yes, right. Are there any challenges that brings when you're sitting in a room full of people and bringing up this alternate view that other people haven't considered? Well, I don't think so. My experience of boards is they are largely very collegial. Of course, it depends very much on a good chair, and so, we won't talk about chairs today, but you know that's a really critical role. A good chair makes all the difference on a board. A good chair should be able to conduct the board meetings and the interactions in such a way that it's collegial. The whole purpose is to invite discussion and questioning, and dissension in some ways, but then being able to bring it all together again to have a shared decision. There's a difference between having differences of views and having differences of decisions. You can't have differences of decisions. No, right, right. So, as you say, it's driven very much by the chair, and I guess I would also extrapolate from that the culture of the board. So, if the board has got a very collegial culture, then having an alternate view proposed, and then debated and discussed, would do nothing but add value to the conversation. Yeah, and I think it's also the approach that you take, right. So, if I have an alternative view, I don't just go, "This is my alternative view." It would be posed as a question:"Have we thought about this because of these reasons?" So, I think it's important to have the context. It's not just, "I disagree." You know, that's stupid, right. Yes. I mean, that's not helpful. You wouldn't do that with your friends; you wouldn't do it in a normal setting. Why would you do it in a board? So, the way that you operate as a human, in a collegial setting like you would do with people that you respect, you would have the conversation:"Here is a decision; here's the reason why I think we shouldn't do this particular thing, and here are the consequences"if we do this." And then you have the conversation, and if people are able to change your mind, then good. Absolutely. This is the whole thing about, if somebody's able to convince you with better evidence, better reasoning, then of course you should change your mind. In the boards that you've been on, and in the boards you've been involved in as an advisor, have you encountered people that you think,"Wow, that person thinks a little bit differently from the other people in the room?" Yes. And if so, what sort of backgrounds do they have? Is there anything in common about them? Any? No, they're scrappers. That's what I love about New Zealand, in particular. You see people who come from all these crazy backgrounds, right. From a nothing school in the middle of nowhere, their trajectories have taken them through all these different businesses, industries, whatever. They always ask the most interesting and fun questions. I find people who have had a very narrow, kind of, career path, particularly, I mean, and this is being a little bit mean, particularly accountants, I find they don't ask exciting questions. Also, it's a personality thing. New Zealanders tend to have very reserved personalities, so people are very cautious about disagreeing or putting forward a view that might be very extreme. But, you know, if you're successful enough to be at the board level, you have to mature into that position. Again, I won't say that all accountants are like that, but I've met too many accountants and lawyers in those positions, where I think their approach is too professional in some ways, and not collegial enough in that setting. They can't let go of their professional backgrounds. But look, the exciting ones, the ones that ask the really knotty, tough questions, almost always come from this bizarre mélange of backgrounds. Right. Oh, well, that is a thing in common, right. The divergent thinkers are those challenging people who often have, just as you say, quite unusual backgrounds. Something that is not so linear, and necessarily what you'd expect. Are you able to provide an example of how a contrarian thought in a board meeting, whether it was your own or somebody else's, resulted in better outcomes for the company? Oh, look, I mean there's many. It's always hard to have these conversations outside of the board meetings because they're confidential. Yes. But I think, quite often, it's around market segmentation, and what's the next big thing. So, more often than not, you'll have this, kind of, big strategy, and then when you go to translate it in terms of,"How do we do this?" There will be some very strongly held views, but quite often from people who are too close to it. I can recall one very clear example where I was like,"No, that's not the market segment that's going to give us"the best return for our investment. It should be this market." And that caused some friction. But then once we analysed it, looked at the data, looked at the evidence, I was right. Not because I'm saying I was right, it was more that we needed that intervention. Otherwise, we would have wasted a lot of company resource in pursuing a market that wasn't fit for us. So, sometimes you need to have that pause and that challenge to go,"Have we really thought about this?" Okay, one final question for you then. What's the best advice you've received as a director? Listen, then ask. It's very easy to jump into questions. It's very easy to want to ask the first question. Because, you know, you've read the papers, you've thought about it, you've got this question, it's burning a hole. But actually, sometimes it's better to just wait, and listen, and just see what's going on because there's quite often a lot of context that you don't get in a board paper. Once you're in a board meeting, once you've listened and you have absorbed the mood of the room, things become clearer. So, listening is probably the thing that I find quite hard to do because, you know, my job is usually to go and talk. So, that was a very good piece of advice in terms of, take the time to actually listen, and that gives you the ability to then ask the right questions and offer the best advice. I feel your pain there. I remember, you know, for one of the boards I was on, my first board meeting, I thought, "I'm not going to say anything in my first meeting."I'm just going to listen." It lasted half of the meeting. It's hard, right? It is. Well, Shamubeel, thank you very much for your time. It's great to catch up. I'll look forward to seeing you again soon. And see you next episode.