Governance Bites #145: Governance for value creation, with Laurence Kubiak

Laurence Kubiak brings a rare combination of executive leadership and boardroom governance experience across the private, public and not-for-profit sectors. He is Chief Executive Officer of Nautech Electronics Ltd, New Zealand’s largest independent contract electronics manufacturer, and serves as a director of Northpower Ltd. Laurence previously chaired Trustees Executors Limited and the New Zealand Symphony Orchestra, bringing deep insight into governance across regulated, commercial and cultural organisations. Earlier, he was CEO of New Zealand Institute of Economic Research, advising decision-makers on economic policy and strategy. With an international career spanning energy, telecommunications and infrastructure, Laurence offers a global perspective on governance, regulation and strategic oversight.
In this episode, Mark Banicevich sits down with Laurence Kubiak to explore the shift from oversight to insight. They dive into how boards can reframe their mandate to focus on long-term strategic value, capital allocation, and constructive management challenge. From defining "governance for value creation" to identifying the specific capabilities directors need today, Laurence shares actionable practices to move beyond quarterly metrics.
Watch now to learn the one governance change that could transform your board’s impact and unlock sustainable organizational growth.
#Governance, #ValueCreation, #BoardLeadership, #StrategicGovernance, #DirectorInsights, #CorporateGovernance, #BoardEffectiveness, #ExecutiveLeadership, #BusinessGrowth, #BoardOfDirectors, #StrategicPlanning, #LeadershipDevelopment, #ComplianceToValue, #ESG, #CorporateStrategy

Transcript

0:00

Hi, I'm Laurie Kubiak and I'm a New Zealander who went away straight after university and had an executive career in the blue chips overseas. First of all in the energy industry and then latterly in ICT [Information and Communications Technology] telecom. I started reporting to boards in those years in London and I've been back in New Zealand now for about 12 years and that's when I crossed the table and became a director myself. Also a business owner. I've been building a group in electronics which is where I'm sitting at the moment. And I've done two CEO [Chief Executive Officer] roles, as well, since I came back to New Zealand. So that's a very, very quick pin portrait of me. That must mean that I first met you when you first got back to New Zealand, when you were CEO of NZIER [New Zealand Institute of Economic Research]. It would. Yes, that was my first role when I came back to New Zealand. That's correct. Yes. Right. Yeah. Hi, my name is Mark Banicevich. Welcome to Governance Bites. And today, as you just heard, I have the absolute pleasure of spending time with Laurence Kubiak. Laurence, thank you very much for your time. Today we're going to talk about governance and value creation. As I said, we first met when you were CEO of NZIER a little over a decade ago. And one of the things that I really enjoyed, I think I first met you when you had done the piece of research for Sovereign. And there was a panel discussion that you were on. And I really enjoy listening to you when you speak. And I'd love to be able to do, it's my goal to be able to do what you do when you speak publicly.

One: 1:31

you use a lot of salient quotes, and I love that. And the other one is bringing in historical anecdotes that fit the situation and I really admire that. So I'm enjoying the opportunity to have a conversation with you. Oh, that's just a function of being terribly old. You remember more than you actually know. Well, our first question today, the governance for value creation. Can we start by defining the topic? What do you mean practically when you're talking about governance for value creation? Well, I think it's a fundamental part of being a director, of being on a board. If we think first of all of what value creation is: so you create value when you take an asset, and you move it from a lower valued use, to a higher valued use. Either through some transformation in the asset or some combination with other assets. But that's what it is. When you do that you've created value that wasn't there beforehand. Now at the most fundamental level that's what a board is there to do. The board is there as stewards of the business. So our objective as board members should always be to take the situation that we inherited from the previous directors and hand it on to the next directors better, improved, more valuable. So that's value creation. That gap in the middle is value creation. So as board members, as directors, we need to be

always thinking: 2:56

we've got this thing, we've got this collection of assets now. How could it be better? How could it be generating more value? And that's quite distinct from the role of the executive, of the managers of the business. Because they're about managing the assets that you really have. So they're managing for maximum efficiency, for maximum return. Because they're doing that, they're in the weeds, as you might say. They're very close to those assets. It's actually hard to lift yourself above that and think, you know, what else could we be doing with the assets that we have. And they're also, they're on the shorter term cycles. I need to be delivering my shareholder number this month, this quarter. And so that generates a certain short-term focus. That's correct. We need that. We need both. But that's why you have a board because the board is sort of at one removed from that. And they're thinking of the assets and what they could be, and what the organisation could be, and they're trying to bring that "could be" about. They're trying to make that real. So I think value creation is actually fundamental to what a board does and what a board should be doing. Yeah. Absolutely. Many boards still focus heavily on compliance, and risk particularly with the liability that sits around being directors. How should directors reframe governance to focus more on the value creation rather than being, "are we safe?" Well, compliance and risk matter of course. You certainly can't ignore them. And again, playing a part in managing the risks to the business is very important. It's a very important function for directors. But again it's that short-term risk versus long-term risk is really where the difference lies. So if, as a director, you're not thinking about innovation, you're not thinking about how the market is travelling, you're not thinking about how the things that people value in the market is changing, then you're not really doing your job. So, and that's a different kind of risk assessment to the sort of thing that an asset manager in a business would be

doing. It's always: 5:04

how is this travelling? What's the future thing? What's the future risk that we need to have our eyes on now so that we can get ahead of the curve? How do you then manage, if you were to come onto a board of directors, and then discover that they're very focused on risk and compliance and not thinking so much about that value creation in the future of the business, how do you then manage that situation or that transition to a more value creation, value creating board? It's been my good fortune not to have been in that position very often. I mean, but the danger signs are: are you getting a lot of reporting? Lots of operational reporting, lots of operational KPIs [Key Performance Indicators] that don't actually line up with the strategic outcomes that you're meant to be managing as a board member. So, there are some practices that can help. Northpower, which is one of my boards, has a very, very good practice actually, where they just put the strategic stuff up front in the board pack. So if you think of a more traditional board meeting where you might turn up and you review the minutes first and sign the compliance statements, whatever it might be, we do all that stuff at the end. The strategic discussion is always upfront, where people's attention is strongest and where their focus is strongest. And to always have that as the first one or two items in a board meeting I think is a very good practice. It does keep the board focused in the right place. That's a common theme that I'm getting through these conversations. So, it must be becoming more and more common to have those strategic conversations first and all the operational stuff later. I'm glad to hear that because in my experience it's not universal, but if it's becoming more common, that's very good. Yeah. So, fingers crossed. I haven't done a survey to find out just how much it is, but certainly the people I'm speaking to are saying, "This is the way that we should be doing it, and the way that we do it," which is great. In terms of inputs and process, what distinguishes boards that truly create value from those that simply oversee the performance of the business? Well, I spoke of it just now. If they're excessively reported, focused on that operational reporting, that's not a good sign. I have a particular bugbear, and this is a battle I know I'm losing, but the increasing provenance of PowerPoint presentations in board packs. I don't think they're a substitute for a good well-thought-out paper. They put you into sort of reactive mode, because someone's presenting to you. Whereas the idea of a paper is, it stimulates a discussion. And the board meeting is really about the discussion, about the challenge, about the different perspectives that can be brought to bear. So mine is a vote for no PowerPoint presentation in board meetings, but I think I've lost that battle. But you'll keep fighting it? I'll keep fighting it. Yes. Look, when I started reporting to boards in London, we actually had a page limit on board papers. And if you couldn't get it down to less than six pages, and no funky stuff with fonts and margins - there was a template. Eight point font. Then you had to break up the decision. And that was actually a very good discipline, and a very good habit. So I think some of that thinking has been lost. The other great element in all this is the relationship with the CEO. I mean, where that's not working well, you can imagine a situation where the CEO is just the sort of reporter. He's reporting all the results to the board, and that's the meeting. The CEO needs to be a partner. I mean, he's that lynchpin between the board and the executive. And so the board needs to see him as a partner, and I think it's a much better practice if he doesn't actually do much of the reporting of results. If he allows his people to come and do that when appropriate. And he sort of stands behind it. Because that preserves a certain detachment for him, as well. So there are a number of things that are just process things that you can do to move you from the sort of board that's sort of basically a committee board, if you know what I mean. The school committee or whatever it might be. To a more future focused strategic board that's really driving for value creation across time, across generations. Yeah. Thank you. That's awesome. How can boards ensure that they're spending enough time on long-term strategic value and not just quarterly performance? You mentioned some of this about having the strategic conversations up front. You've mentioned about the role of the CEO in that. Are there any other thoughts around how boards can ensure that they're focusing on that long term? I think it's very important for boards to have the courage to be willing to trade off short-term returns for longer-term value creation. Now oftentimes, particularly with a publicly owned board, a listed board, that's hard because, particularly if it's a yield share, then the investors are going to be wanting their return regularly. But I think that's really where the rubber hits the road. If we turn some things off that are generating returns in the short term, in order to put the resource, the capital, whatever it might be, the capital, the people, into something that's more valuable in the long term. That's the sign of a mature board that's focusing on the right things. Yeah. Okay. What governance practices help boards to challenge management thinking constructively without becoming operational? Oh, that's a very good question. It's a very good thing if management asks for it. So I've occasionally seen papers where the management has said,"We want board challenge here, here, here and here," on whatever the issues might be. So please, that says, "Please test our thinking on these points." Yes. So something like that is good. I think it's very good to steelman the next best alternative to whatever the decision that you're making is. So a bit like a devil's advocate sort of approach, not quite so. Your preferred option is this, but you've got the second option here. Steelman that and keep asking those why questions, about why is what we're doing here better than what we're doing here. Not everything will be better, so that will take you into, "Well, what trade-offs are we making by taking this approach instead of"that approach." So I think that kind of process is extremely valuable. I've, [De Bono's] Black Hat reviews, which are more often used at the management layer, but I think that they can be very effective with boards as well. Particularly if you bring an external expert to be your black hat for whatever it is that's under discussion. That can be extremely valuable. The other more general point I guess is, one of the points of having a board is you've got a variety of perspectives around the board

table: 12:34

different backgrounds, different technical backgrounds, different professional disciplines, different industries. That's a great basis for challenge. And naturally, if you're contrasting that with the executive of the organisation, they're much more likely to be experts in that industry. And so to be able to bring those other perspectives to bear on that internal expertise, again, it's a very valuable source of challenge and it shouldn't be discounted. I get a bit dispirited actually when I see boards that seem to be entirely composed of Shortland Street lawyers and an accountant. I just think, well, where's the divergent thinking going to come from here? Who's got the scars on their back to actually bring those scars to bear on an important decision? Yes. Actually, that leads quite nicely into the next question around culture. How does the board oversight of culture and leadership influence that long-term organisational value? Oh, golly, that's a huge question to which I wish I had a better answer. So if I were sitting here representing the AICD [Australian Institute of Company Directors] or the New Zealand Institute of Directors, they'd all be quoting Peter Drucker and saying that "culture eats strategy for breakfast". I can think of organisations which I think have quite suboptimal cultures which still do very well, is the hard truth. Obviously we want the best culture that we can have in our organisations, but it doesn't always lead automatically to value creation, is the bitter truth. So I'm a bit of a skeptic about that. I think you can do valuable things to encourage culture though. So, you mentioned director's duties just now and the obligations on directors following the 2016 Act [Health and Safety at Work Act 2015, Regulations 2016]. Health and safety, I mean it's important for the board to set the signal, and the chief executive to set the signal, from the very top about what is acceptable, and what is not acceptable, and to act upon that. So you can do that sort of thing, where it's a tightly defined element of culture, such as health and safety, and that's extremely valuable. But if your definition of culture is: we want to be running a place where people love coming to work and there are donuts in the kitchen and everybody's happy, it doesn't always lead to results directly, through any mechanism that I've been able to identify. I wish it did, because on the personal level I'm completely bought into that. But on the experiential level I think it's pretty murky. Right, that's really, really interesting to know. Thank you. How can, this is actually a question that relates to the long-term / short-term value creation that we talked about before, how can boards ensure that management is allocating capital in ways that maximise that long-term value rather than short-term gains? I'm always disappointed and it often happens. The usual situation is that companies tend to underspend their capital programmes. So you go through the budgeting exercise and you say,"Yes, we've nailed up this capital for you in the following year for these purposes. Go and spend it." And it's often adrift by the end of the first quarter, often underspent. I think it's just important to really keep up the pressure on that, because you're allocating capital to provide future value. It's either defensive, or it provides some kind of future value. And so it's important to keep those capital, those projects on track. Beyond that, I think the standard financial metrics that you use to measure these things on the long, NPV [Net Present Value] and IRR[Internal Rate of Return] are pretty good, and they will, they're probably as much as you need to inform decision-making. Unless it's an out-and-out transformation that you're taking. A real pivot that you're taking the organisation through. If that's the case, then you probably need a completely different set of tools that says, "Okay, we were this and now we're going to be that," and you measure this using A, B, and C, and you measure that using X, Y, and Z. And so your task is then how do you cut over from A and C to X, Y, and Z. And that's a difficult but very interesting task. But obviously that's, capital and resource allocation will get you there. Right. And so one of the things I take from that is the importance of the analysis of data to understand how the capital is being allocated, how efficiently it's being allocated, as you say, is it being spent, and what are the expected returns on that. And then presumably post capital use, did it deliver the returns that it promised? And that's the bit that's often missing. So the sort of after-action review."We thought A, B, and C would happen, we got X, Y, and Z. Why?" It happens at the executive level, as well. I think after each programme completes, both immediately and at a distance, an appropriate distance depending on the nature of the programme, "We thought we would get these"things out of the spend. Did we? If we didn't, why not? What did we miss?" And feed that back into the system. I think those after-action reviews are a very, very good practice, and should be more common. It's a shame they're not more common than they are. True, true. What board capabilities are the most important in driving value in today's organisations? I think that diversity of experience is very important. Because having those different people around the board table that look at the world in different ways is, as I say, something that you tend not to get in the same way from the executive. That's very important. I think you need a chair that focuses the board on that value creation and the future story, and that trajectory. It's very easy to lose sight of that. So a chair who's always got that as front of mind, I think very, very valuable. Those would be the main ones I think. Board composition is really important. Yes. Very important. And as I said earlier, I would want, looking at New Zealand now, and I guess Australia, as well, I would want to see more people around board tables with more scars on their backs from operational businesses than perhaps is more usual at the moment. A journalist asked me that once actually, "What do you think is the most important qualification for a director?" I said, "Scars." Yeah, right. Having made tough decisions and having to live with the results, or course correct if you had to. That's really what makes the difference. Right, that's really interesting. One of the things I would love to see is some good research around that diversity and the value created by it. There's lots of bad research around it. I'm looking at you, McKinsey. I think one of the things that gets me, as well, is that often the research around diversity, certainly over the last, well, when I last looked at it when I was at the FMA [Financial Markets Authority], it was around things that were very easy to measure such as gender. Yes. And as you say, it's, what's the diversity of background? And, you know, I don't see a lot of researchers say, how many lawyers are on the board, how many accountants, how many engineers, how many? And that's kind of the research that we need, is to see that breadth of experience. I feel so. Gonads and melatonin don't get me very excited, personally. I mean, I used to flippantly say that the quickest way to get groupthink around a board table, was to implement a board Diversity, Equity, and Inclusion[DEI] strategy, because you'll get people who think the same, often times, if you do that. But looking at different backgrounds, different experiences, different organisations, scales of organisation, different industries, different countries. As long as they have something to bring to bear on the core business of the organisation. You just don't want difference for the sake of difference. No. It's got to have some relevance, some angle of relevance. That's where the magic happens. Yeah, absolutely. I have one question for you, then. There's been a couple of really nice insights that have come out, or a few more, than a couple, from our conversation so far. So, if you could nail it down to one, if you could change one governance practice across all boards tomorrow to improve value creation, what would that change be? Probably putting the strategy up front. Right. Such a simple thing to do. Yeah. Very easy to implement. But it sends a message, both to the executive and to the board, that this is what we're here to do in these meetings. The operational thing is fine. We need some reporting on that just to make sure that everything's broadly on track, but our job is to take this thing and move it into the future in a better state than the state in which we inherited it. And to do that, that's strategy, and we need to keep onto that and focus on that, before we focus on anything else. Yeah. Right. That's great. And one final question for you that is more general. What's the best advice you've received as a director over your career? I don't know if it's as a director, but it's: God gave you two ears and one mouth. They are to be used in that proportion. And I'm conscious in this interview, I seem to have been doing a lot of talking, but yeah, listen. Listen. Listen to understand, listen to comprehend. And when you're ready, don't make your contribution until you really feel you're ready to make it. It's very, you will have seen this a lot. New directors tend to be a bit noisy. That's partly unfamiliarity, but partly it's, they feel they need to make an impact straight away, often, and so they get noisy. Fight against that. Listen, learn, understand and then reflect on your own experience and how that Venn diagram works, and then maybe in your second or third, fourth meeting, you'll be able to make a meaningful contribution, if you've been through that quiet period at the beginning. Laurie, it's been really cool to catch up. Thank you so much for your time. I'll look forward to catching up again soon. Yeah. And we'll see you next episode. Thank you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back and please like, subscribe, and share the videos and podcasts.