And you thought directors in New Zealand had issues

The great thing about the Global Network of Directors Institutes (GNDI) is that it is exactly that, global.  

There’s also diverse membership from a range of developed and emerging economies. 

Our chief executive, Kirsten (KP) Patterson, has just completed the first half of her two-year term chairing the GNDI. She and I had a chance to catch up with other (Institutes of Directors) IoDs in person at the GNDI annual meeting in Istanbul in July 2024. This involved IoDs from Africa to the Middle East; Europe, North and South America, and from Asia to the Pacific. 

The meetings included updates from GNDI members and brought home the common issues directors are facing internationally: 

• Companies and other organisations in various countries are facing financial pressures and this is putting pressures on their directors and board to stay solvent 
• Investor and funder pressure on environmental and social issues is a focus for many, and that pressure may be increasing 
• The European Union (EU) climate change-related Carbon Border Adjustment Mechanism (also known as CBAM) is a focus for those exporting to the EU. This is being implemented as the free units in the EU emissions trading scheme are scaled back and domestic EU firms face a higher carbon price as a result 
• While there seems to be a high degree of support for ESG among many IoDs, uncertainty remains about the politics of ESG, notably in the United States and Canada, but also the EU given the outcome of recent EU parliamentary elections. The expectation on the latter is that there will not be much change in the short to medium term 
• Businesses are leading on issues such as climate change and increasingly other aspects of environmental management. Both are a significant focus for professional services firms supporting boards internationally 
• Regulators are becoming increasingly active and specifically focused on reporting beyond financial reporting. Turkey is the latest country to mandate climate and wider sustainability reporting for its companies, starting in January 2024. There is a general concern among directors worldwide about compliance costs because of this and other regulatory activity ramping up
• There is a strong focus among the IoDs and their members on continuing to build good governance understanding and capability. Many have developed various forms of certification to recognise investing in this development (similar to the Chartered Member and Chartered Fellow designations in the New Zealand). Almost all are offering governance development programmes. 

While these are common issues for boards to manage worldwide, they also hide some stark differences. 

One example is the economic conditions faced by boards and their companies in a range of countries. While New Zealand might be facing higher inflation and interest rates than we have seen in the recent past, spare a thought for directors in Turkey and Argentina. They face annual inflation of more than 70 per cent and more than 270 per cent (a slowdown from even higher levels) respectively.

In Turkey, interest rates are at 50 per cent, while in Argentina they have been as high as 126 per cent in November 2023 and down to 40 per cent in June this year. In both cases, these are major challenges for governance and in Argentina’s case, any focus on governance at all. 

On another front, enthusiasm for ESG appears to be strong, particularly in Asia and Europe, and was a major talking point in the meetings. There is a more mixed response in the United States and Canada. Two things appear to be happening in North America: 

• Firms recognise the risks from climate change and social issues and are acting. However, they are now being less overt about their action to avoid a political backlash while recognising the risk mitigation and opportunities. In that sense, greenhushing is alive and well 
• There are emerging differences in the director community and among investors (notably fund managers). For some, the demand for short-term financial returns remains a core focus and there is a sense that some of the investors publicly say they are focusing on ESG, while specific investments and day-to-day management of investments are focused on returns to pay pension holders and other investors as they fall due. 

The GNDI face-to-face meeting was also an opportunity to hear from other IoDs and reflect on governance and its context in New Zealand. 

Overall, while there are challenges our directors and boards face in New Zealand, there is a sense of “manageable certainty” in New Zealand . . . even in the face of uncertainty internationally.