Top 5 issues: 1. Return on capital

Directors and boards can drive returns across financial, human and natural resources, while balancing caution with opportunity to build resilience and unlock future sustained growth. In seizing this opportunity, directors and boards will need to consider the interests of shareholders. This means balancing competing priorities of shareholders foregoing short-term dividends to make medium- to long-term investments, the interests of minority shareholders and making the case for raising new capital. There are similar considerations for not-for-profits in their context. 

With financial pressures still a reality, directors are focused on finding ways to deliver solid returns on capital. New Zealand’s economy is on a slow path to recovery, inflation is easing, interest rates are on a downward trend and there is a chance of modest growth. These changes open the door for rethinking strategies and making investments that could pay off in the long run, even as industries, such as retail and construction, continue to feel the pinch of weak demand. 
 
While today’s conditions might feel a bit steadier, directors cannot afford to become complacent. It is about being smart with capital in all its forms – financial, human and natural resources – and finding those opportunities that boost efficiency and build resilience, while also building a buffer against the risks that remain. Investment plans that were put on hold during tougher times might be worth revisiting. 
 
Many company boards will need to consider how to handle ongoing pressure for dividends rather than preserve capital for future investment. Similarly, not-for-profit boards will need to think about whether and how to use reserves – for example, seeking funding for additional or ongoing frontline services now, versus investments to deliver more services in the future. 
 
In the public sector, ministerial expectation letters, including the Public Service Minister’s enduring letter of expectations, emphasise that public sector boards should thoroughly understand their entity’s cost drivers and performance against key outcomes.

Boards are also required to report on these matters  and deliver evidence and evaluation to show progress against expectations, including regular evaluations of their own performance. These expectations are similar to the return on capital and funding invested for companies and the not-for-profit sectors. 
 
Part of the story is also raising capital (for companies) or seeking additional funding (for not-for-profits). Some companies are already doing this – for example, Auckland International Airport’s $1.4 billion capital raise. 
 
Now is the moment to think strategically about where to focus for the future, without losing sight of the need to weather the short-term financial and economic turbulence. 

Why it matters

The economic climate asks a lot of directors. So do stakeholders. Directors and their boards need to juggle financial pressures, changing labour market conditions and changes in policies on climate and natural resources, while setting their organisations up for lasting growth and meeting demands from shareholders and a wider group of stakeholders.

With inflation starting to settle and interest rates reducing, there is a chance to think beyond immediate needs and take a fresh look at how to invest for the future. It is not just about investing in the usual places, it is also about investing in people, culture and communities to create a more holistic and sustained approach to growth. Stakeholders – notably shareholders, funders and the people being served – want boards to think creatively and look beyond the quarterly numbers. 
 
Targeted investments in digital transformation and workforce skills can pay off quickly and build a foundation for the long haul. With some of the pressure easing, it is a good time to invest in those tech upgrades or training programmes that might have been on   hold, and focus on making the organisation more adaptable, turning careful spending into a smart, strategic tool. 
 
For the not-for-profit sector, where tight budgets are a constant, this is an opportunity to make better use of social capital, making the case for the outcomes they deliver for the community and seeking ongoing and additional funding. Building deeper ties with community partners can open new ways to secure support, whether through local business collaborations or community- backed initiatives.

Innovative funding tools, such as social impact bonds which link money to specific community outcomes, can help ensure financial performance is tied closely to mission-driven goals. In short, this builds and secures the ‘licence to operate’ before it needs to be called on. 
 
Options such as green bonds or partnerships with iwi-based investment funds are becoming more appealing, especially as interest grows in investments that benefit society. This allows directors to attract investors who want a return, but also want to see their money make a difference. 
 
Boards and directors should also keep an eye on possibilities such as mergers, acquisitions or joint ventures (for both companies and not-for-profits), which can open doors to new markets or cutting- edge technology. These moves can help build resilience, giving boards the flexibility to adjust even when demand is uneven or unpredictable. 

FOCUS	ACTIONS	DISCUSSION
Scenario planning for strategic growth	Work with management to develop simple scenarios to test options for future investment and growth Assess those options which are most common to each scenario Learn from the climate-related disclosure scenario development experiences of climate-reporting entities	What potential shifts in the economy or industry trends should we be preparing for? How can the board use scenario planning to identify risks and opportunities, ensuring the strategic direction remains agile and responsive?
Reevaluate capital allocation	Review plans for allocation of capital over the next 5-10 years Ask management to advise on the current capital allocation approach and an analysis of extent to which it is fit for purpose in relation to the scenarios developed Decide on a new capital allocation to deliver on medium-term opportunities	How can we ensure our capital is working as efficiently as possible? Are there opportunities in digital transformation, automation or expanding into new markets that could deliver short-term efficiencies and long-term strategic benefits? How might different types of capital – financial, human, and social – be better leveraged to achieve our goals?
Exploring diverse capital-raising opportunities	Identify opportunities that might not be realised without new sources of finance/ funding Ask management about potential sources of capital to fund these opportunities Decide on those capital sources that will be pursued	What new financing models could support our growth? How might the board support the attraction of investors interested in social or environmental impact alongside financial returns?