Abstract:
Researchers have devised a myriad of ways of determining the effectiveness of the board to promote good governance, often measuring proxy data such as the ratio of outside directors, board size, director background, interlocks; and assessing this against firm performance or other financial data. Other academic research instead focuses on the relationships and social aspect of the board, seeking to understand the behaviours of directors, and the board dynamics that are involved. Corporate governance in New Zealand is in the spotlight with the failure of many non-bank deposit takers (NBDTs), particularly finance companies, in the past five years. Due to the importance of the sector for the New Zealand economy, regulatory agencies became involved to invoke requirements for improved governance practices at the surviving firms. Many of these regulations imposed were in agreement with academic theory, examples being the appointment of two independent directors while placing a maximum limit that NBDTs could lend to related parties. While failures have lessened since the involvement, there have yet to be any assessments of the effectiveness of these regulations, or the impact that they have had on NBDTs. An exploratory study was conducted involving interviews with ten directors and outside experts familiar with the industry or governance to investigate the issues that they felt most important for governance in non-bank deposit takers. This data was investigated using thematic analysis to tease out the themes that most affected boardroom governance within these companies. A major theme to emerge from this study was the disconnect that exists between the emphasis academics place on independence as a measure of good governance and how practitioners assess this differently. While independence is touted as a useful characteristic around the boardroom table in academia, boards would prefer a director of high integrity to one that meets the criteria for independence. This study both builds on the foundation of knowledge around governance of nonbank deposit takers, stakeholder engagement and director attributes, whilst identifying avenues for future research such as the enforced addition of independent directors to boards via regulation.
