Mainzeal tumble exposes flakey celebrity directors

The Mainzeal collapse is yet another salutary reminder that having former politicians on company boards can be an extremely risky business.

Despite her status and connections as a former prime minister, Mainzeal chairwoman Dame Jenny Shipley could not prevent the construction company from going under.

Financial commentator Brian Gaynor told NBR ONLINE Dame Jenny is the latest in a long line of former politicians who have been on the board of companies “that have been incredibly unsuccessful”.

“They don’t really have a lot of experience or judgment but get asked onto boards looking for a figurehead.

“A lot of companies like to have ex-politicians on the board because it gives them respectability and makes them look better than they really are.

“And the politicians go onto them because they are offered a sum of money which is quite attractive, typically $60,000 to $80,000 a year, with some having multiple directorships.”

'Decent perks'

Mr Gaynor says many directors also get “decent perks” with free overseas travel, ostensibly on company business but often to visit friends or family.

“So there’s often a lot of things like that, which encourages people to go on boards.”

He says Richina Pacific, the parent company of Mainzeal, “made a huge thing” about Dame Jenny’s appointment to the board a few years ago.

“I was at the annual meeting and I remember it well as the chairman said how good it would be to have her on board because the Chinese are very big on protocol.

“He said it would open huge doors for them in China and she would get access to politicians. They probably believed that but I’m not so sure in the end that it did get them anywhere.

“She might have met a lot of people up there but I’m not aware that resulted in any business opportunities there.

“I think people like that open doors for people but once you open the door you have to execute whatever you want to do and they just don’t have the execution.”

Mr Gaynor says ex-politicians “generally make poor decisions”.

“Bill Birch was on the board of Dorchester Pacific, Doug Graham and Bill Jeffries on Lombard, there’s just one after another and just a succession of poor decisions that they make.

“Just look at Wyatt Creech and John Luxton and the poor decisions they made when they agreed to become directors of Blue Chip.

“Blue Chip was a back-door listing through Newcall and directors, particularly former government ministers, have to be particularly careful about accepting positions with back-door listings because they are rarely successful and celebrity directors are a blatant attempt to give these companies respectability.

“They jumped ship, of course, before it sank – they were suckered into it to begin with, then they realised that the ship was leaking, but they were completely enamoured with it to begin with.”

Concerns shared

Mr Gaynor’s concerns about former politicians serving on boards are also shared by financial commentator Rod Oram.

He told NBR ONLINE that having a long and distinguished political career “doesn’t necessarily equip you very well for commercial disciplines and commercial governance”.

“I think it’s overblown how useful these politicians can be on boards in terms of their connections.

“It might give you a bit more access but that wears very thin if the opposition party is now in government.

“I’ve always been immensely sceptical of the value of having people on your board unless they can show very direct commercial experience."

Mr Oram believes most former politicians are appointed because “it looks good but I think it gives companies very spurious credibility”.

“Clearly, there are some immensely capable ex-politicians who are useful on boards, but you have to look at them very carefully, individual by individual, to work out whether they have any relevant skills to bring to the board.

“I think investors and other stakeholders need to be very careful on that.

“Rather than just say “oh that’s nice to have a distinguished ex-politician on the board, they should be asking very hard questions about what direct commercial and governance experience they bring to the board.”

rvaughan@nbr.co.nz