Stepping up

Why good governance goes a long way in developing SME directors in a rapidly changing business environment.

The 2024 Director Sentiment Survey from the Institute of Directors (IoD) Governance Leadership Centre offers a stark reality check for New Zealand’s directors. According to the survey, fewer than half of directors feel their boards possess the skills and experience needed to navigate the increasing risks and complexities of today’s business environment. 

Guy Beatson, General Manager of the Institute of Directors Governance Leadership Centre, sat down with NZBusiness to share insights on how boards can rise to these challenges and the role professional development plays in fostering effective governance.

Skill gaps are a pressing concern, particularly in areas like government reforms, climate change, stakeholder expectations, and AI. “A majority of boards (65.6 percent) are discussing board composition, skills, and experience,” says Guy. “They know there are challenges coming that may require new thinking, new solutions, and – most likely – new skills.”

Beyond upskilling themselves, boards are appointing advisory members with specific expertise and establishing committees to address emerging complexities. Guy underscores the importance of tailoring these skills to the sector and economic environment: “Boards need the right mix of skills to deal with the specific risks and complexities of their sector.”

While formal evaluations are pivotal for assessing gaps, many boards – especially in the not-for-profit sector – struggle to prioritise them. Guy suggests a balanced approach: “Boards may undertake a pulse check or self-review every year, and then get a formal evaluation every three years.”

Formal evaluations provide an external perspective that helps boards identify not only risks but also the gaps in skills needed to address them. “The risk, even for experienced directors, is that they don’t know what they don’t know,” he says.

The survey reveals a decline in fostering a culture of continuous learning – a gap that could stifle boards in an environment of rapid change. “Lifelong learning is increasingly important for directors. Boards can encourage this by providing professional development opportunities and supporting directors in maintaining memberships and attending training.”

To meet this demand, the IoD has introduced courses like AI Governance for Boards and Climate Change Governance Essentials, alongside their long-standing programmes and resources. “We’re constantly evolving to help directors stay current,” Guy says.

One of the most challenging aspects of governance is managing underperformance within the boardroom. “Governance is not for the faint of heart. Conversations about problematic board members or skills gaps require directors to show courage and challenge assumptions.”

The chair plays a critical role in navigating these conversations and fostering a constructive culture. According to Guy, “The chair needs to regularly communicate with board members, set expectations, and provide feedback. This helps address issues before they become problematic.”

Technology, especially AI, is becoming a focal point in boardroom discussions, but Guy warns against superficial understanding. “Directors should not simply rebrand their existing digital knowledge as AI expertise,” he says. 

“AI requires a deep understanding of its risks, opportunities, and ethical considerations.”

While many boards acknowledge AI’s transformative potential, action is lagging. Only 25.2 percent of respondents identified AI as a key issue their boards are currently addressing. To bridge this gap, the IoD has developed nine principles for effective AI governance, emphasising trust, strategy, and risk management.

For SMEs, professional development often starts with adopting a governance mindset. 

“Not all SMEs have a formal board. But even without one, small business owners can benefit from thinking ‘on’ the business rather than simply ‘in’ it.”

The IoD’s Governance Essentials course is a prime resource for SME directors, providing foundational insights that empower owners and managers to adopt a governance perspective, even if they aren’t ready for a formal board structure.

As 2025 approaches, Guy’s advice to directors is simple yet profound: “Be curious and bold.” In a world of accelerating change, he says that these traits will be essential for navigating the complexities of governance and driving innovation within New Zealand businesses.