Part 4: Leadership and culture

4.1
In this Part, we discuss:

• why leadership and culture is important for effective governance;
• the main findings from our work; and
• how well each entity performed against our expectations.

Why is leadership and culture important for effective governance?

4.2
The leadership role of boards includes setting a suitable culture, values and ethics for the organisation. This is achieved through establishing and approving policies, activities, decisions, and from the approach and behaviour the board takes to its work.

Separation between governance and management

4.3
Good governance requires a clear distinction between the role of the board to govern and the role of management to manage the operations of the organisation. Governance involves ensuring that systems and process are in place that shape, enable, and oversee the management of an organisation. Management is concerned with carrying out the day-to-day operations of the organisation.

4.4
An important aspect of the distinction between governance and management is the allocation and delegation of decision-making rights. The decisions that organisations make in the sector (such as which organisations to fund, or how collections are managed) have a significant effect on the future of the creative and cultural life of New Zealand.

4.5
Governance documents, such as charters and terms of reference for the board and board subcommittees, provide an important framework for guiding the board and management in keeping to their respective roles and responsibilities.

The relationship between the chairperson and the chief executive

4.6
Appointing chairpersons with the skills, experience, sector knowledge, commitment, and time to support effective governance is critical. A strong relationship between the chairperson and chief executive is a key factor in supporting an effective relationship between governors and management. The chairperson plays a pivotal role in setting the tone and culture for the board and senior management team. The more competent and committed the chairperson, the more effective the board. The chairperson is critical to creating an inclusive board culture that values the contribution of individual board members and allows for robust challenge and debate.

4.7
Effective chairpersons:

• have a strong affinity with the sector;
• understand and apply the separation between governance and management;
• draw on their wider experience to challenge and guide management;
• run effective meetings to time, encourage diverse views, and expect management to prepare high-quality material;
• develop a constructive, respectful, and professional relationship with the chief executive and their management team;
• develop and mentor less experienced board members to grow their knowledge and expertise; and
• delegate roles and responsibilities to other board members.

Board composition

4.8
To be effective leaders, boards need to include members from diverse backgrounds with appropriate skills and experience. Boards that include skills and experience in areas such as public life and business will bring a good breadth of perspective to their work.

4.9
Decisions about board appointments are outside of the control of most public entities (for Crown entities, boards are appointed by the responsible Minister). Chairpersons and boards can contribute to the appointment process by identifying where there are gaps in skills and experience on the board and by forming strong relationships with external stakeholders to help identify suitable candidates.

4.10
Regardless of how board members are appointed, good governance requires boards that have an appropriate mix of skills and experience, including people with an affinity with the sector in which they will govern and people with commercial expertise. Boards that are made up of members from diverse backgrounds provide a depth of perspective that is important for setting strategic direction, and for monitoring and challenging the performance of the organisation.

Effective policies and practices

4.11
We expect boards to prepare good policies and practices for itself and the organisation (including a code of conduct, statements of value, a confidentiality of information deed, and a code of ethical behaviours). We also expect boards to consider their social responsibilities (for example, accountability to the sector and enabling cultural aspirations).

4.12
Boards should not only adhere to policies but also be seen to use them to guide behaviour and decision-making.

Main findings about leadership and culture

4.13
We observed good leadership and culture in all six entities. We assessed the effectiveness of their governance of the organisations' strategic direction as either "Progressing" or "Comprehensive". Significantly, interviewees emphasised the importance of strong leadership and culture for effective governance. We identified four factors that are contributing to good leadership and culture in the six entities.

The distinction between governance and management

4.14
The line between governance and management (including decision-making rights and delegations) is set out in the policies and charters of the boards of the six entities, and was expressed in our interviews with board members and management. In practice, the separation between boards and management was sometimes blurred and some boards were carrying out activities that we would normally consider to be management activities.

4.15
There are several reasons for this. In times of change or when an organisation is facing particularly challenging issues, it can be appropriate for the board to become more involved in operational activities that are normally within the remit of management. In small organisations, the line between management and governance can be harder to delineate and there can be a tendency for the board to become involved in operational decisions. Where boards become involved in operational decisions, there is a risk that the boards limit their ability to hold management to account.

Importance of the chairperson

4.16
The chairperson is critical to effective governance. Chairpersons, board members, and managers in the six entities identified that the chairperson was the cornerstone of effective governance arrangements. The chairpersons of the boards all invested significant time and effort in their role.

4.17
Each chairperson was focused on making it easy for board members to work together well. We also observed the importance of gaining the trust of the chief executive and management while still providing some challenge to the management team.

Importance of the board's ability to challenge the management team

4.18
In our view, the boards of the six entities were challenging management effectively. There was evidence in board papers of questioning of management that was constructive but also testing. The boards were using their combined experience and skills to query information, probe and challenge the basis for recommendations, improve understanding, and make informed decisions.

4.19
We identified three areas where boards were effectively questioning management:

• Asking questions from a governance perspective, not from a management perspective. This means that the questions are focused on identifying and understanding risks, organisational effects, and wider stakeholder considerations. Usually, these questions did not focus on details.
• Where boards had concerns or queries about the information or analysis provided, there were targeting questions to clearly identify the aspect of the information and/or decision that the board was unclear about.
• We found a willingness to ask questions and seek further information until the boards had gained the level of comfort required. Sometimes, this meant that the boards needed to defer decisions until they got the information they needed.

An effective relationship between governance and management

4.20
The relationship between a board and management team, and the organisation's workplace culture, affect how easy it is for a board to ask questions openly, freely challenge management, ask good questions, and get good answers. A strong relationship between the chairperson and chief executive is critical in supporting an effective relationship between governors and management. In the six entities we looked at, those relationships were strong.

4.21
Ultimately, a board relies on the management team to provide it with the right information and the appropriate level of detail. Management relies on the board to provide guidance and make effective decisions. The chief executives we interviewed were able to provide several examples where interacting in a mature and trusted way with their board had enabled them to make better management decisions and produce better organisational outcomes.

4.22
Developing this trust and maturity is not intuitive for board members or senior managers who are not used to reporting to a board. The Ministry provides an induction day for board members who are new to governance in the sector. There might also be a role for the Ministry (in the case of Crown entities) or other entities in inducting new senior managers on how to use a board effectively.

The entities' performance

4.23
Figure 3 sets out the criteria we have used to assess each entity's performance for the leadership and culture aspect of governance.

Figure 3
Framework for assessing a board's performance – leadership and culture

Auckland Art Gallery

4.24
We assessed Auckland Art Gallery's performance as "Comprehensive".

4.25
Regional Facilities Auckland has appropriate policies and practices in place to allow the board to provide leadership to Auckland Art Gallery. These are well understood and owned by the board members.

4.26
Although Regional Facilities Auckland has a wide remit (it provides governance for a range of different organisations), there are board members on Regional Facilities Auckland who have specific expertise and knowledge of the arts sector. This skill and experience is applied to the leadership and culture of Auckland Art Gallery.

4.27
We saw that the board was making decisions about Auckland Art Gallery that recognised the need to balance commercial considerations with desired culture outcomes and nurturing the national arts, culture, and heritage sector.

4.28
Board minutes and interviews show that the board asks robust questions of Regional Facilities Auckland and Auckland Art Gallery. The board has said "no" or asked for decisions to be deferred until it had additional information.

4.29
Interviewees told us that they considered the board's leadership to be effective. They thought that the board provided strategic oversight and guidance while enabling the Gallery to manage itself.

Creative New Zealand

4.30
Several Arts Council members are new, and it was too early to assess whether they were using policies and practices in guiding their behaviour and decision-making.

4.31
However, Creative New Zealand has fit-for-purpose policies and practices for the board and Creative New Zealand. The chairperson of the Arts Council and the chief executive have a strong relationship, with clear and open lines of communication between them.

4.32
The board has been through an extensive induction process, which was led by the chairperson with support from the chief executive and Creative New Zealand's senior management team. One of the purposes of this induction was to make sure that the new board is clear in its understanding of its role and how the role is distinct from the operational tasks and of management. The induction included:

• an extensive induction, focused on clarifying the members' roles and responsibilities, and contrasting these with the activities of management;
• some members attending a Ministry workshop on governance;
• members observing other Creative New Zealand activities to provide them with a better understanding of its activities and processes – for example, such as assessing funding applications; and
• the chairperson and chief executive establishing an ongoing programme of education to further enhance governance skills and understanding, and knowledge of the sector.

4.33
Creative New Zealand has also published useful guidance material on good governance, as well as holding workshops for organisations in the sector, which we understand are highly valued.¹⁰

Govett-Brewster Art Gallery

4.34
We assessed Govett-Brewster Art Gallery's performance as "Progressing".

4.35
New Plymouth District Council has led the development of organisational policies, including a code of conduct, confidentiality deed, health and safety policy, and a conflict of interest policy.

4.36
Interviewees recognised that the culture of New Plymouth District Council, specifically the leadership dynamics of Govett-Brewster Art Gallery, changed when Council membership changed. Interviewees considered the previous Council to be supportive of Govett-Brewster Art Gallery. Interviewees suggested that, after Council elections and the introduction of new councillors in 2013, there has been greater scrutiny of funding decisions about Govett-Brewster Art Gallery. Interviewees expressed a consistent view that the Council did not play an active role in setting the tone for leadership and culture for Govett-Brewster Art Gallery.

4.37
Interviewees expressed the view that the leadership of Govett-Brewster Art Gallery is influenced by the trusts and foundations that provide funding. The role of these bodies for leadership and culture is not clearly understood or defined. For example, interviewees found that it is not clear to what degree the trusts and foundations are entitled to provide (or should be providing) input into activities that influence the leadership and culture of Govett-Brewster Art Gallery.

4.38
Some interviewees noted that it could be beneficial to engage with Govett-Brewster Foundation and other trusts in both the process of selecting Gallery directors and being part of Govett-Brewster Art Gallery's long-term planning process. Interviewees did not have a shared understanding of whether the trusts and foundations had a right to engage in these matters or whether this fell outside their role.

Te Māngai Pāho

4.39
We assessed Te Māngai Pāho's performance as "Comprehensive".

4.40
The board has led the development of organisational policies, including a code of conduct, confidentiality deed, health and safety policy, and a conflict of interest policy.

4.41
Interviewees considered the current board to be an "engaged board" that provides leadership and oversight to the organisation. Board members thought that the current chairman had created an open and sharing environment for board meetings. Interviewees told us that board members have a good understanding of te reo Māori and that this benefits the board because it allows members to be confident in expressing their views at meetings and engage in discussions about whether funding proposals are able to deliver the intended language outcomes.

4.42
The chairman has a strong understanding of the board culture that he wants to create, including a tikanga Māori approach to governance. He encourages behaviour that reflects these cultural norms.

4.43
Te Māngai Pāho runs an induction process for new board members. It includes a workshop that has presentations from Te Puni Kōkiri and the Institute of Directors.

4.44
The board members we spoke to were aligned with the organisation's vision of promoting te reo Māori and Māori culture and were taking a strategic view. For example, we saw evidence that the board was using the Right-shift approach to guide their governance of the organisation.

4.45
The board has, at times, become involved in discussing the detail underpinning some funding applications and recommendations as part of their approval role. This takes the board's discussions into a level of operational detail that we would normally expect to sit within the remit of management. The board's interest in the details of funding applications is driven by the in-depth knowledge of te reo Māori among the board and the board's passion for the revitalisation of the language. However, this creates a risk of limiting the board's ability to hold management to account for funding recommendations where the board has been involved in determining the recommendations.

Te Papa

4.46
We assessed Te Papa's performance as "Progressing".

4.47
At the time of our audit, Te Papa had an interim leadership team in place with the kaihautū temporarily carrying out a dual role of kaihautū and acting chief executive. Te Papa appointed a new chief executive in November 2014. The intention is that the new chief executive will appoint several senior managers into permanent roles to take over the work consultants are carrying out and to build executive team capability and capacity.

4.48
The board played a pivotal role in helping Te Papa to operate effectively during the transition phase between the previous chief executive leaving and the appointment of a new chief executive. During this transition, the board – and, in particular, the chairman – had necessarily become more involved in operational decisions and providing visible leadership to the organisation, such as scrutinising some operational decisions and being the spokesperson for media inquiries.

4.49
Board decisions and activities have been focused on risk and financial management, including introducing appropriate policies and practices to improve risk management and financial performance. The board has used these policies and practices to drive its behaviour and behaviour within the organisation.

4.50
In hindsight, board members recognise that they should have asked more challenging questions of management and continued to ask these until they were satisfied with the financial reporting the senior management team provided. They thought that this questioning might have uncovered issues with the financial information earlier. However, the board members expressed the view that this would not have prevented the financial issues occurring.

4.51
The board members were particularly conscious of the culture of their organisation and their stakeholders. The board uses cultural considerations to guide its behaviour. For example, the use of te reo Māori is encouraged throughout the organisation, and the bicultural nature of Te Papa is reflected in the equal consideration of the chief executive's and kaihautū's monthly reports to the board.

Wellington Museums Trust

4.52
We assessed Wellington Museums Trust's performance as "Comprehensive".

4.53
The board members we spoke to supported the chairman and his role in encouraging a culture of open dialogue and consultation. The chairman and the chief executive have a strong relationship, with clear and open lines of communication between them. This ensures that the board is well informed and that issues can be addressed quickly.

4.54
Informal mentoring processes were in place. This included more experienced board members providing coaching on effective governance behaviours to newer members. This included how to ask challenging questions and how to maintain the distinction between governance and management activities. Board members saw this mentoring relationship as a positive aspect of Wellington Museums Trust's governance culture.

4.55
A formal code of conduct policy outlines the expected behaviour of trustees. A document is also circulated when appointments are made to the board or management outlining expectations of their role.

4.56
Wellington Museums Trust has agreed a set of principles that govern its relationship with Wellington City Council. The Trustees that we spoke to were aware of these principles and referred to them when describing the leadership and behaviours of the board. For example, the "no surprises" principle between the board and the Council was also a principle underpinning the relationship between the board and senior management.

10: For example, Getting on Board. A governance resource guide for arts organisations. Available at www.creativenz.govt.nz.

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