Are New Zealand managers good enough; are we relying too much upon them?

A senior official in the State Services Commission once told me that they thought that they got only about 60 percent of their appointments of their chief executives right. Some closer observers of the state sector thought that the official was optimistic. Let’s stick to the 60 percent, although it would not matter for this column’s purposes if the true figure was 80 percent. The point is that we have a system which appoints a number of incompetent chief executives in the state sector (but certainly not all of them).

The private sector is probably no better. The Ministry of Economic Development used to run a score card of best international practice over the New Zealand economy. On every input dimension except one we scored well, even if we did modestly on the output scores of economic performance. (That might lead you to wonder whether we had the right theory about economic development – a matter for another  column.)

The exception is that we were rated low internationally on management performance. You might have expected an investigation into whether there were better and more revealing measures; No. Or perhaps there would be an effort to raise our management performance; No. The obvious response was to close down the score card. Yes! Management should not be challenged.

The recent court case involving Mainzeal was instructive. Apparently the construction company was involved in a Ponzi-like scheme, in which the proceeds for funding future subcontractors were being used to pay past subcontractors. In effect, the subbies were providing credit to fund Mainzeal; when the company went into liquidation they lost their investments. (How the auditors let them down is another column; by golly, there are a lot of investigations we do not do in New Zealand.)

Revealingly, this Ponzi-like scheme seems to have been going on for years, When a new director was added in 2012, the eminently competent Paul Collins immediately identified the financial problem. The firm was put into liquidation in 2013. What this says about the board of directors over the previous decades is unprintable as far as the subbies are concerned.

Technically, the Mainzeal case involves the board governing the company. A government department has no such board, just ineffective oversight by the State Services Commission. The chief executive has virtually unlimited authority. This includes appointing the next level; in business the board usually oversees second level appointments. This was also true in the state sector until the 1988 State Sector Act. I was told by State Service Commissioners of those times how they appointed deputies to bolster failing CEs. (The implication was that they, too, only got it right 60 percent of the time, but in those days there were remedies.)

Now a not fully competent CE is likely to appoint not fully competents at the second level, in part because they cannot judge quality but also because they do not want to be threatened. (On the other hand, competent CEs see nurturing and promoting promising talent as a major task. But generally career development is not given a high priority in our public service.)

For many CEs, the most threatening are those who actually know what they are doing. We have got into a practice of frequently appointing generic managers, who have no specialist knowledge about the activity they are managing. Good ones bone it up but, more commonly, generic managers  surround themselves with equally uninformed managers.

The first example I came across was a chief executive managing a hospital system. He had twelve people reporting to him, only one of whom was a clinician. Presumably he thought that running a hospital was about buildings, public relations, car parks and finance. Clinicians who finally got through to the CE – they were usually complaining about generic managers interfering with clinical practice at the expense of the patients – told me their sense was that the CE was distinctly uncomfortable when he had to interact with clinicians. Since then I have seen many further examples of such discomfort.

There is no simple solution to upgrading New Zealand managerial performance although a little more humility among managers might be a start. In the private sector be aware that the prestigious board of eminent celebrities (especially politicians) may be for show, as the Mainzeal one appears to have been, not for effective governance.

In the public service, as best as I can judge, remedies have to start with the State Sector Act. The rethinking needs to begin by recognising that not fully competent appointments are common enough for the failure to be built into the system as normal rather than exceptional. Perhaps we need to go back to the pre-1988 arrangement where the State Services Commission was involved in appointing those at lower levels.

(We also need to think about the competence of State Service Commissioners. I am not saying that only 60 percent have been fully capable, but it has certainly been less than 100 percent.)

The logic may be to move away from the current cult of the generic manager. Undoubtedly there have been some capable ones, but we need to be cautious about appointing them to managing technical activities which involve a high degree of professional skills. Meanwhile, we need to take career development of professionals seriously.

Perhaps we need to move to a different style of management, away from hierarchical top-down systems to more collegial ones. It may well be that hierarchical management is more efficient when it has quality managers. When it does not, the outcome can be toxic workplaces, bullying, and petulant and unprofessional behaviour from senior staff. (Many readers, including those in tertiary educational institutions, will recognise such situations as theirs.)

The system has to be designed to recognise that there are many managers in today’s hierarchical systems, from the very top down to many lower layers.  Pretending the SSC and boards of businesses get it a hundred percent right is poor quality management.