Politicians of all stripes have done it and continue to do it. From the Liberal Party there’s Alexander Downer who joined the local Huawei board while Helen Coonan was recently coronated at Crown. From the Labor Party we have Lindsay Tanner who jumped on board the Suncorp board while Western Australia’s Ben Wyatt is now controversially a director of both Rio Tinto and Woodside. All of which raises the question: do their board appointments actually add value?
It’s a question worthy of being asked when considering the speed with which many of these appointments are made, sometimes within just a few months of their political retirement.
Investors are the ultimate arbiters of whether a political appointment is successful, which is why the findings of a study published a couple of months ago in the highly cited Journal of Management are particularly insightful.
Almost 13,000 director appointments in more than 1000 firms were analysed across 14 countries over ten years. On average, one third of the firms had appointed at least one politician to the board. Australia had the fewest at about 15 per cent. At the other end were the strikingly hooked nations such as France at above 60 per cent followed by Spain and the UK at approximately 50 per cent.
The investors’ positive conclusions were dependent on which of two primary objectives they viewed as more critical at the time the former politician was appointed to the board.
One of those objectives was an investor’s self-interest as a shareholder. If the politician served obediently as an insider, monitoring and scrutinising the management team’s actions and decisions to make certain they were aligned to the shareholders’ interests, they were given the thumbs up.
But if the objective was less about politicians being insiders and more about them being outsiders, that completely changed the determinants of success. These investors instead sought evidence of what the politicians introduced to the company that previously didn’t exist. Examples include ripe government contacts that made it easier to obtain subsidies and influence policy, as well as previously held classified information that strengthened tenders and exploited loopholes.
So which type of company derives the greatest benefits? As the scholars note, it’s the “younger and smaller firms [which] stand to gain substantially from the appointment of prestigious and well-connected individuals to their boards because of such firms’ acute need to secure resources”.
Despite the predominantly financial nature of those benefits, there are others of value that aren’t so much about dollars, like community-minded politicians who are able to more effectively influence public opinion and improve the company’s brand.