Dealing with activist shareholders and other stakeholders is all in a day’s work for leading director and chair Peeyush Gupta AM FAICD, Chair of Charter Hall Long WALE REIT and director at National Australia Bank (NAB), SBS, the NSW government insurer iCare and the Northern Territory Aboriginal Investment Corporation. However, he warns that priorities have changed in the last three years for boards in dealing with stakeholders. Gupta will speak at the Australian Governance Summit 2023 in March in Melbourne on the topic: In Whose Interest? Rethinking Directors’ Duties. Register now to attend AGS 2023.
Dealing with activist shareholders is an issue that has been on the board agenda at National Australia Bank (NAB) and other banks in recent years, says Peeyush Gupta AM FAICD.
“The environment has been an increasingly topical issue and banks have very much been at the forefront of that,” he told the AICD in a recent interview. “You just need to have gone to a bank AGM in the past few years and observed the types of questions asked. So at NAB, ESG issues have certainly been very much on the board's mind.”
NAB and other banks have been targeted by climate change protestors in relation to funding mining and other fossil fuel projects. The bank has responded by acting on the climate change issue, he says.
“All of the Australian major banks have signed up to the United Nations Net-Zero Banking Alliance to accelerate and support decarbonisation strategies to ensure we reach our Paris Climate Accord agreements by 2050,” says Gupta.
“Responding to heightened ESG issues is where the focus of a lot of boards has gone in recent years. How can we commit to these aspirations, but also ensure that commitments can be actioned, overseen and monitored? In respect of climate transition, as the pathways and replacement technologies are not fully clear, goals need to be expressed more as aspirations rather than concrete targets, and better quality data on emissions needs to be collected to avoid greenwashing.
“What's important, I think, is that the climate transition journey has actively started now at many firms, which augers well for meaningful change over time. And you can see many companies being much more active on the whole ESG agenda.”
Gupta has also observed other changes in the last three years about how directors engage with stakeholders. He believes there is renewed attention on what regulators require now after the imposition of multimillion dollar penalties on companies in financial services. As a result, the past few years have taught directors that the costs of operational failure can be very high.
Boards should ensure that systems, policies and processes underpinning new products or services are appropriately costed, not only for capital expenditure upfront, but also for ongoing operational costs. Boards should also check that the back office teams that have to deliver on customer promises are equipped and ready to do so.
“Where I think regulators can be extremely useful is they will have a pan-industry perspective of issues, whereas from inside a company, often you'll only have your own company’s perspective. So I think listening hard to the regulators’ view, and trying to pick up the nuances of what they're seeing across in the industry can help inform your judgements as well.”
More customer centricity is another good thing, he adds. “I think some Australian businesses went through a period of time where they'd lost sight of their customers … Australian industries often operate in duopolies or oligopolistic industry structures and there are high friction costs to customers switching providers… So it's easy for companies to believe that customers can't really go anywhere.
“And you end up trying to exploit your customers rather than trying to beat your competitors. Having customer centricity in your focus means you can deliver to customers better at the same time as trying to differentiate yourself and be better than your competitors.”
Gupta also advises board members to engage directly with stakeholders where possible. “I think it's quite important for board directors to not only pay attention to the data that's presented to them in board packs, but to reach out and engage with the broader community and stakeholders, in order to read and monitor the mood and temperature of the community.
“Walkabouts internally are a great way of doing that. So is meeting with key customers and other stakeholders over time. And monitoring competitors is also important. It's not only about your company, but it's about your industry and its structure, customers’ tastes and preferences and how enabling technologies all are evolving.”
Gupta also sits on a number of board committees, which is another way of tracking consumer and stakeholder trends. Monitoring issues at the level of committees whose work is often more detailed can be valuable and in some cases lead to operational changes in the business, he says.
As an example, about eight years ago, SBS was venturing into streaming services and streaming on demand. The SBS On Demand app was rating poorly on the Apple store and Gupta conveyed this to the Audit and Risk committee on which he sits. As a result, improvements to the service were made after SBS undertook a major multi-year programme of investing in enabling technology and in the apps.
“And so today, SBS on Demand - the service as well as the app - is an excellent five star service and the highest rated amongst streaming apps. So an inquiry that originally started from a risk perspective turned out to be a bigger issue,” he said.
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