For Reserve Bank of Australia board member and deputy chair of Fortescue Metals Group Mark Barnaba AM MAICD, the experiences of the COVID-19 pandemic have only strengthened his belief that boards need to focus on core capabilities to excel.

    From a board perspective, initially there was enormous discussion on how to manage COVID-19 and what it meant for the workforce and customers.

    That was appropriate, but now we need to transition and focus on value creation and recovery. As our economies reopen, I’m conscious of a number of issues for boards and directors. While some things have changed, many haven’t.

    There is a widening gap between what boards are legally and constitutionally required to do and what society, stakeholders, government and the media increasingly expect of boards. There’s also a growing gap between what the investing public think boards do and what they actually do. ESG as well as climate change issues are good examples. The conclusion is not that the corporate model is not working.

    The reality of corporate life is that you still have to do all the things that are important. You no longer just think of shareholders; you have to think about a broader group of stakeholders.

    Some of these issues in past years were implicit, but have now become explicit. People are aware of community expectations and ESG issues. They are the fabric of conversations and subtle board obligations in terms of how they’ve been thought about. Topics like organisational culture have always been there. Unravel culture, the behaviour, attitudes and essence of what binds people in organisations. You’ll find outstanding organisations have that.

    If you are not explicitly considering stakeholders, suppliers, modern slavery, climate change, cyber risk and community expectations, you’ll not be a company people want to work at or be on the board of, or that customers/suppliers want to deal with. Have that happen and very soon you won’t be in business. You won’t have a company with an appropriate culture. You certainly won’t be a company that directors and executives want to work with, and you will adversely impact your personal brand and the brand of your organisation. All these elements are critical in determining shareholder value.

    Risk vs reward

    These increasing expectations leave some people feeling that directors are living in the crosshairs, with the risk/reward balance changing for directors. The Treasurer has helped with respect to continuous disclosure laws. [In August the Treasury Laws Amendment (2021 Measures No.1) Bill 2021 amended the Corporations Act 2001 so companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”, more closely aligning Australia’s continuous disclosure regime with that of the US and UK.]

    There’s a need to balance governance, compliance and assurance against time spent discussing performance and value creation. This involves strategy, growth and having sufficient time for the unstructured, chaotic, unfettered discussions that are far more amenable to thinking about business models and growth.

    Good board members can “porpoise” — they can dive deep when they need to, but know when to come up. Like a hawk with excellent eyesight they know when to dive deep and when to fly high. It’s not one of being all in the weeds or floating around at 30,000 feet — you have to do both and know when to do each.

    Just as the regulatory, legal and other issues mount — especially for publicly listed companies — you find you have board agendas that become increasingly busy. The tendency is to focus firstly on governance, compliance and assurance, and turn to value creation and strategy if you have time. I would like boards and management to take the opportunity to reset strategy and focus on value creation.

    At Fortescue Metals, we have a multi-day offsite meeting every year. We usually do it at an inaccessible location. Often, you have to get away from the day-to-day in order to focus. These end up being some of the most useful days we spend as a director and set the corporate direction for at least the year ahead. They are some of the most fertile discussions we have as a board and management team — remarkably productive.

    Managing workload

    The growing scrutiny, time complexity and requirements placed on public listed company directors means there’s a growing gap in the demands between what is required of a listed versus an unlisted board. Many directors find real satisfaction being on a private company board. With a listed company, directors are seeing greater risk and not necessarily greater return.

    An emerging topic from this debate is the idea of two-tiered boards. In Australia, we place directors on boards at a much younger age than in North America and Asia. Investment banks and management consulting firms are good with this — they have long adopted the concept of senior advisers. The idea of a senior advisory board in addition to a fiduciary board may make sense. There is a case for discussing this concept.

    Encouraging debate

    Board requirements that won’t change include appointing and retaining the right CEO, holding management to account, and creating an environment and culture of high performance. It must start at board level, ensuring a strong and appropriate culture, with the board actively supporting and working through management.

    The role of the chair here is not to unilaterally make decisions, and it’s not to prematurely state his or her view — it is to spark debate, draw out the best ideas and facilitate an outcome. The role of the chair is to help ensure the quality of the people in that boardroom is high and that the individuals are committed. A good chair finds a way to get the best out of every board member. Like the captain of a sporting team, you have to find a way for everyone to contribute. Chairs who start by saying, “Let’s go around the room — what are you thinking about and what are you seeing?” — that’s a really powerful discussion.

    The second thing a chair has to do is look ahead. As chair, you have a particular obligation to look as far into the future for that organisation as you can and bring that perspective back into the conversation today. There’s nothing better than a dictatorial, unilateral chair to kill debate, innovation and good ideas.

    As told to Narelle Hooper MAICD and Jessica Mudditt.

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