Highlights from the Australian Governance Summit 2023


    A record crowd of more than 1,400 attended this year’s Australian Governance Summit in Melbourne, with another 400 people joining the event online. Lively sessions delivered by than 40 local and international speakers covered issues ranging from director liability and whether to pay ransomware demands to reconciliation and the fallout for Rio Tinto after destroying sacred Aboriginal sites, ASIC’s tougher enforcement action on greenwashing and its case against Star Entertainment directors and officers, workforce challenges, questions about artificial intelligence, and tips for directors from David Gonski AC FAICDLife, who delivered sharp insights on his 40 years of experience with boards. AGL chair Patricia McKenzie FAICD also called for the need to take a realistic pace on climate action and author Professor Adam Tooze warned the fractured US-China relationship is Australia’s major geopolitical risk.

    ASIC chair Joe Longo said in a keynote address to the summit that the regulator is taking enforcement action on greenwashing and he warns it will use the full force of the law against directors who fail to properly disclose information.

    ASIC had launched legal proceedings against superannuation fund Mercer, alleging it greenwashed its investment options to fund members. “Reliable disclosure practices are vital to a well-functioning market,” Mr Longo told the summit.

    “We are now taking enforcement action where we see disclosures fall short and where misleading sustainability claims are made by the entities we regulate. ASIC has issued over $140,000 in infringement notices in response to concerns about alleged greenwashing against four entities.”

    Mr Longo also noted shareholders and consumers do not have ample access to environmental, sustainability and governance (ESG) information when making an investment decision. An ASIC survey found only 23 per cent of respondents found ESG information easy to find in company reports and 73 per cent of those who invested in shares in the last year had declined to invest in something because of the company’s poor environmental record.

    “It is worth noting that greenwashing is not just about environmental claims,” he said. “It also includes statements about the extent to which products are sustainable or ethical.”

    He said greenwashing remains one of the biggest non-financial risks to companies. ASIC also supports a shift to mandatory emissions reporting on environmental disclosure.

    On mandatory disclosure, Longo said ASIC would work with Treasury and the Council of Financial Regulators about ongoing climate risk and ESG transparency in company reports.

    Cyber security and falsifying financial disclosure are also ongoing issues. “Major cyber-attacks against Optus and Medibank last year were a ‘wake-up call’ for directors,” he told the summit.

    In December, ASIC launched legal proceedings against directors and officers of the Star Entertainment Group, alleging there was a failure to stop money laundering and that it misled shareholders. “The Star case offers an opportunity to explore expectations around the interaction between directors and senior officers,” Longo told the summit.

    The court action against Star Entertainment directors and officers was one of the major features of a “sad and sorry year” for litigation, said Pamela Hanrahan, Professor of Commercial Law and Regulation, University of NSW. “The red flag issues will be teased out in litigation,” she told the summit.

    This case and others such as Robodebt, which was “an absolute disgrace” also highlighted the need for directors to act on “red flags” immediately, she added.

    In certain cases where individual directors had been sued, such as the Australian Grain Market AWB and education provider Vocation, red flags had not been acted upon immediately, she added.

    The long road back for Rio

    Controversial environmental, social and corporate governance issues (ESG) dominated much of the debate at this year’s summit, with climate change and reconciliation generating lively sessions.

    In frank comments made at #AGS2023, Rio Tinto director Simon McKeon AO FAICD admitted the company became complacent, which led to the destruction in 2020 of 46,000-year-old Indigenous rock shelters at Juukan Gorge.

    “We took things for granted and I think we were complacent,” he told the summit. “Our culture was that near enough was good enough. But as we saw with Juukan Gorge, that was not good enough.”

    He said the Rio board failed to do enough on day one to fix the problem and “stuffed around for two or three weeks. We were slow out of the blocks and that is consistent with our cultural shortcomings.”

    However, he insists the company now is not the arrogant Rio of previous years. “We are humble to say sorry for the things that hurt people,” said McKeon. “What we did hurt the 124 people of the local Indigenous community. We damaged heritage that went back thousands of years.”

    As a result, the Elevate RAP status that Rio had in place at the time had been revoked by Reconciliation Australia, Karen Mundine, CEO of Reconciliation Australia, told the same panel at the AGS. “It certainly didn’t meet our expectations of Elevate RAP organisations. There needed to be a consequence.” Rio now needed to work through its recovery from the incident and that was now taking place, she said.

    “For Aboriginal and Torres Strait Islander people across the country, that was probably the hardest thing ever and it came at the start of Reconciliation Week. It was probably one of the hardest weeks of my life and career. We considered Rio a partner.”

    She added that the Uluru Statement is a national governance issue. “As First Nations people, we want to have a voice,” she told #AGS23. “The constitution is the leading governance structure in Australia. There’s no mention of us in it.”

    McKeon said the proposed First Nations Voice to Parliament was a reminder to Rio of its failure. “I am reminded every day that we do not have a RAP.”

    AICD Chair John Atkin FAICD warned in his address to #AGS23 of the dangers of Australia failing to amend the constitution to allow the proposed Voice to Parliament to go ahead.

    “Remember the status quo is not risk-free,” he told #AGS23. “If the constitutional amendments are not passed, the tensions that have racked our country in the past will continue. More importantly, the goodwill of the Indigenous authors of the Uluru Statement will be eroded. And any opportunity we have to come together in the full expression of our nationhood will pass.”

    AICD First Nations Sector lead Justin Agale MAICD said that reconciliation has ESG at its heart and the effect of social impact on communities. Reconciliation is something sacred and is about making amends on both sides. Caring for country has already been part of First Nations governance for 65,000 years, and can contribute to discussions on climate governance, he added.

    Asked by host Alan Kohler what would happen if the proposed Voice to Parliament referendum fails, Agale added that even if a No vote results, the campaign for recognition and reconciliation will continue. “We are focused on bringing the country together,” he told the summit. “What we have to offer the world is unique.”

    Climate change and the path to net zero

    AGL Energy chair Patricia McKenzie put the case for proceeding carefully on climate action, especially on the exit from coal – saying there was no “credible pathway” for AGL to meet science-based targets to curb dangerous global warming at 1.5°C.

    She says the energy company’s path to net zero must be “realistic”, warning the faster closure of coal plants is not compatible with “keeping the lights on”. The new AGL board is “united in our vision for the clean energy future of Australia”, she added.

    “The energy transition does not come without significant cost, as evidenced by the $1 billion asset writedown which accompanied our strategic plan to accelerate our decarbonisation pathway,” she added.

    AGL was conscious that its plan must have a realistic delivery route, and “we did not see a credible pathway to a 1.5 degree reduction scenario based on our assessment of both the energy markets transition requirements and broader economy wide decarbonisation plans”.

    Despite this, AGL is on its way to fulfil its target to be net zero by FY35 for operated Scope 1 and 2 emissions. “Our shareholders endorsed our new strategy and direction by voting in support of our Climate Transition Action Plan at the 2022 AGM, which gave us a clear mandate to move ahead.”

    As a listed company, there were significant governance challenges ahead.

    “As a director, if you shy away from the difficult issues, you shy away from opportunities to make a difference.”

    The future of workability

    According to Innes Willox, CEO of the Australian Industry Group, labour and skills shortages are currently the top concern for Australian businesses, regardless of size. Willox predicted at the ‘Getting on with the Job: Addressing Australia’s Workforce Challenges’ Summit panel that this issue will continue to be the primary concern for businesses throughout the year. Digital skills will dictate much of the workforce potential: “There's no doubt that 80 per cent of the jobs of the future are going to have some digital component.”

    When asked about the preparedness of universities and education systems to address these workforce challenges, Willox referred to difficulties imposed by COVID-19. The pandemic has forced universities to rethink their operations and outcomes, leading to a renewed focus on producing graduates who are "work-ready".

    Liz Jakubowski, Director, Digital - Jobs and Skills Australia, said modernising Australia’s skillset is a keen area of interest for her following her work on CSIRO's Ribit platform, a digital matchmaking service connecting STEM students with businesses. “It’s another area of competitive advantage for us.”

    Answering an audience question about workplace ageism, she noted the wide age gap between young software programmers and data analysts and their more seasoned counterparts in their 60s or 70s. “How do you get the best out of that sort of diversity?”

    Lawrence Goldstone, MAICD, PwC Lead Partner - Future of Work and OzHarvest chairman, said businesses are beginning to recognize the value of mature workers.

    “There’s a huge opportunity. We’ve got five generations working alongside each other, and untapped potential in that mature aged workforce to re-enter. Eight of the 10 skills of the future as announced by the World Economic Forum are soft skills - harder skills to acquire,” Goldstone said.

    Skills include resilience, creativity, problem solving which those generations can offer the new workers of the modern environment in droves. “And what an opportunity it is if we can connect them in around apprenticeships, on-the-job learning, around re-entering back through providing meaningful work back.”

    Jakubowski underscored a shift in thinking about the durability of traditional tertiary qualifications, “We used to have this mindset that you’d go to university, you'd come out with your degree and have skills that would have a currency of about 10 years. And obviously there was continuing education, in my case continuing legal education, which you'd do to skill up. But that's just been getting shorter and shorter. When you actually finish a course at university these days, you're lucky if your skills have a shelf life of about three years. And what that means is that you really have to rethink how you evolve your own career as you're going through your life.”

    Willox pointed to eye-opening work as part of the Australian Universities Accord, a collaboration between tertiary institutions and industry stakeholders, to help determine what the future of education should look like in order to meet the needs of employers.

    “I always remember in about 2018 speaking to all the deans of the 41 business schools, where I had to advise them that one of their key tasks apart from research and teaching was actually to produce students who could work at the end of it. That seemed to take some of them by surprise,” he told the audience.

    Willox sees the potential for greater partnership between universities and vocational education and training (VET) providers. He told attendees there is an opportunity to create more flexible pathways for students that combine both theoretical and practical learning, ultimately producing graduates with greater ‘workability’ to meet the needs of industry.

    Gonski’s career lessons

    David Gonski AC FAICDLife, current UNSW Chancellor and former ANZ Chairman told #AGS23 delegates that directors need to consider their role as a profession.

    Delivering his ‘Lessons Learnt From a Career as A Company Director’ speech, Gonski told attendees he was "mildly hurt" when successful CEOs, lawyers and bankers approached him about becoming directors just to have more time for activities such as golf and family.

    Gonski called out a number of recommendations for directors to stay refreshed and vigilant in their singular and group duties. As individuals, he called on directors to consider their understanding of a company’s core purpose - and their personal connection to that objective. “To me it is clear that whilst having a passion for the enterprise’s purpose is not essential, without it, sustaining both the workload and the interest and the questioning that is required is very difficult.”

    However, Gonski cautioned, “One needs to treat the role as a team member and not as a solo operation.”

    A good director needs to participate in discussion groups with other directors to ensure their thinking is well-informed and that they receive other views without breaching confidentiality. The philosophy extends to his approach to board appraisals, which should focus on the team - not individual members - unless that adversely affects the team as a whole.

    “Being part of a team means looking to how you are adding to the team, rather than making an individual performance. I had to learn to hold back at times around the board table, rather than seeking to speak all the time,” he said. “I have learnt one needs to understand the way people operate and the way the particular group of people around that board table contribute.”  

    Gonski said he believes that most of the time, not thinking about an issue is more dangerous than making the wrong decision, and warned against narrow-mindedness which becomes a particular risk when directors may be selected for their specific expertise.

    He believes that maintaining a broad portfolio, which includes a balance of for-profit and not-for-profit organisations, local and international entities, and different sectors, can help directors remain versatile and effective.

    On workload, Gonski said he considers there are no hard and fast rules that apply to everyone. Each individual must make this decision for themselves - only the individual director can decide if they are “overboarded”.

    “As the requirements and expectations of us as directors have increased, so too has the need to review one’s portfolio to ensure there is sufficient time for each involvement,” he said.

    On tenure, Gonski believes a board with a mixture of term lengths is “generally healthier” than one with only new directors or those who have been there for a long time. “Where the decision as to whether it is time to leave is in one’s own hands, most importantly it should be left to other members of the board and relevant stakeholders to assist in the decision. There is a need in most organisations for a few to stay for some time to keep the history and continuity.”

    Stronger economy

    Governments in Australia should put innovation and skills development at the centre of their agenda for a stronger economy, said Don Russell, chair of AustralianSuper and a former advisor to ex-PM Paul Keating.

    Left to our own devices, Australians tend to underinvest in research, especially that which doesn’t have an immediate return, and so governments need to step in to ensure we have the right amount of science and research to support innovation, Watson told a session on Building a Stronger Economy at the summit.

    Governments should also ensure Australia has the right training for the right people and that it’s funded with the right balance between the individual and the community. The skills people develop need to be those which will enable them to work effectively with companies.

    “We're living in a world now where we've moved beyond simple labour and simple capital. It's the cleverness with which we combine that, it's the cleverness that we give to people and their capacity to not only get skills but to constantly upgrade their skills,” Watson told the audience. “That I think is really the key to a stronger economy.”

    The audience also heard about the importance of migration in providing the economy with skilled workers. Some 26 per cent of the Australian population is born overseas, yet we have a nation with a coherent, successful community, Watson said. Part of Australia’s strength is that we have skills-based immigration and see this as a source of skills.

    Ian Hammond, FAICD, chair of Mission Australia, agreed but said more migration would exacerbate the housing shortage and so should be accompanied by an increase in housing stock, particularly social housing. He said homelessness in Australia grew 50 per cent last year and while the $10 billion the government is putting into the National Housing Fund is welcome, it’s not enough.

    He also highlighted natural disasters arising from climate change such as floods in northern NSW in early 2022 which worsened the housing crisis, and said spending priorities on disasters are wrong. “If you look at the total cost of what we're spending on natural hazards and their impact, we're spending 95 per cent on mopping up after the event, and only 5 per cent on building resilience.”

    Federal Treasurer Jim Chalmers has suggested superfunds invest in social projects such as housing. Russell said super fund members’ interests need to come first, second and third, but that funds should also be cognisant of the opportunity that comes with investing members’ money.

    “And that means that the funds are in a position where they can take a long-term view, they can invest in a whole range of assets which they wouldn't invest in, if they had to be in a position where they could give their money back next week,” he said.

    The weight of money pouring into superannuation funds means they have an obligation to be innovative. There is a great opportunity for funds with scale to work with local, state and federal governments to devise and build projects that have good social consequences but are also designed in such a way that they are attractive to super fund members, he said.

    Australia’s economic fate: Adam Tooze

    While Australia’s “well-nigh miraculous” growth has put many countries to shame with the longest sustained boom in the history of advanced economies anywhere in the world, there are also a series of questions hanging over the “Australian experience”.

    Historian and European Institute director Adam Tooze delivered an international keynote address to the summit. “There's no doubt, of course, that a large part of the dynamism of the Australian economy is explained by internal factors to do with the quality of Australian governance, the secure system of property rights, the relatively open policy of migration and the quality of the education system,” he said.

    “All of that good stuff which helps to sustain rapid growth in Australia, a series of positive factors which sustained growth and is compounded by of course the excellence and quality of Australian corporate leadership.”

    However, he considers those factors have been “supercharged” by factors outside Australia’s control, such as macroeconomic and geopolitical dynamics, culminating in a ‘Goldilocks’ scenario which may not repeat.

    He encouraged attendees to differentiate between factors outside Australia’s control, such as a rapidly deteriorating geopolitical dynamic between China and the US, and those within, like a possible energy transition.

    “Australia has the potential to be a key node for the entire world, but notably for the Asian and Pacific realm in the energy transition. That is clearly the future of industrialism around the world. And lithium is just one example, but it's a particularly prominent one. It is one in which Australia has seen explosive growth,” he said.

    Australia also remains uniquely positioned in the global pursuit of ‘electrification’, “From here on out, the vision of Australia is 700 per cent renewables dependent…

    “You might think, ‘How could a country be more than 100 per cent self-reliant on renewables’? The answer is that Australia has the perfect conditions for solar power. It has huge deposits of key resources’,” he said.

    “It has vast human resources in the form of engineering, talent and expertise and consultancy that can be exported. There is an infrastructural job to be done in the electrification of the world in which Australia again needs to play a key role.”

    Mark Thirlwell, AICD’s Chief Economist, asked Tooze to consider the cost of living crisis as distinct from inflation and more alike to a general movement of all prices.

    Tooze told Thirlwell that the cost of living crisis is essentially a poverty problem. “It's an inequality problem. It reflects the fact that even in very rich societies like Great Britain, for instance, there are tens of millions of people whose budgets are really quite, very constrained, for whom food price inflation is a daily concern. I would say (that) the social crisis of the cost of living, it cannot be exaggerated.”

    He noted that Australia may not be as exposed to current inflationary pressures as other countries. “A lot of ink has been spilled over the issue of inflation rates. Transitory or not, a lot of ink has been spilled in comparing the current inflationary moment with the experience of the 1970s, which remains the kind of defining trauma of central bank economists all the way down to the present day. I think it's a generational thing …”

    In his view, the inflation problem as a macroeconomic problem has been exaggerated, and he flagging that inflation rates are already decreasing from the high percentages seen in the worst months of last year.

    Artificial intelligence

    In order to harness the power of artificial intelligence (AI) and other modern technologies, boards need to put in place a cybersecurity plan for five to 10 years, a session on AI was told at the summit.

    Director of the Digital Law Association Angelina Gomez GAICD, said boards need to look at safeguards to put in place and procedures to achieve what is needed. “You need an emergency procedure in place about what happens if something goes wrong with cybersecurity and hackers.”

    Professor Anton Van Den Hengel, Director, Centre for Augmented Reasoning, also said that Australia is way behind in owning its technological sovereign capability.

    “We have been very strong participants in technology,” he told the summit. “We have been very big in developing integrated circuits…but we have let that advantage go overseas. We were very big on solar panels but we let that advantage go overseas. We are quite good at AI research in this country but we are just letting that opportunity go overseas.” Google and Facebook also own 80 per cent of Australia’s online advertising business.

    Most of the nations we compare ourselves to have invested billions of dollars per capita in technology research funding, but we are behind, he added. “Australian research funding in this the area is almost non-existent.” As a result, we are behind countries such as South Korea, Vietnam, Singapore, Canada, the UK, France and Germany.

    “The challenge for us is that this process will continue. It’s happening in farming right now, it will happen in mining and we need to prepare as a nation. We need to have our own sovereign capability. And we really need to have the conversation before it’s too late.”

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