In March, approximately 1500 leading members of the director community came together for the Australian Governance Summit in Melbourne. Against a backdrop of ongoing pandemic, war in Europe and natural disaster at home, AICD members discussed the challenges and opportunities presented by escalating geopolitical tensions, and rapid technological, societal and environmental change.

    The macro environment

    Directors can best create value by seizing the opportunities where ESG considerations intersect with their business, but will also need to wargame worst-case scenarios.

    Boards need to hope for the best, but plan for the worst when they consider how to respond to tumultuous events, BHP chair Ken MacKenzie FAICD said in a powerful opening keynote speech to the Australian Governance Summit in March.

    The 2022 summit took place in the shadow of the Russian invasion of Ukraine, amid deepening global geopolitical tensions and a growing flood catastrophe in eastern NSW and Queensland. At home, the fracturing of federalism has stymied an effective collective response to recovery from the pandemic and communities are wrestling with the impact of rapid technology change and increasing climate change risk.

    MacKenzie said that for directors looking beyond COVID-19 to the next phase of opportunity and innovation, “It is the integration of social value considerations across the organisation that, we believe, will deliver ESG outperformance and lead to competitive, sustainable returns over the long term. This is the opportunity in ESG. But this doesn’t mean that every societal issue is one a board must grapple with. To the contrary, the challenge for boards today is to identify the key issues that truly matter to their company — what is critical to their business and value creation?”

    MacKenzie and other directors outlined the importance of scenario analysis, examining and evaluating possible events or scenarios that could take place in the future and predicting the various feasible results or possible outcomes.

    "I’ll leave the geopolitics to the politicians, but as businesspeople, our role is to understand those situations, to understand the potential range of outcomes that can come from a geopolitical situation,” he said. “And then develop contingency plans around that to protect the business. That’s our job. But none of us have a great crystal ball, so we always use this scenario analysis process to do that.”

    The mining giant is taking the approach of hoping for the best and planning for the worst, with scenarios ranging from a quick and peaceful resolution of the Russian invasion all the way up to the “unthinkable”. “We’ve just got to understand the implications to our business and get out in front, which is what everybody did during the pandemic very successfully,” said MacKenzie.

    The clear message from five chairs — MacKenzie, ANZ and Optus chair Paul O’Sullivan MAICD, GPT Group’s Vickki McFadden MAICD, Bendigo and Adelaide Bank’s Jacqueline Hey GAICD and Super Retail Group’s Sally Pitkin AO FAICD — was that scenario planning will be invaluable in helping boards assess what could come next and to chart the best course for their organisations.

    O’Sullivan uses an aviation metaphor. The boardroom should be like the cockpit of a jumbo jet — everyone busy, focused and calm. “A good board is flying 20 minutes ahead of the plane, we’re not waiting to hit the weather, we’re not waiting to hit the turbulence, we’re trying to see what might lie ahead, because management often gets caught up in the events of the day or in reacting to short-term developments,” he said.

    He underscored the importance of resilience for companies’ ability to manage crises. Profit and loss statements are matters of opinion, while cash is fact, so boards need to ask how much cash the company is generating. And can it stay as strong?

    Boards and management are looking at the different ways the geopolitical challenges could pan out, said O’Sullivan. Could we see an extension of the pandemic and further lockdowns? Could we see rising commodity prices because of Ukraine?

    Along with ensuring financial resilience, boards need to ensure there is operational resilience by stress-testing operations. For instance, Optus took the CSIRO’s climate scenarios and considered what they might mean for its operations. “One of the key take-outs was a cyclone belt moving further south in Queensland,” said O’Sullivan. “That’s caused Optus to redesign its mobile towers and to change the standards to which they’re built — and to shift infrastructure out of low-lying areas, which are more open to flood.”

    Long-term thinking

    Dambisa Moyo, a board member of companies that have survived for decades (centuries, in one case) including Barclays Bank, 3M and Chevron, said a key reason for these companies’ success is that their boards were never tempted into tactics and short- term thinking, but have always been a compass for long-term thinking.

    “Even in the current situation, where I’m being dragged into calls to deal with the oil price being over US$100 and COVID-19, I do think the boards that are most successful are able to see through these challenges in the here and now and to think more strategically about the long term,” said Moyo.

    She referenced research by William Thorndike, founder of US private equity firm Housatonic Partners and the author of business strategy book The Outsiders. He argues that companies that have outperformed their peers over several decades are those where management, supported by the board, are “absolutely focused on the allocation of capital” and whether earnings should be retained or reinvested. The CEO should cede day-to-day decisions to a second in charge and focus on capital.

    “If I look back on my 10 years-plus on corporate boards, it really is astonishing to see how easy it has been for companies, particularly CEOs, to be distracted... by things in the here and now — whether it’s COVID-19 or aspects of ESG — and perhaps less focused about allocating through the cycle,” said Moyo. She noted that companies will always be surprised by a pandemic, a war, a financial crisis or an oil price shock — and that the board needs to lead to ensure the business is strong enough to manage through such challenging periods.

    Moyo outlined the key issues she expects boards will have to address over the coming years. The first is a siloed world, with deglobalisation and a more fragmented, Balkanised environment. It also means deglobalisation of trade and business, which is fracturing the allocation of commerce and the movement of talent between borders.

    There is also the concentration of ownership and power in big investors such as BlackRock, Vanguard and State Street, which between them own around 15 per cent of some major US tech stocks, for instance. It has major implications for mergers and acquisitions and governance, said Moyo.

    Technology, in particular the “splinternet” — such as with China creating its own platforms — is another issue. This raises the challenge of how companies can run global businesses and manage supply chains across different technological platforms.

    The fourth issue is the war for talent and ensuring that companies have appropriately skilled people for the world that’s coming, particularly one with closed borders. Moyo noted that these issues taken together raised the risk of boards being drawn into short-termism and focusing less on the allocation of capital.

    The session came a week after Russia invaded Ukraine and the crisis underlined the critical importance of scenario planning, said Moyo, author of How Boards Work: And how they can work better in a chaotic world. She said boards should think about probabilities and handicapping — as they should for all crises. She estimated there was an 80 per cent chance the war would end up being a drawn-out affair like Afghanistan; about a 10 per cent chance it would lead to regime change in Russia in the next three to six months; and a 10 per cent chance it is “the beginning of something quite catastrophic”.

    Geopolitical risk

    On the “Living in Interesting Times” panel, <em>Sydney Morning Herald</em> political and international editor Peter Hartcher was straightforward in addressing an audience question on whether company boards with export or investment interests in Russia have an obligation to make a statement by withdrawing their Russian activities.

    “If you put that question in the converse and ask yourself, ‘How am I going to justify my continued dealings in Russia while they’re committing war crimes against citizens, unprovoked, in a neighbouring country?’ the answer becomes pretty clear,” said Hartcher. “It’s unjustifiable. It’s interesting the range of companies that have moved so quickly, almost reflexively... Companies that persist are going to have difficult questions to face from their shareholders or members.”

    Beyond the Russia-Ukraine conflict, Professor of International Relations at La Trobe University Nick Bisley told directors there were other geopolitical security threats for Australian boards to consider. “If you’re talking about conflict risk or old-school geopolitical risk, it’s got to be Taiwan,” he said.

    Bisley said President Xi Jinping had ratcheted up the risk profile several years ago by saying Taiwan was not a problem that will be passed down to the next generation. “The military capability China has and can bring to bear to that contingency, continues to grow,” he said. “America’s ability to deter it, corral it and stop it diminishes day by day.”

    Bisley noted that for boards, the parallels between Ukraine-Russia and Taiwan-China highlight the volatility of geopolitical risk. “The underlying issue, if you’re sitting on a board and looking at these things, to remember is — and Ukraine reminds us all too clearly — the decision to go to war is not always rational. It’s driven by emotion, nationalism and ego.”

    Climate change

    One of the major geopolitical risks confronting companies is the effect of climate change and the need to decarbonise their operations.

    Sarah Ryan MAICD was asked to respond to a report by the Investor Group on Climate Change that concluded that the climate plans of Australian corporations were inadequate. Woodside’s 2021 climate plan, for example, which includes $5b on clean energy projects, was dwarfed by its $16b Scarborough development project. “Speaking from the board perspective, it is absolutely top of mind, it is in every discussion in every board meeting in every community,” she said.

    Woodside has decided to make a separate climate report and asked for investors to vote on it at its upcoming annual general meeting.

    The company is tweaking its own governance structures to deal with the challenge, in particular by embedding climate considerations in the current board and committee structure. The audit and risk committee is looking at climate risk, while the sustainability committee “does the heavy lifting”.

    “It’s embedded in everything from the thinking in the company strategy to the way we think about capital allocation framework — even to the organisation of the chief of the CEO’s team,” said Ryan.

    Cyber threat

    The cybercrime industry has grown far beyond “hackers in hoodies” and is forcing fundamental operational and ethical emergencies onto  Australian businesses and boards.

    What generally happens during times of global conflict? “State-based actors get busy,” Australian Cyber Security Centre (ACSC) head Abigail Bradshaw CSC told attendees at the AGS panel “Cyber Risk: Taking action before it’s too late”, addressing the long shadow the Russia- Ukraine conflict has cast over Australian business security. “They get busy looking for information that will reduce their areas of uncertainty about what people are going to do next.”

    Bradshaw noted that while there was no intelligence indicating a specific cyber threat against Australia, media reports suggested cyber targeting was already breaching the borders of numerous jurisdictions adjacent to Ukraine.

    Closer to home, Indo-Pacific power struggles and competitive cyber espionage have already led to calls for a hybrid regional threat strategy. In February, foreign ministers from the “Quad” (US, Australia, Japan and India) met in Melbourne to announce a deepened “cooperation” to ensure the Indo-Pacific region’s freedom from coercion, cyberthreats and counter-terrorism.

    Australia is no stranger to foreign cyber disruption, but Bradshaw emphasised the global connectedness of business, individuals and government has “opened up the threat environment”.

    “What I’ve seen in the two years since I’ve been head of the ACSC is a highly contested and dynamic domain in which the threat was rapidly evolving... I didn’t think it could get more complex or contested,” she said. “Yet here we are today.”

    There were 67,500 reports of cyber incidents in the past financial year with a 15 per cent jump in ransomware attacks in 2021, according to the ACSC. There were more increases in business email compromises to the extent that the average cost of those is $50,600. “If you’re a small to medium enterprise, that’s going to wipe you out...” said Bradshaw. “Scams are going nuts, as well. We talk about cyber offline in a sort of continuous feedback loop, which is what we actually need in terms of making a difference in this country and raising the resilience of Australia’s cyber ecosystem.”

    Bradshaw referenced the June 2021 Australian shutdown of JBS, the world’s largest meat-packing company, which halted operations across 47 Australian sites due to a ransomware attack, originating in the US, threatening a meat shortage in both countries. JBS later confirmed it had paid more than $14m to the attackers.

    Bradshaw told the summit the dialogue around whether to pay or not to pay ransomware attackers was “mischievous” and distracted from the real end game — preparation. “We do not support the payment of ransomware,” she said. “That’s because our learned and lived experience of ransomware attacks is this — payment of one does not guarantee the release of information or the destruction of copies that might have been obtained... There is a large body of evidence to suggest that information obtained is shared very quickly and prolifically across syndicates on the dark web. The fact that an entity has paid, and the size of the payment, are also shared freely —and actually increase the prospects of [the victim] being targeted again.”

    Business risk

    The combination of the pandemic and work-from- anywhere incentivising remote access requirements via VPNs, plus the proliferation of Internet of Things devices, has proved fertile ground for opportunistic cybercrime, said Bradshaw. “It has provided a magnificent playground for cybercriminals... honing in quickly on government services through the COVID-19 pandemic. We watch them pivot within hours of the government making an announcement that this service was available.”

    However, the threat is a lot more mundane than people may realise, cautioned NBNco chief security officer Darren Kane GAICD, calling on directors to demystify the image of “hackers in hoodies” and relegate cyber risk to a bespoke technical team. “It’s important not to get caught up in the sexiness of the world of cyber,” he said. “We’ve got to actually start using language that business executives understand. We’re talking about security risk... Cyber [threat] is now probably one of the more senior business operational risks of any entity, government department, company or small business across the globe.”

    Blackmores’ chair Anne Templeman-Jones FAICD analogised the business risk approach to how the mining, chemical and industrial sectors address work health and safety risks. “[The sectors’] absolute priority is no lives lost,” she said. “If we were to take the same level of seriousness about cyber risk and what it means to the company — and if it fails, the death of the company — we would be in a much better position.”

    Speaking up

    Executing on this outlook begs the “how” question, with Australian Information Security Association chair Damien Manuel GAICD saying that many directors thought they had to be experts in cybersecurity risk to meaningfully manage it. “Really, no-one is an expert in this sector because it moves so quickly,” said Manuel.

    So how do boards address a shape-shifting problem? By rejecting the myth of perfection and empowering people, the panel agreed.

    Bradshaw said board members should move away from taking a strict compliance view and, “accepting the fact and the inevitability of an attack and focusing on resilience rather than having an impervious and impenetrable service. That is just simply not practicable”.

    Templeman-Jones emphasised that fostering a culture of speaking up is pivotal to managing threats — where people actually working on business platforms feel safe to say, “it’s not working”.

    “There’s a natural fear there that if I actually speak up, even if I have made a mistake, I’ll be punished, I’ll lose my job,” she said. “That is a real cultural thing that needs to be thought about by every single organisation.”

    Boards must invest in leadership and people skills in their technical staff. Kane noted a “real deficit” in the space. “These folks are handed a huge burden and they over-invest in that mission... they feel any incursion or breach is a failure. It’s incredibly important that the person you put in charge of that accountability understands the importance of soft skills, leadership and management.”


    Increasing investment in the care economy and the economic participation of women and lifelong learning is Australia’s next growth opportunity.

    The place of women in the workforce has been set back by the COVID-19 pandemic, with women taking on more caring responsibilities to their own and the economy’s detriment, the AGS heard. But the key to recovery and driving growth was recognising the opportunities in the care economy. In the “Australia’s Economic Future: The directors’ view” panel, four prominent directors shared their views on opportunities for growth, board succession and tenure, the skills shortage and the importance of choosing the right CEO.

    Sally Pitkin AO FAICD, chair of the Super Retail Group, told the audience that women picked up an even greater share of the household responsibilities in the hybrid working model introduced as a result of the COVID-19 pandemic. The attitude was if they were working at home, they could also carry out household tasks. “The whole issue of women in the workforce is such a critical structural and social issue for us,” she said. “We’re talking about the future of the workforce, our economy. But unless we lift women’s participation in the workforce, we’re just not going to get there. We’re not going to get the GDP growth we need. Research shows that investment in the care industry has a greater employment impact than investing in physical infrastructure.”

    Pitkin also cited government research showing that if the pay gap between men and women were halved, resulting increased workforce participation would increase GDP by $60b by 2038. “That whole issue, which is both structural and social, has got to be high on the agenda,” she said. “I get concerned when I read reports from economists, where this significant issue doesn’t even get a mention.”

    While more women need to come into the workforce at all levels, “it will be difficult until there is accessible, quality childcare”.

    It is part of a broader problem of skills shortages exacerbated by Australia’s low priority on work- related training. “We have not prioritised skills development for our future,” said Pitkin. “We need to have true commitment to lifelong learning and flexibility in the way we learn... and we need to be preparing ourselves for future skills.”

    Paul O’Sullivan MAICD, chair of ANZ, Optus and Western Sydney Airport Corporation, noted there was also an ethical reason to address the issue. “I was blown away by the stats Sally gave — that needs a lot more oversight,” he said. “We talk about creating meritocracies and about walking the talk, [but] if we’re really going to be seen as being sincere by our staff, then we’ve got to make sure women are getting the progression they deserve in the workplace.”

    ANZ has formal targets for women in senior roles and regularly measures gender pay gaps. As it brings its staff back to the office it is establishing workplace “communities”, requiring staff to be in the office on set days with their communities.

    Terms of engagement

    O’Sullivan outlined the importance of board renewal and backed the idea of nine-year terms for directors, saying boards needed diversity of thinking and life experience, but also to renew as companies progressed through their lifecycle and strategic challenges and priorities changed. Western Sydney Airport, for instance, will need different board skills for its construction phase, the business development phase it has just begun (signing up airlines/cargo operators) and its operational phase.

    Jacqueline Hey GAICD, chair of Bendigo and Adelaide Bank, disagreed with the idea of nine-year maximum terms, saying somewhere between nine to 15 years is appropriate, although she also said that renewal and diversity of tenure were important. She noted it had proved useful during the pandemic to have directors who had been board members during the wash-up of the global financial crisis.

    As for joining boards herself, Hey said she consciously avoided the tech sector — where she had her executive experience — when she began her non-executive career. Broadcaster SBS and the Bendigo and Adelaide Bank were the first two boards she joined. “I was new to banking, I was new to media. I thought, I’m going to join boards that are not in an industry I’m super-comfortable with. That will make me a better director faster.”

    Setting the tone

    At the summit’s outset, speaking to the critical importance of stakeholder relations and AICD’s role in the governance of society, chair John Atkin FAICD asked attendees to reflect on what we as a nation have done to acknowledge our colonial past and the injustice inflicted on our Indigenous people over the past 250 years. “What does it say of our society and our values if we continue to walk past the injustices that our First Nations people have suffered?”

    Atkin flagged the AICD’s review of its 2017 Reconciliation Action Plan and its execution. A key recommendation from the review is the appointment of Indigenous sector lead Justin Agale. Atkin told the AGS that Justin had pushed both Angus and himself to consider: “Do we want to appoint an Indigenous sector lead to tick a box, to have something to point to — or do we want to change the DNA of the organisation?”

    Atkin said they didn’t hesitate. “We will be far stronger as a society when we achieve reconciliation with our First Nations people. It’s not just about Indigenous disadvantage and inequality. It’s about us gaining an understanding of the culture and values of an organisation and people who have lived and thrived in this continent for 50,000 years, the world’s oldest living culture.”

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