AGS 2020: the new governance landscape

Wednesday, 01 April 2020


    From the threat of COVID-19 to the future of boards in 2030, we summarise the keynotes from the Australian Governance Summit in March.

    As ABC journalist and MC Stan Grant put it, there could not be a more critical time for directors and business leaders to meet given the worldwide COVID-19 crisis, falling stock markets, democracies under threat, record low levels of trust and a catastrophic summer in Australia with fire and flood.

    The fifth AICD Australian Governance Summit began with a sobering welcome to country from Wiradjuri elder Aunty Ann Weldon, a director of the Metropolitan Local Aboriginal Land Council, Redfern. “As you connect and learn, don’t live regretting what should have been done, but work to create a legacy of what must be done,” she said.

    AICD chair John Atkin FAICD and managing director and CEO Angus Armour FAICD opened the conference, themed “A new line of sight”, highlighting the need for leaders to do things differently when the community’s trust in business is at an all-time low.

    Armour spoke of the immediate challenges, bushfire recovery and COVID-19, as well as the longer-term economic issues posed by emerging technologies, democracy and climate change. “There are fundamental challenges we need to address,” he said. Slow growth, job disruption and inequality are challenging our economic models and a community of voters is more dissatisfied and vocal than ever before. There will be implications for the economy and society, and community concerns around fairness, accountability, privacy and equality. He called for a bilateral approach to climate change.

    Atkin saluted his predecessor Elizabeth Proust AO FAICD, who initiated the first summit in 2016, saying she led the organisation for three years “with great distinction”.

    He urged directors to look at their own personal “line of sight”. “That needs to start with each of us seeking to improve our own leadership,” he said. “One year on (from the banking Royal Commission) accountability remains in the spotlight. The daily headlines remind us constantly of the community expectations of directors. The focus has not just been on our largest listed companies. It has fallen on the government sector and charities, too.

    “It is a privilege to be a director. To discharge our obligations and contribute as leaders, we need to be alive to our own limitations and focus on our areas for growth. Importantly, we need to engage with different points of view so we can develop sustainable solutions to the challenges we face.”

    Atkin said it was important that directors rebuild trust. “The days when directors commanded respect because of their position of power in society are over. We must approach our task of finding our line of sight with humility as we work together to develop our skills and improve our understanding of this complex world in which we are all privileged to live.”

    Early sessions featured prominent directors discussing the challenges for directors in the next decade.

    Keynote #1: Boards of 2030

    About 20,000 new satellites will launch in the next decade, so boards of 2030 will need to cope with enormous changes in data and a powerful new generation of communications from different space technology, Dr Megan Clark AC FAICD, chair of the Australian Space Agency and a director of CSL and Rio Tinto said in the opening keynote, “Boards of 2030”. “If you thought you were swamped with data now, you’ve not seen anything yet. This industrialisation change will completely transform how we communicate. We’ll learn to throw away 90 per cent of our data — the challenge is identifying the 10 per cent.”

    The task of directors in the face of so much technology operating off the planet makes the value of our human judgement all the more important, she said. “When things get really difficult, no amount of AI will help you.”

    Sharon Warburton FAICD, a director at Wesfarmers, Worley and Perth Children’s Hospital, and a former director of Fortescue Metals, said the increasing volume of global data will be “a real challenge” for directors.

    “An open mind on a completely global focus and opportunities in data will become increasingly important,” she told the “Boards of the Future” session.

    ESG (environmental/social governance) will also be a big focus for future boards. Warburton said 80 to 90 per cent of her own personal development has been in the ESG space and her boards now have “very chunky” ESG reports. “That is what I see as a core part of my role as a director and I have increased my learning in those different areas,” she said. Cyber also becomes “real-time important”, with developments such as autonomous vehicles that Fortescue Metals already deploys in the Pilbara.

    Graeme Liebelt FAICD, a director at ANZ, Amcor and AFIC, said business strategy will become even more important and that traditional business models such as those in banks will be challenged by a different and difficult strategic environment. The COVID-19 virus spread would lead to much bigger knock-on effects in Australia and cyber risks will challenge every organisation. “Connectedness creates a lot of risk,” he said. “Just as we can communicate across boundaries, the bad guys do also.”

    Another challenge for directors will be dealing with the cumulative effect of regulation causing greater complexity. “We’re putting all these laws in... but who is thinking of the cumulative impact? Incentives are aligned in favour of not taking enough risks.”

    Ben Heap GAICD, executive chair of H2 Ventures and a director at Colonial First State, expects this to continue. “I’m sure in 10 years the pendulum will have come back,” he said. “But we are going out before we come back.”

    Heap said the role of the chair will also be more important in terms of weighing different priorities. Taking a long-term view will be crucial in terms of sustainability. This needs to be of “an enduring nature for well beyond the tenure of directors — for generations. That is definitely a change that has become much clearer to a lot of us over the next 10 years”.

    Day two of the summit began with an analysis of the Edelman Trust Index, which shows record low levels of trust within the mass population. Michelle Hutton, CEO of Edelman Australia, said recent disasters had reduced this even further and Australia is at an important crossroads.

    The latest results show trust has stagnated among the general population around the world. Most markets remain distrustful. When comparing trust between the informed public (17 per cent distrustful) and the general public (83 per cent), the former were largely trusting, the latter largely distrusting.

    “Australians no longer feel in control,” said Hutton. “We live in a society where we are influenced by events, rather than influencing events. The public has concerns around the environment, job security, globalisation and the pace of technology.”

    An action plan on COVID-19: advice for boards from Belinda Hutchinson

    Belinda Hutchinson AM FAICD, a non-executive director of Qantas, and University of Sydney chancellor, shared her experience dealing with the COVID-19 crisis. “If the board hasn’t already been taking steps, we’ve got a problem,” she said. “The board’s role is well in advance of the crisis.”

    Hutchinson said the boards she was on had been “looking at a high probability for a pandemic from the beginning”.

    Key actions included reviewing risks, creating a risk register, scenario planning, and delegating to the management team. For six years, the university had listed its number-one risk as revenue from international students, and plans to diversify income were in place. “Australia is such an exposed economy with 35 per cent of exports going to China and 25 per cent of manufacturing imports coming from China,” she said. “This is going to get a lot worse before it gets better.”

    She said having “the absolutely best management team” was key and that contingency planning was important. “You have to rely on your management team to be on top of things. The best thing the board can do is get out of their way.”

    Asked if there had been lessons from the 2008–09 global financial crisis, she said, “It’s around the financial modelling of the scenarios you are planning for and key assumptions you are making.”

    Hutchinson emphasised the need for transparency and communications with all stakeholders and issuing profit updates early. “It’s about being open and transparent with staff, customers and the community.” Other central issues discussed at the summit were the workforce of the future, the opportunities and risks posed by the digital transformation in corporations and the not-for-profit sector, setting and shifting culture in new and established organisations, and how organisations can tackle social purpose.

    Keynote #2: On Leadership

    Qantas chair Richard Goyder AO FAICD gave the second keynote, with a warning on dealing with crises.

    “This has all the attributes we don’t like in business — uncertainty, unpredictability and economic consequences that aren’t going the right way,” he said. “Prepare and make sure you’ve got a balance sheet and there will be some opportunities that arise from this.” Goyder, the chair of Woodside Petroleum and the AFL Commission, told directors that calculated risk drives growth, innovation and reward; that hunkering down and being risk averse does not deliver the best outcome.

    He said that without risk, Woodside would not have been supplying natural gas to the world for 35 years, Qantas would not be flying direct to London or celebrating its centenary, and that women would still be AFL spectators not players.

    To drive appropriate risk, directors need a good understanding of the business and its risk appetite, and to ensure the right processes and culture are in place to support innovation and creativity.

    Staying close to your customer

    New technologies and better processes are improving the customer experience, but there are questions directors need to ask, writes Amanda Hicks.

    We are deep into the age of the customer. The power dynamic between customers and brands has been rapidly shifting. Enabled by technology, customers are much more informed and empowered. Companies have to put the customer at the core of every decision, product, and service; to be a step ahead of their changing needs and expectations — or risk irrelevance.

    Fortunately, we are also deep into the age of data and this is the key to understanding your customer. We are now able to know each customer as a “segment of one”, not just as a generic demographic. Customers connect with your business across countless touchpoints — in-store, online, in call centres, chatbots, social media and events. At every stage, through digital and non-digital channels, you can capture near real-time feedback on what they buy, their behaviour, preferences and how they found the interaction.

    Soon, the amount of data via new technologies — biometric data, the Internet of Things, AI learning algorithms — will tell us how people feel, react and learn.

    As directors, you should be expecting an overview of your critical customer metrics from management. It’s your opportunity to understand your customers through that data and help your future strategy decisions.

    There are two key issues for directors when looking at customer metrics: ensuring balance and real insight. No single metric is the “customer truth”. A variety of metrics delivers better understanding of the issues.

    Ensure you pay attention to both positive and negative voices — find out where you need to improve, don’t just celebrate your successes.

    Are you only seeing metrics from your existing customers? Or are you taking a more holistic market view — are you looking at lost customers, competitor customers or potential customers? Be sure to balance between short-term results and longer-term trends. The latter often reveal important dynamics about changing markets or customer expectations.

    Importantly, drive for insight, not just measures. Dive behind the numbers. Ask not just “what”, but “why”? Which metrics are most important right now, and why? What is the business and competitive context and what impact does this have? Most importantly: Can you get to the direct voice of the customer?

    In summary, you can use the data to connect with your customers and understand future trends. Innovate with the insights and build growth and trust in your brand and company.

    Amanda Hicks is KPMG Australia partner, customer, brand and marketing advisory. She spoke on the “How to stay close to your customer” panel at the AGS.

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