In an interview with Tony Featherstone, veteran director David Crawford argues that age or length of service should not be disqualifying criteria for people in a particular job.
The 37th floor of Allens’ Melbourne office seems an apt place to interview one of Australia’s great company directors, David Crawford AO FAICD. The law firm’s foyer, once dark, closed-in and wood-panelled, is now a bright, open space featuring contemporary art.
The stunning transformation is a reminder of the evolution in Australian governance: from an old-fashioned, conservative club-like “firm” to a modern, open, interesting space. A place where the old meets the new and where intense focus and debate on governance is producing world-class results.
“Australia is now at the forefront of governance changes that are taking place worldwide,” says Crawford. “We have traditionally punched above our weight in terms of governance and financial reform, and now Australian boards are right up there with the world’s best.”
Crawford has had, and continues to have, an important role in Australian governance. The Lend Lease Group chairman and BHP Billiton director is among the most influential non-executive directors in Australia and a central figure in the Melbourne governance community.
Crawford also chairs Australian Pacific Airports Corporation and is a member of the advisory boards of Allens, stockbroker Evans & Partners and Bank of America Merrill Lynch. He is also the former chairman of beverage company Foster’s Group and National Foods, and a former Westpac director.
Crawford’s governance influence has extended far beyond business over the years. He previously chaired The Australian Ballet, was vice-president of the Melbourne Cricket Club and a longstanding chairman of the prestigious Scotch College Council. The former KPMG national partner and chairman also led the federal government-appointed Australian Soccer Review Committee (which led to the formation of Football Federation Australia), conducted reviews of the Australian Football League (the Crawford Report) and the Australian Cricket Board, and chaired the federal government’s committee for The Future of Sport in Australia report.
Few directors in Australia have had such deep governance experience across as many sectors or have given as much back to business and the community over so many years. Crawford’s 19-year tenure as a BHP director, a sore point among some critics, best illustrates his contribution.
Crawford does not look back. His biggest contribution to governance and Australian business is arguably still ahead: as part of an elite group of directors who help develop the next generation; as a strong, respected voice for the governance community on policy issues; and as a considered view when governance fashion and fads, or one-size-fits-all approaches, are thrust
Crawford has his detractors. Some quarters of the media criticised him and other directors, including his colleague Don Argus AC FAICD, for attacking proxy advisory firms at the release of Australian Institute of Company Directors research in 2011. Proxy advisers recommended against Lend Lease’s 2009 remuneration report and a year earlier against the re-election of David Ryan, Crawford’s former KPMG colleague, for re-election to the Lend Lease board. Ryan chaired the failed childcare group ABC Learning.
Lend Lease also attracted media criticism for retaining KPMG as its external auditor for 55 years. The construction group put its audit to tender last year, under the oversight of Alan Cameron AO FAICD, the former chairman of the Australian Securities and Investments Commission. KPMG won the tender.
Crawford’s tenure on the BHP board, well beyond the three or four three-year terms that most boards specify, has also attracted media criticism. Crawford’s re-election to the BHP board last year was supported by proxy advisers and his length of service, on one of Australia’s most effective and distinguished boards over the past decade, speaks for itself.
Crawford will retire from the BHP board later next year after 20 years – a loss to those shareholders who value the benefit of having directors who have governed through several mining cycles and who are capable of understanding large, complex global businesses.
Critics also point to Crawford’s chairmanship of Foster’s Group during its ill-fated $3.8 billion acquisition of wine group Southcorp in 2005.
In today’s governance fishbowl, intense scrutiny comes with the territory for high-profile directors. To his credit, Crawford has resisted some governance trends that are not in the best interests of stakeholders.
“Boards have to judge each situation on its merits and resist the temptation to change things for change’s sake,” he says. “I have never believed that age or length of service should be disqualifying criteria for people in a particular job.”
Turning 70 this year, Crawford could be forgiven for easing back on his board roles or retreating from public debate. That is not his way. As the son of a former Melbourne newspaper editor, Crawford has never been afraid to put his point across, when needed, or take on a fight.
In this interview, Crawford argues for reform of litigation funders and proxy advisers, and for better legal protection for company directors.
“The proliferation of shareholder class actions in Australia is a disgrace and something of deep concern to boards,” he says. “The litigation funders behind these class actions have no accountability. Proxy advisers, too, should be subject to qualification requirements and other rules, just as auditors and other professions are.”
Crawford adds: “Director liability laws are far too strict in Australia. This aspect of the law needs to change. We need a ‘safe harbour’ rule introduced to better protect directors who do the right thing. Without this change, boards will find it harder to take risks.”
Although many directors are reluctant to criticise government, Crawford is disappointed at the speed of micro-economic reform in Australia, especially in industrial relations (IR). He sees a lack of IR reform in the federal government’s first term as a lost opportunity.
Crawford is also passionate about helping to develop the next generation. Long experience in sports reform and governance has given him an interesting perspective on high-performance organisations that are always developing the next crop of stars. And, he believes Australia’s most experienced directors have an obligation to help “induct” the next generation of directors.
As Crawford poses for photographs, I wonder if there is enough recognition for those who have helped Australia emerge as a global exemplar in governance over the past two decades. And what happens when dozens of our most experienced directors retire in the next five to 10 years, leaving a potential governance void?
Crawford, for his part, is as active as ever. He still jogs five kilometres each morning with his two border collies for company and seems incredibly energised by board work. With a busy, full portfolio of directorships, he rarely gets time for his other passions: skiing and fly-fishing.
Like the art on Allens’ walls, Crawford’s governance work has admirers and some detractors. But great board work can never be reduced to a simple canvass nor please everyone. The best governance usually requires directors who are willing to take risks, stare down the critics and stand behind their beliefs in the interests of those they serve. Here is an edited extract of his interview with Company Director:
Company Director (CD): You have been vocal on the need for the government to drive a new wave of micro-economic reform. Are you happy with how that is progressing since the federal government took office last year?
David Crawford (DC): The government is taking steps to address reform and I give it full credit for that. But a tremendous amount of work needs to be done. I was very disappointed in the Coalition’s election campaign, which ruled out considering significant IR reform in its first term. It will effectively lose three years in addressing an absolutely critical issue for business. Some might say the Royal Commission [into union corruption and governance] will address key IR issues. But very few Royal Commissions finish in a short timeframe and introducing any recommendations takes longer again. IR has to be addressed now. The government should have progressed much further on this issue.
CD: You were quite critical of the government’s rejection of the Archer Daniels Midlands’ takeover bid for GrainCorp last year. What are the long-term ramifications of that decision for Australia?
DC: The decision was very contradictory to the Prime Minister’s pledge on election night that Australia is open for business. It sent a message to the world that we are not open for business or certainly not open in a general sense. My concern is that the decision indicates the government will make changes that suit certain sections of the community, rather than the interests of Australia as a whole.
CD: There was brief media criticism last year about your tenure as a BHP Billiton non-executive director, which is going on 20 years and, equally, support from proxy advisers for your re-election to that board. Has the governance community too quickly dismissed the benefits of having directors who serve more than, say, four terms on a board?
DC: I have never believed that age or length of service should be disqualifying criteria for people in a particular job. BHP, Lend Lease and other companies I am associated with have taken a view that your capacity and capability for the role are the main criteria. When in professional practice, I recall partners who were past their prime after the age of 35 and others who were 55-65 and among the best-performing partners around. The key is to assess the role, the performance of the directors in that role and have regular conversations. Those who are not performing can be told so and given a work program to help them develop. Alternatively, they can be asked to leave. As boards inevitably move to annual rather than three-yearly elections for directors, we will focus less on how long a director has served in the role and more on the capacity for that role.
CD: Lend Lease put its audit out to tender last year, after KPMG served in that role for 55 years. Is there sufficient rotation of audit firms in Australia’s top companies and do the governance benefits of such rotation outweigh the costs?
DC: Yes, there is sufficient rotation of audit firms. I do not favour rotation for rotation’s sake. When I started as a director, auditors used to regard themselves as working for management, not the board or shareholders. But with new rules that focus auditors solely on the audit, and to not provide other cross-selling services to their client, the quality of audit work has improved. If the auditor is not performing, of course the company should make changes. But if it is performing, changing the auditor comes with a significant cost – financial and also the loss of corporate memory from having the same firm audit the books for a long period. When you are dealing with a very complicated organisation, you need an auditor who deeply understands the issues that need to be addressed. In Lend Lease’s case, we arranged for an independent party – Alan Cameron – to oversee from a probity point of view the processes that we used to assess firms that tendered for the audit.
CD: You were among several prominent directors in 2011 to criticised the growing influence of proxy advisers in Australia. Do you still hold the view or has the relationship between proxy advisers and boards become more constructive?
DC: Relationships between proxy advisers and boards have improved over that period. The reality is, proxy advisers are here to stay. Since 2011, a lot of shareholders have passed the responsibility of assessing a company’s governance to their proxy adviser and have followed their recommendations on how to vote at the AGM. I believe that just as auditors are subject to rules and regulations, so too should proxy advisers. They should also be subject to some form of qualification requirements.
CD: The rise and rise of shareholder class actions in Australia, and the role of litigation funders in financing these actions, is obviously of concern to the governance community. Do we need better regulation of litigation funders?
DC: I would be happy with some regulation. At the moment there is no regulation of litigation funders in Australia. We must understand that shareholder class actions and litigation funding has become an industry fundamentally for the legal profession. It is not generally understood that approximately 30 per cent of the award from a shareholder class action goes to benefit the law firm, not the people who have suffered from that action. There must be an overarching body that regulates litigation funders, enforces rules and qualification requirements, and ensures these organisations can be held accountable.
CD: Do boards need better protection against the threat of shareholder class actions?
DC: Yes. Growth in litigation funding, class actions and the potential for director liability is forcing boards to become more conservative and take a less entrepreneurial view of the organisation than they otherwise might. We need a “safe-harbour” rule introduced where, if the board acted appropriately and used its judgement appropriately, it should not be held accountable if the decision does not turn out to be beneficial. Australia has developed a culture of saying: “If something goes wrong, who is to blame and what can they pay?” Legal action becomes institutionalised. It puts lives on hold and corporations suffer. It’s not good for individuals or the community, and it is certainly not good for company directors.
CD: As Lend Lease chairman, you must give considerable thought to opportunities in Asia. Are we doing enough to capitalise on the so-called Asian century and what role can directors play?
DC: People use the word “Asia” as though it is a like-minded group of people, organisations and cultures. It is not, of course. Many Australian companies have spent years trying to enter Asian markets. A lot have struggled because they did not understand the people or culture. Boards need to ensure their organisations are using a business model that suits a particular Asian country. If they don’t, they will lose a lot of money.
CD: Do we need to think much more about cultural diversity on boards?
DC: Absolutely. Diversity is a very important issue that boards needs to address more fully. It never ceases to amaze me that the diversity debate is fundamentally about gender, as opposed to other forms of diversity. At Lend Lease, we think about diversity as every way people are different. That could be gender, cultural, skills, age diversity and so on.
CD: What does a high-performing board look like these days?
DC: It contains very experienced people who are capable of making the right decisions, having reviewed and questioned all the available evidence and called for additional information if required. A high-performing board is also able to have rigorous debate around the table, with directors working collectively and collegially to achieve the best solution for the company.
CD: What is the benefit of being on a board for a very long time?
DC: It helps with corporate memory, which is critical. You develop a better understanding of the board, company and environment it operates in. But you have to remain alive when on boards for a long period. You have to retain that drive to ask the hard questions. You have to be able to smell the smoke under the door, as they say. You have to maintain that capacity to pinpoint the issues that need to be addressed, and be forthright, although not belligerent, when stating your case.
Directors like to think they have developed an instinct for the company after one or two years on its board. But it is not until you have served for several years that your instinct really develops. It’s surprising how the same mistakes continue when there are not enough directors who have sat around the board table for long enough to realise a similar issue has been dealt with before.
CD: Some directors believe boards need to engage more in organisation strategy. Do you share that view?
DC: I have always held that view. It used to be that management created the strategy and boards gave it a tick. That is not so today. Boards have a role, working with management, to help develop and assess the strategy, oversee its implementation, and satisfy themselves that management is operating appropriately. Directors cannot see strategy as only a management task.
CD: What advice would you give an emerging director about building their portfolio?
DC: This may sound as though I am paying for my supper, but I strongly recommend doing all the Australian Institute of Company Directors training programs, so that you are up to speed with current requirements of being a director. Approach directorship knowing it is a full-time job, not a part-time job or something you do as you head to retirement. Spend time getting to know the business and its industry, and get comfortable with the CEO, CFO and the auditors before accepting a directorship.
Make sure you are comfortable with the other people sitting around the boardroom table. Satisfy yourself that everything is okay with the business and its board before accepting a position. Then be prepared to put in the necessary time to be an effective director, and stand up for what you believe.
CD: Are there enough talented emerging directors coming through the system?
DC: There are certainly a large number of people prepared to put their hand up to serve on boards. I believe it is incumbent on people who have been on boards for a long time to ensure young people coming along are properly inducted, so to speak. We have an obligation to pass on those skills and experience to the next generation of directors. I was very grateful that some chairmen took an interest in my professional development and put me on remuneration committees, something I had avoided for the first 10 years of my governance career. Remuneration was a gap in my knowledge at the time and a huge learning curve. Thankfully, I had peers who took the time to help develop my governance skills and I hope I can do the same with the next generation coming through.
CD: What do you love most about being on boards?
DC: Mostly, I have enjoyed working with likeminded colleagues. On the BHP board, for example, you have directors and management who are incredibly skilful and experienced, very articulate, and able to employ a huge amount of collective knowledge for the good of the company and its stakeholders. I regard being a non-executive director as having gone to school every day of my working life. I have really enjoyed it, met wonderful people, been educated about business, and paid along the way.
CD: How do you relax away from work?
DC: I enjoy spending time with family. I have a lovely wife, lovely children and grandchildren coming along. I still run every day and like to ski and fly-fish when I have time. Helping not-for-profits is also very satisfying because you feel like you are giving something back to the community.
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