New research reveals culture is finally being taken seriously by directors, reports Louise Petschler, AICD head of Advocacy. Plus updates on modern slavery reporting and AICD priorities.

    The AICD is pleased to have collaborated with the Australian Council of Superannuation Investors (ACSI) on important new research — Governing Company Culture: Insights from Australian directors. Launched in December 2020, this joint project is a first of its kind between investors and directors to examine how culture is overseen, assessed and influenced in organisations.

    Governance of culture remains a key challenge for directors of all entities, from the largest listed companies through to small community organisations and startups. Two years ago, the Hayne Royal Commission issued its final report, pointing to the need for boards to lift their intensity of oversight of non-financial risk and culture. High-profile failings of significant corporations over the past year demonstrate this issue is timely and critical for boards in all sectors, not just financial services.

    The message is being heard. In our most recent Director Sentiment Index, almost 90 per cent of directors reported actively working to improve their organisational culture. Feedback from directors in the AICD’s Forward Governance Agenda review also shows it is a top priority.

    The Governing Company Culture joint report reflects the seriousness with which directors are approaching culture. The report gives insights on governance practice, with directors providing their views on the formal and informal processes that support board oversight of culture. The report examines why culture matters and how boards discharge their role, including the importance of defining desired organisational culture, the importance of role modelling and setting “the tone from the top”, formal and informal indicators that support boards as pieces of the culture puzzle, and insights on mentoring and challenging senior management, and the pivotal role of the CEO. Key report findings include:

    • Culture is the responsibility of directors, not just senior management. Directors use a range of practical methods to exert significant influence over company culture.
    • Company culture is an increasingly high priority. There has been a significant shift over recent years, with culture now firmly in the spotlight for directors.
    • Directors see the link between culture and long-term performance. Directors feel that culture is extremely important to the long-term performance of a company.
    • Effective oversight of culture requires active and curious directors. Directors must be curious, persistent and willing to synthesise the many formal and informal sources of data relating to culture. Directors must be alert to an overly optimistic picture of culture from management.

    The research notes there is limited and varied public disclosure on listed company culture. We see this as an area for further dialogue with investors, proxy advisers and other stakeholders on culture metrics for market disclosure.

    While the report draws insights from ASX 50 senior directors, the findings are applicable for organisations of all sizes.

    Modern slavery statements

    Many directors are facing the task of approving their organisation’s modern slavery statement for the first time. Entities with more than $100m in consolidated revenue are required to prepare a modern slavery statement approved by the board. The first wave of reporting is now public and more will be due over the next six months.

    The AICD supports modern slavery reporting and has developed guidance to support members. To assist directors of larger complex groups, the AICD has worked with law firm Herbert Smith Freehills to develop guidance on modern slavery reporting for corporate groups. 

    2021 Advocacy Priorities: Shaping the Regulatory Environment

    Regulatory reset priorities

    • Balanced director liability settings
    • Modernising corporation laws
    • Securities class actions reform
    • NFP funding reform

    Governance policy input

    • Promoting evidence-based, sound governance principles in law reform, including aged care, remuneration governance and superannuation

    Leading Governance Practice & Insights: Leading practice

    • Stakeholder voice in the boardroom
    • Governance of climate change risk
    • Diversity in the boardroom
    • NFP governance standards

    Governance insights

    • Directors’ duties/best interests
    • Refreshing the Director Sentiment Index
    • Innovation in the boardroom

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