Issues and challenges facing Australian boards and directors

While a majority of directors anticipate increase in M&A activity in 2015, increased levels of uncertainty in a number of areas may cause directors to pause for thought before engaging in ‘mega deals’.

Directions 2015
King & Wood Mallesons, March 2015

The Directions Report 2015, recently launched by King & Wood Mallesons (KWM) and supported by the Australian Institute of Company Directors (AICD) examines the current issues and challenges facing Australian directors and boards.

The report suggests that, while a majority of directors anticipate a moderate or significant increase in M&A activity in 2015, increased levels of uncertainty in a number of areas may cause directors to pause for thought before engaging in ‘mega deals’.

Co-author of the report, KWM Partner Meredith Paynter said, “Australia’s business environment is currently subject to a range of countervailing economic forces. The combination of these forces, exacerbated by ongoing political uncertainty and roadblocks in the regulatory reform process, is contributing to a cautious mood in boardrooms around Australia.”

Commenting on the report, John Brogden, Managing Director and Chief Executive Officer, AICD, said, “We are proud to support KWM’s 2015 Directions report. As the voice of directors and the leader in corporate governance in Australia, the AICD has a clear interest in the insights the report offers on the issues and challenges facing the director community. We look forward to discussing the issues emerging from the report with our members and to our continuing collaboration with KWM.”

Continued regulatory burden

The findings revealed that Australian directors and boards continue to face significant regulatory and compliance burdens.  Despite the Coalition Federal Government’s efforts to repeal approximately 11,000 pieces of legislation through its bi-annual ‘repeal days’, more than 90 percent of survey respondents said that the red tape reduction efforts have to date had minimal/no impact on their business and their role as director. Furthermore, it appears that the repeal of the carbon tax and the mining tax has been largely forgotten.

Directors raised concerns about the lack of a considered policy debate and are calling for ‘big ticket’ reform in areas such as tax regulation and industrial relations. More than half of the survey respondents stated that a reduction in red tape in these areas would be most beneficial to business.

Equipping the board

These challenges have increased the pressure on boards to ensure that they have (or have access to) the appropriate mix of skills and experience necessary to navigate challenging business conditions and take advantage of the opportunities for growth. Survey respondents continued to list industry sector knowledge and business skills/experience as the key priorities for board appointments in the past 12 months.

Respondents also reported a growing awareness of the need to have a solid understanding of digital technology and the social media environment, as social media is increasingly becoming a tool to engage with stakeholders.  Approximately three quarters of survey respondents (69 percent) reported that their companies have a social media strategy in place. In addition, more than 40 percent indicated that they had engaged with people who they considered to be activists.

Co-author of the report, KWM Partner Nicola Charlston said, “The digital age is having a significant impact on directors and boards.  Stakeholders are increasingly turning to social media to express their views. The impact of technology is also causing many boards to question the merits of the AGM in its current form, suggesting that there needs to be a genuine debate about whether this should move online in the future.”

Cross border opportunities

The business community has welcomed recent efforts to negotiate free trade agreements with a number of countries, including the recent landmark agreement with China. The findings indicate that these agreements have promoted cautious optimism for future trade and investment opportunities, with more than 26 percent of survey respondents indicating that their organisations will make an investment in China in 2015, up from 15 percent of survey respondents in 2014.

However, many Australian companies remain primarily focused on domestic operations, with more than 70 percent of survey respondents stating that their organisations had not yet taken steps to prepare for new market opportunities arising from the free trade agreements. In addition, survey respondents cited uncertain global economic and political conditions as the number one challenge for cross-border investment.

Partner Meredith Paynter said, “At a time when the economy is in a state of flux, it is encouraging that Australia is opening doors to new markets and investors. However, the new free trade agreements are not a silver bullet. Many of these markets are very different to the domestic environment, including in terms of business practice and culture, and the regulatory landscape. The winners will be the companies who take steps to take advantage of the opportunities as early as possible.” 

Note: The 2015 Directions report is based on results of a survey of 138 directors conducted in January/February 2015 combined with analysis of the legal and regulatory issues and challenges which are impacting upon the role of the director in the current economic and political environment in Australia.