Directions 2016: Current Issues and challenges facing Australian directors and boards

King & Wood Mallesons (KWM) has launched Directions 2016, the sixth edition of its annual corporate governance report.

King & Wood Mallesons (KWM) has launched Directions 2016, the sixth edition of its annual corporate governance report.

This years’ report highlights that Australian directors and Boards are facing multiple challenges in positioning their organisations for growth in the current business environment:

• Four out of ten (39.6%) survey respondents say that lack of capital/funding to invest is one of the greatest inhibitors to achieving growth in their organisation/s.
• This is followed by aversion to risk taking (36.1%), management being too short-term focussed (28.8%) and a lack of incentives to promote innovation (28.1%).
• A quarter of survey respondents (25%) said that stakeholder pressure or intervention regarding strategy was one of the biggest inhibitors to their organisation/s achieving growth.

The report captures the responses of over 300 directors across a wide range of sectors and industries to an survey conducted in November-December 2015. It was supported by the Australian Institute of Company Directors.

Commenting on the findings, KWM partner and co-author, Meredith Paynter said, “It is notable that three of the four top issues highlighted by directors as inhibiting growth – aversion to risk taking, management’s short-term focus and a lack of incentives to promote innovation – are internal issues which the Board can directly influence through their oversight of strategy and remuneration structures and their supervision of senior management. Taken together, the results suggest that while Boards have the remit to address these issues, the balancing act of focussing on strategy and growth, versus immediate performance and compliance, is quite precarious.”

When asked about the biggest challenges faced in performing their role as a director:

• Four out of ten (41.7%) survey respondents said that counteracting the risk of ‘group think’ was one of their biggest challenges
• The same percentage also highlighted the demands of compliance oversight at the expense of strategy.
• In addition, three out of ten (30.8%) survey respondents said that keeping abreast of changes in the business environment is a key challenge.

John Brodgen, Managing Director & Chief Executive Officer of the Australian Institute of Company Directors said that the report “highlights the significant challenges boards face in their efforts to boost the performance of their organisations. These obstacles include external factors such as a heavy compliance burden. However, it also apparent that the mindset of directors may need to be adjusted to overcome short-termism if boards are to perform to their maximum potential.”