Advocacy

US Commonsense Principles

A group of 12 influential US corporate leaders have started an important debate in US business with the recent launch of Commonsense Corporate Governance Principles. The authors include the CEOs of Berkshire Hathaway (Warren Buffet), GE (Jeff Immelt), General Motors (Mary Barra), and major investment firms BlackRock (Larry Fink) and Vanguard (Bill McNabb), among others. Boosting community trust in governance and driving performance for shareholders and stakeholders are key aims.

The Commonsense Principles represent a welcome, and overdue, embrace of elements of the ASX Corporate Governance Principles and Recommendations in the US environment. The focus on board composition, diversity and independence from management aligns with Australian views on good governance.

Importantly the principles echo a key message at the heart of the Australian Institute of Company Directors’ (AICD) advocacy work: that a long-term focus is absolutely critical to good governance. As the AICD’s Managing Director & CEO John Brogden said at the 2016 Australian Governance Summit: “If we as the country’s leading directors can commit to abandoning the short-term focus that risks becoming endemic in our boardrooms, then we will help not just our organisations prosper, but also Australia at large.”

On this front, the Commonsense Principles tackle the short-term focus of US markets, flagging the obsession with quarterly earnings forecasts and encouraging boards to rethink whether quarterly disclosures are contributing to shareholder value.

The Commonsense Principles also encourage:

  • Truly independent boards as vital to effective governance. They note that no board should be beholden to the CEO or management and question combined CEO-chair roles.
  • Diversity as a driver of better governance decision making.
  • Transparency in reporting, including accurate reporting of compensation.

Alongside announcements by the new British prime minister Theresa May, the Commonsense Principles are a further sign of growing global focus on governance standards.

Trust and performance will similarly continue to drive policy developments in the Australian environment.

APRA regulated entities

The Australian Prudential Regulation Authority (APRA) has a strong focus on governance, set out through Prudential Standards CPS 510 (Governance), CPS 220 (Risk Management) and CPS 520 (Fit and Proper) as well as APRA’s broader supervisory and prudential framework.

Directors of APRA-regulated entities are well versed in the regulator’s expectations, including APRA’s focus on the role of the board in governance of risk culture.

Acknowledging this specific governance focus, the AICD has established a new forum drawing on members who are directors of banking and insurance organisations.

Chaired by Ian Laughlin FAICD, the forum will share views on APRA’s governance expectations, issues of concern to directors, and will inform the AICD’s approach to relevant policy, course content and events. Contact Amber O’Connell, Manager, Advocacy, aoconnell@aicd.com.au for more information.

Promoting gender diversity

Australia’s largest companies are continuing to make progress on gender diversity at the board table. At the end of June 2016, the percentage of women directors on boards of the ASX 200 reached 23.4 per cent - good progress, but still some distance from the AICD’s target of 30 per cent.

As part of the AICD’s ongoing commitment to gender diversity on boards, we have recently piloted a new diversity initiative called the On Board Forum. Modelled on successful overseas initiatives, the program aims to provide female directors with opportunities to learn from and connect with ASX 200 chairs and non-executive directors and their peers while participating in a simulated case study.

The case studies raise governance, financial and strategic issues that are canvassed in a simulated board discussion chaired by current ASX directors. Participants gain insight into the critical interactions between board members.

The On Board Forum project aims to:

  • Support female board members to become more effective directors.
  • Provide participants with a realistic board experience and insight into how to react, think and perform at the expected level of experienced company directors.
  • Assist female directors seeking to take on an ASX directorship, as well as those seeking to build on current skills and to improve performance at the board table.
  • Facilitate networking with talented current and potential female directors.

For more information, contact Melissa Gilmour, Board Diversity Executive, mgilmour@aicd.com.au.