What directors should prepare for in 2018

With 2017 coming to a close, most directors are mentally rehearsing for next year. Board meetings and milestones in reporting and planning for 2018 are set.

With 2017 coming to a close, most directors are mentally rehearsing for next year. Board meetings and milestones in reporting and planning for 2018 are set. From our recent Director Sentiment Index (DSI), we know directors are optimistic about prospects, jobs and wage growth. Relative to most countries, Australians have reason to feel hopeful and grateful. More than 300,000 jobs were created in 2017, although wages growth remains low. Many firms say they plan to invest more, government infrastructure spending is rising, but there are fundamental issues to address and we need the institutional will to focus on solutions and outcomes.

Some problems are made in Australia. Energy policy is a priority for directors and bipartisan agreement on a framework is essential. Directors rate high energy prices and energy policy as the biggest economic challenges facing Australia. We aspire to be an innovation nation, yet the fundamental building blocks of our education and telecommunications systems are walking backwards in international rankings. In last year’s Program for International Student Assessment results, Australia slipped in science, maths and reading, continuing a decline that began in 2003. Our average broadband connection speed of 11.1 Mbps places us 50th in the world (Akamai State of the Internet Connectivity Report).

International issues

Some issues we share with other nations. According to the most recent Global Gender Gap Report from the World Economic Forum, Australia was ranked 42nd. The AICD’s quarterly 30% by 2018: Gender Diversity Progress Report shows that progress towards the target of 30 per cent female representation on ASX200 boards has stalled at 25.4 per cent, marginally above the 25.3 per cent achieved in 2016. We need urgent action to achieve greater gender diversity on the boards of Australia’s largest companies.

Declining trust in our institutions is another feature we share with the world. The 2017 Edelman Trust Barometer polled 53 per cent of respondents saying the current system has failed them. For Australia, that proportion was even higher, at 59 per cent. This erosion in trust has occurred as we face challenges in technology, demographics and the global environment.

In technology, we have moved “beyond imagination”. The smart phone, which heralded the mobility revolution in 2007, has transitioned to incremental changes. The frontier is now artificial intelligence (AI), gene editing and quantum computing, which make technologies like additive printing and blockchain look accessible. The technology conversation now focuses on responsibility and ethics: access to data, manipulation of perception, personal cybersecurity and AI programming. Professor Stephen Hawking said AI will be “either the best or the worst thing ever to happen to humanity… We cannot predict what we might achieve when our own minds are amplified by AI”. This debate is relevant to directors in every sector.

In demographic terms, by 2025 the Australian millennial generation will represent 75 per cent of the workforce. As well as purpose and impact in their careers, millennials are looking for pay, work-life balance and stability, according to Deloitte’s Millennial Survey 2017 and a study from IBM’s Institute of Business Value. Creating productive exchanges with a generation that has grown up with 24-7 connectedness is essential.

The global environment continues to present challenges. While the world economy is looking in better health, geopolitical tensions, populism, extremism and climate change all have the potential to alter the course and stability of the global economy and political environment.

Regional perspectives of the future — Asia vs the Americas vs Europe — are diverging. The “terms of engagement” around areas like trade and investment are being renegotiated and consensus is seemingly harder to achieve as local and national politics subordinate larger goals.

Directors are wrestling with the implications of these diverging regional perspectives. We have a tremendous legacy of investment and trade with the Americas and Europe. Equally, we have a tremendous opportunity to engage even more in the economies of Asia. From the perspective of agribusiness, education, tourism, health care, and innovation in science and technology, China alone has the potential to transform our economy.

Whether the issue is emerging technologies, gender diversity or developing our Asia capabilities, the AICD will continue educating, informing and advocating on behalf of directors, pressing for the institutional will to address the challenges we face and the broader trust deficit.

A vital platform for that conversation in 2018 will be the Australian Governance Summit on 1-2 March in Melbourne — it is Australia’s largest gathering of directors.

Finally, to all our members a safe and happy holiday season. I look forward to seeing what the AICD community of directors and organisational leaders will achieve in the year ahead.