What can directors and others expect from attending the Australian Governance Summit?
There are so many governance issues around at the moment partly out of the royal commission, but I think hearing experienced directors talking about the pros and cons of some of the issues makes it all far more real and understandable. One of the things I enjoyed last year was the fantastic range of speakers talking on a wide range of topics in an entertaining way. So this year, I am excited to be a part of that.
What are the key issues for directors in 2019?
One of the key issues directors will be thinking about is how they apply discretion to remuneration outcomes. There has been a lot of focus on cutting bonuses, or not cutting them enough, so I think all directors are really challenging themselves about how they apply discretion. That’s going to be quite a tough one for directors.
If your business has fared badly at the banking Royal Commission, the community expection is that executives will not to get bonuses this year. So when companies are in the spotlight, as a director you need to think through what the community expectation is and balance that up with what management has actually achieved. I do think there is still a case for short-term incentives but it’s important that these rewards do not incentivise behaviour which is to the long-term detriment of the company.
Another key issue will be a focus on sustainable reporting, as there is now a heightened focus on both social and environmental issues. I actually think that business is doing a lot more on climate change than governments are.
Reputational risk may be a big factor for boards in terms of the Modern Slavery legislation which has passed through Parliament federally and in NSW. All the boards I sit on are looking at the federal Modern Slavery bill. It is another element of risk round your supply chain.
At the Fortescue Metals Group board, modern slavery in our supply chain is an important issue we consider as our founder and chair Andrew Forrest has personally been driving this issue globally for quite some time. At the moment, Fortescue’s operations are in the Pilbara but as we start to look at expanding our operations potentially into South America and other countries it becomes increasingly important.
There are calls for directors to become more involved in businesses. Is this one way we may see governance change?
Yes. I think the days of just turning up to a board meeting and reading the board papers is well and truly over. You certainly need to understand the business and get out there and involved. My sense is some of the regulators are perhaps trying to push non-executive directors more into the line of management and I think we have to be careful not to blur those lines.
Do the boards on which you sit conduct site visits?
I am on boards in the mining sector, manufacturing and property, and we do a lot of site visits. There’s no doubt that getting out around the operations and meeting people on the ground gives you a great sense of the culture of the organisation but also gives you a much better insight into the performance of the company and the sort of risks you deal with on site.
What do you see as a major director challenge?
Culture is one of the big issues for directors at the moment. Obviously a lot of things are coming out of the banking royal commission which highlight the need for directors to really understand the business from the point of view of both performance and corporate culture. The key issue directors are grappling with is how you assure yourself that the culture reflects the core values of an organisation from the CEO down through all layers of the business. In large organisations like banks this can be quite challenging for boards.