An entertaining and thought-provoking end to a great first day at #AGS2020.
Today’s hypothetical board explored some of the complex dilemmas facing today’s directors.
- Chair: Lou Panaccio MAICD
CEO: Rebecca Davies AO FAICD
Tim Trumper MAICD
Sally-Ann Williams GAICD
Ethicist: Professor Bob Wood
Moderator: Stan Grant
A board in the aged care sector has a strong emphasis on sound economic results and managing costs to ensure its financial sustainability. It has focused less on organisational culture and responding to customer feedback. The board is considering a proposal to employ contractors rather than full time employees.
Board and management discussed:
- How does this fit with our cultural values?
- Where is the customer in this discussion? What evidence do we have that this will be good for them?
- How will management manage the risks that come with external providers to ensure quality of care?
- How does the board ensure it constructively challenges management and ensure decisions are considered and not reactive?
- How do we ensure a healthy dynamic between the CEO and the board to ensure constructive rather than combative discussions?
- If we’re a ‘care business’, how do we determine whether our main purpose is to ‘care’ or as a ‘business’? Directors need to get very clear about these metrics and how they are measured. There’s a trade-off between short-term profit and building a sustainable business. How do we continually measure our impact?
The board has decided to employ contractors across all facilities. There has been backlash on social media, though customer engagement scores are stable. The organisation has also been approached by a company offering state-of-the-art patient monitoring services at a bulk discount if the organisation is willing to share the collected data.
Board and management discussed:
- Should we? Not just could we? What framework will we use to make this decision?
- What do we know about the organisation would we be partnering with?
- What will happen to the data? Where will it be stored? Who owns the data? What are the privacy implications? What expertise is needed on the board to make these decisions?
- What are the trade-offs between the benefits and the costs?
- What is our procurement process and how did we end up with this option? Is it an ethical process? Are there any conflicts of interest?
A relative of a resident has tweeted about the poor quality of food at one of our facilities. The tweet has gone viral. A second post compares the daily cost of food with what residents pay per day. The customer service team has been inundated with complaints and people are starting to leave the facility. There are calls for the CEO or chair to resign.
In relation to the complaints, the board and management discussed:
- What is the role of the board vs management in managing the crisis?
- How are we holistically thinking about the services we offer to our customers?
- How have costs changed over time? Do we have incentives in place that make staff want to lower costs? Do we benchmark costs against other providers?
- How do we manage the demands of competing stakeholders – customers vs shareholders?
- What reputational issues are at play?
- How representative is this feedback? Have board members eaten meals at our facilities?
In relation to calls for the CEO to resign, the board discussed:
- What is in the best interests of the organisation?
- How is the CEO regarded outside of the organisation?
- How has the CEO performed over time? What data points can we reflect on?
- What is our process for removing the CEO?
- What is the process for determining how quickly we move on this and our messaging to the marketplace? If we’re clear about the reasons why we’re doing something, then we have a clear message.
Boards can look to university models for diversity
When addressing the topic of diversity and inclusion on boards, it is important to go beyond the issue of just gender to other areas such as a diversity of networks, socioeconomic status, ethnicity, age and even employee status, the AGS was told today.
Outstanding work in this area has been done by universities in Australia, according to Nicola Wakefield Evans FAICD, Chair of the 30% Club Australia, and a director of Macquarie Group, Lendlease and the AICD.
At the University of NSW (UNSW), where David Gonski, AC is Chancellor, the Advisory Board of the Law School and other boards at the university have adopted a deliberate policy to broaden out the concept of diversity.
“The boards combine students, staff, alumni and relevant people,” Wakefield Evans told an AGS panel session on Diversity. “Those boards are fantastic. You get a very rich discussion about the issues at hand from a range of people.” Wakefield Evans is a member of the Advisory Board at the University of New South Wales Law School.
University boards also rotate positions every two years. “It’s something to think about,” she added.
However, there is no geographical diversity on most Australian boards or diversity in terms of networks, says Ming Long GAICD, Deputy Chair of the Diversity Council, Chair of AMP Capital Funds Management and director QBE and CA ANZ boards.
“Our networks are not that diverse,” says Long. “We need to allow for people who are not in our socioeconomic networks.”
“We need to allow for people who are not in our socioeconomic networks.“ - Ming Long, GAICD
And on a lighter note, she raised the question of how diverse we really want boards to be. “Would I want an anti-vaxxer or a member of the flat earth society? Do I want one of those people on my board? Or even a climate denier on the same board as me?” she asked.
Should Australia follow the European model and allow workers to join company boards? Wakefield Evans sounded a note of caution. “I think our governance structures would need to change to have employees on boards.” Places like Germany have done that, by including staff on supervisory and other boards. However, there are different governance structures in place in Australia.”
Research shows that the most marginalised in society are Indigenous people and those with disability. “We need them in leadership positions so we can get them into the boardrooms,” Long said.
James Fazzino, Chair Manufacturing Australia, says there is a school of thought that men who designed the current system should look at themselves as the people who need to take responsibility for greater diversity on boards, says, “As a community of men, we need to be far more aggressive on this.”
The Workforce of the Future panel heard that the terminology itself can be a barrier to organisations transitioning rapidly enough. “We have a problem with terminology,” said Michael Priddis, founder and CEO of the analytics platform Faethm AI, which models the effect of automation and robotics on organisations, workforces and stakeholders.
“This is a capability and productivity opportunity. We need to reframe the problem and reframe the conversation. When we say ‘the future of work’ it sounds like it's the next person’s problem. And when I hear ‘revolution’, it’s winners and losers.”
He said a more suitable parallel would be to look back to the 12th and 15th and 16th centuries and the first or second Renaissance.
Rhonda Brighton Hall, co-founder and CEO of HR platform Making Work Absolutely Human said the more traditional model of HR still used by most organisations has been around for 30 years and is “the antithesis of agile where you try to put strategy and people at the heart” of the organisation.
She said a better way for culture to be understood at board level is to think of a culture map. “The very fundamental of culture is it is a system, not a score.”
“There are no magic bullets. It is about context, priorities and impact. Agile won’t be the answer to 9/10s of your problems - human capital, culture and capability hand in glove.”
STEM in the boardroom
Directors with a knowledge of science, technology, engineering and mathematics do a better job of understanding and drawing on evidence to make dispassionate decisions than other directors, the Australian Governance Summit heard.
“We have this hole in our skills matrix around science and tech and in a world that's changing as fast as this one I think it's a real hole.“ - Dr Katherine Woodthorpe AO FAICD
Just as boards need diversity of age and gender, they also need diversity of skills beyond legal and finance to STEM, said Dr Katherine Woodthorpe AO FAICD, a board member of the Antarctic Science Foundation start-up hub Fishburners.
“We have this hole in our skills matrix around science and tech and in a world that's changing as fast as this one I think it's a real hole,” she said.
Scientists are the people around a board table most likely to ask the “dumb question”, she said, which is often the most important question, because scientists are always seeking evidence to know why and how the company is doing something.
Professor Matthew Vadas AO, executive director of the Centenary Institute medical research body, outlined two advantages to having directors with an understanding of STEM:
- They understand evidence, which can be very difficult to grasp without a good knowledge of statistics and where the information came from and, without which, directors can be “taken in”
- People with STEM training are used to taking emotions out of their decisions. "When you see a patient with a terrible illness you feel a huge amount of empathy for the patient, but your decision is based on the evidence around it,” he said.
Jackie McArthur MAICD, who sits on the boards of Tassal Operations, InvoCare and Inghams, said there are many opportunities for directors to learn about STEM. It can be as simple as phoning expert directors.
“That’s the secret sauce – you can upskill just by having a network that maybe in their sleep looks at the sort of data sets you could only dream of,” she said.
Only 3 per cent of directors have a STEM background. How do we raise this number?
“If you see it, you can be it.” Current directors must act as mentors to potential STEM directors.#ags2020
The board and management of Sydney Water transformed its digital platform for customers in a $200 million “project of state significance”, requiring heightened government oversight. Abby Bloom FAICD, Non-executive Director and Bruce Walker FAICD, Chair shared their lessons learned in the Digital Transformation session.
“Many companies struggle with digital transformation,” said Sydney Water Chair Bruce Walker FAICD. “The first thing we did as a board was to agree what was at stake if we failed.”
“We made the new bill look exactly the same but the processes behind the bill were completely different,” said GM Digital and CIO George Hunt.
More than 100 million data records were migrated to a new system after a three- year project unveiled last year. (subs: 2019)
Sydney Water is the largest water utility in the southern hemisphere with more than five million customers, an asset value of $19 billion, more than 2600 employees and annual revenue of more than $2.5 billion.
Walker said a key decision was to put the project as the first item on every board agenda and to make sure all directors were involved and sufficient time for the issues to be discussed at board meetings.
Walker said the project was delivered on budget and on time despite “a high risk the system would fall over”.
Abby Bloom FAICD, Non-executive Director on the board, said the state-owned corporation is heavily regulated with objectives including the protection of public health and the environment, and the need to operate as a successful business. Although the nuances of the project were specific to Sydney Water, the lessons are relevant to all organisations.
A digital transformation completed by charity platform Good2Give has been a huge success, with the donations they manage more than quadrupling from $5 million to an estimated $24 million this year.
Lisa Grinham, CEO of Good2Give, said: “Trust is an important factor in not-for-profits dealing with donations. Let’s face it, without trust in the sector, people are not going to donate. For boards this can be a real risk point.”
The outpouring of donations in the face of recent Australian bushfires was “staggering” and it’s estimated that one in two Australians gave during the fires. But donors need to trust in charities for those who need it, she says.
“The board is not exempt from the transformation.“ - Michael Graf, MAICD
Good2Give supports over 2,500 charities in Australia and New Zealand and manages donations from 25,000 donors. Since 2001, it has raised $230 million and it aims to deliver $300 million to charities by 2022.
As part of its digital transformation, a major board refresh was necessary, according to Michael Graf MAICD, Non- Executive Director, Good2Give.
“We did refresh the board, with three (out of seven) new board directors bringing a wealth of digital capabilities to the table,” he said. “The board is not exempt from the transformation. Boards need to ensure their directors are upskilled and/or bring in directors with new skills to meet the needs of the operation moving forward.”
For any digital transformation, Grinham recommends:
building a business plan
doing due diligence upfront
realistic time frames
ensure all key stakeholders are on board
“Once you embrace technology, it is going to become your Business As Usual,” she said.
A Volunteer Technology Advisory Group (TAG) has been set up as a mechanism to bolster Good2Give’s technology and cyber security expertise. TAG acts as a sounding board for management and directors.
Read more in an article written by Lisa Grinham in the AGS 2020 Press Reader.
Future ready economics
The Future Ready Economies panel heard case studies of how Israel and Ireland are positioning themselves as global innovation hotspots and future-proofing their economies in the process. It discussed the changes needed in Australia’s ecosystem, culture and board mindsets to ensure its own success.
Eitan Bienstock, CEO of Techbench Capital, which is involved in both the Israeli and Australian start-ups, said Israel’s top ranking on innovation, R&D and global innovation hubs resulted from a focus on human capital and required a bipartisan focus on building the knowledge economy.
“When you use materials, you have less of it. When you use knowledge you have more of it” Bienstock said.
Ray Fleming, senior market adviser with Enterprise Ireland, spoke of attracting “sound investment and talent” by encouraging migration for long-term growth. Enterprise Ireland is responsible for commercialisation of research, it supports pre-revenue enterprises, trains and mentors entrepreneurs, and critically, is also a capital investor.
Maria MacNamara bolstered this view, stating “Talent will make the difference between success and failure.”
Alex Scandurra, CEO of Stone and Chalk innovation hub, said the two case studies revealed countries under constant pressure of pain, while Ireland had to go through its own post GFC crisis.
“To be completely honest the future of our country rests in this room,” he said. “culturally Australia doesn’t like to take risks and it tends to err on the side of laziness”.
“We can experience that pain ourselves and continue on the incremental approach until we are on a burning platform. And if that time comes the ability and capacity to respond will be much shorter.”
Read more on the state of innovation in Australia and what The Boardroom Gap Report found in this article: Driving innovation: the boardroom gap
What do directors need to know when engaging with startups?
A discussion with @AlexScandurra, CEO of @stoneandchalk. pic.twitter.com/Qk3bQJwQah
The shifting landscape
Geo-political uncertainty and market volatility are adding intensity to boardroom discussions.
The biggest challenge companies face is not balancing the interests of shareholders and stakeholders, but finding a balance between the short-term and the long-term, said Michael Froman, a former adviser to US President Barack Obama.
Froman, now an executive with Mastercard and a board member of the Walt Disney company, said companies look at how to meet environmental challenges and how to be inclusive while at the same time pursuing economic growth.
"I actually think the challenge that companies face is not between shareholders and stakeholders - it's between short-term and long-term,” Froman told the Australian Institute of Company Directors’ Australian Governance Forum 2020.
Froman said Mastercard invests in financial inclusion because it is in the company's interest to have inclusive and healthy economies. “If the economy is thriving then we will thrive as a company," he said. Likewise, the company focuses on the environment because it helps it attract and retain the best talent and build the brand with customers. Boards can justify these actions because they all contribute to long-term shareholder value, he said.
The main emerging shift in the global environment that directors need to be aware of is the rise of nationalism and with it tariffs and protectionism.
"These are all things we will have to deal with on an ongoing basis," Froman told the assembled directors.
Boards of global companies will have to understand “what the nationalist trends are, the challenges they create, and how they have to modify their business model to be both global and local in a way that plays in each of the key countries”, he said.
Boards of 2030 to be swamped by data
About 20,000 new satellites will launch in the next decade, according to Dr Megan Clark AC FAICD, Head of the Australian Space Agency and director on the boards of CSL and Rio Tinto.
The boards of 2030 will need to cope with enormous changes in data and a super powerful new generation of communications from different space technology. “If you thought you were being swamped with data now, you have not seen anything yet,” she attendees at the keynote session, Boards of 2030. “ This whole industrialisation change will completely transform how we communicate”, she said.
“In the future, we’ll learn to throw away 90 per cent of our data – the challenge is identifying the 10 per cent.“
The task of directors in the face of so much technology operating off the planet makes the value of our human judgement all the more important, she says. “When things get really difficult, no amount of AI will help you.”
“In the future, we’ll learn to throw away 90 per cent of our data – the challenge is identifying the 10 per cent“ - Dr Megan Clark AC FAICD, CSL, Rio Tinto, Australian Space Agency
Values and purpose
Boards of 2030 need to operate in a more globally complex world tested by increased global security and surveillance. As we move off our own planet, into hostile realms, “values and purpose are ever more important.”
The space sector has been transformed and what was once the role of government has now entered the private domain. Most of the development of space is also being managed in the commercial realm, which is a challenge for governance and risk and accountability. “Last year 16 per cent of launches in space were in the commercial realm,” says Clark.
Australia is in a position with Canada of being one of the first countries about to approve applications from space companies to send new satellites into orbit. And the first lasers from space to Earth will be 500 times the bandwidth of 5G, so the power of the new technology is going to be much stronger.
Sharon Warburton GAICD, Co-deputy Chair at Fortescue Metals and a Director at Wesfarmers and Perth Children’s Hospital, said the increasing volume of global data will be a real challenge for directors.
“I think an open mind on a completely global focus and opportunities in data will become increasingly important,” she told the Boards of the Future session.
ESG (environmental and social governance) will also be a big focus for future boards. Warburton says 80 to 90 per cent of her own personal development has been in the ESG space and her boards now have “very chunky” ESG reports. Cyber also becomes “real-time important”, with developments such as driverless vehicles already deployed in the Pilbara by Fortescue.
Graeme Liebelt FAICD, a Director at ANZ banking group, Amcor and AFIC, says business strategy will become even more important and traditional business models, such as those in banks, are really going to be challenged.
Directors also need to remember to take risks when required, and he worries that this is getting to be more difficult with ever-increasing levels of compliance. “Directors are being encouraged to say no (to risk), not yes. There is no reward for directors to take risks.”
“Directors are being encouraged to say no (to risk), not yes. There is no reward for directors to take risks.“ - Graeme Liebelt FAICD, ANZ banking group, Amcor, AFIC
Ben Heap GAICD, Executive Chair of H2 Ventures and a Director at Colonial First, says taking a long-term view will be crucial in terms of sustainability. This needs to be of “an enduring nature for well beyond the tenure of directors – for generations. That is definitely a change that has become much clearer to a lot of us over the next 10 years.”
The role of the chair will also become more important, as Heap wrote in an article in the AGS 2020 Press Reader. The boards of 2030 will need to navigate the fourth industrial revolution. “The pace of change has increased dramatically and will continue to do so. The next 10 years may feel less like evolution and more like revolution.”
Welcome to the Australian Governance Summit 2020!
We’re live at the International Convention Centre, Sydney (ICC Sydney) for the next two days as we hear from business leaders and governance experts about the challenges facing boards and business today.
We start with our Welcome to Country from Aunty Ann Weldon, as we stand on Tumbalong, the land of the Gadigal clan of the Eora Nation.
Our MC, writer and journalist Stan Grant opens the 2020 Summit by talking about the great number of issues at play and the role of boards in the changing world, and in advancing reconciliation.
AICD CEO and Managing Director, Angus Armour FAICD, and AICD Chair, John Atkin FAICD, welcome delegates and acknowledge former-AICD Chair Elizabeth Proust AO for her role in helping achieve 30% female representation on ASX200 boards.
Armour and Atkin address the conference theme ‘A new line of sight’, highlighting the need for leaders to do things differently when the community’s trust in business and capitalism are at an all-time low. Australia’s overly burdensome regulatory environment means that the director community must, in response, strive to lift governance standards. The Australian community is also increasingly asking for leaders to show leadership on important issues, rather than wait for government action.
Armour spoke of the immediate challenges – bushfire recovery, Covid-19 risks – as well as the longer-term challenges of emerging technologies, climate change, the future of work, and a community of voters more dissatisfied and vocal than ever before. He spoke of the implications for our economy and our society, and the community’s concerns around fairness, accountability, privacy and equality. He also called for a bilateral approach, one not seen in generations, to climate change.
Armour and Atkin spoke of the need for business to be clear of its sense of purpose, how it creates value, the hidden costs and interconnected value chains, and how it impacts the broader society in which it operates – to be clear on their ‘line of sight’.
Directors cannot demand respect because of the power we have - we must lead with #humility and earn the #trust of our people & community #AGS2020 pic.twitter.com/oPyu2BC0td
Atkin spoke of the need for directors to also look at their own personal ‘line of sight’. Being a director is a privilege. Gone are the days when the position automatically commands respect. It now comes with a responsibility to rebuild trust, to understand stakeholder’s opinions, and to work with humility to develop solutions for society.