The opening day of the Australian Governance Summit provided plenty of food for thought on the evolving role that directors must take on to address community expectations. AICD Chairman Elizabeth Proust AO FAICD set the scene for the conference by describing the crisis of trust in Australian institutions.
"Trust is society's most fragile asset", Proust who is also Chairman of Bank of Melbourne and a non-executive director of Lendlease said.
Sam Mostyn MAICD, a Mirvac, Transurban and Sydney Swans non-executive director, followed with a powerful opening keynote address, including a sharp admonition to her fellow directors. “Directorship is not a lifestyle choice, and directors need to act as stewards of their organisations to rebuild community trust in their organisations,” Mostyn said. Referencing the collapse of trust highlighted by the 2018 Edelman Trust Barometer, Mostyn made the case that directors and boards have a responsibility to earn their social licence to operate.
On diversity, Mostyn expressed frustration at the slow pace of change. With the business case for cognitive diversity on boards now well-established, Mostyn shared her personal experiences on the positive difference that occurs when boards become gender balanced.
Mostyn went on to highlight the importance of diverse thinking as a means of solving complex issues such as climate change risks. Quoting Indonesian diplomat, Marty Natalegawa, Mostyn called on leaders to “disagree without being disagreeable”, and to approach complex problems with humility and curiosity in order to find workable solutions.
No sector is immune
In light of the broader erosion of trust in institutions and recent high-profile cases of misconduct in the not-for-profit (NFP) sector, NFP directors have an important role to play in protecting trust and confidence in the sector.
In one of the NFP-focused panel session, Dr Tessa Boyd-Caine GAICD CEO Health Justice Australia and Paul Ronalds Save the Children CEO discussed the need for NFP organisations to:
- place and increased focus on managing their financial stability;
- take an evidenced based approach to delivering their mission;
- define their purpose and live their values; and
- take a skills based approach to board composition.
‘Things can always go wrong’
Culture is undoubtedly a board issue, but it is very hard to measure, the ‘Culture and Reputation of Your Organisation’ panellists averred . Boards must ask themselves, what does the company value? While different companies will have different cultural focuses, you ignore it at your organisation’s peril.
Louise Baxter, Starlight Children’s Foundation CEO, said, “we have worked to make culture important at Starlight Foundation. There is a rule that photos must be taken on a Starlight Foundation camera, and staff feel so supported that I have been reported for taking photos on my phone before.”
Things will always go wrong; culture can help to manage when things go wrong.
Sally Pitkin: Any board that relies on the CEO as its single point of reference to assess organisational culture could find itself in a great deal of trouble. #GovSummit18
And when it does….
Former AMP CEO and Stone & Chalk Chairman Craig Dunn implored delegates to own up to their mistakes.
Dunn explained, “When an organisation gets something wrong. Where people get frustrated when mistakes are made and the organisation isn’t, open honest, and apologetic. That’s where it gets even more corrosive on trust. My learning as an executive is to be open and honest. We made some errors at AMP when and before I became CEO. Be open and up front. Judge us by how we own up to the mistake and how we respond.”
It’s the “drip, drip, drip” that will cause a disaster in your company around trust, not the overnight issues. #GovSummit18 👍🏻 pic.twitter.com/q0Elca3QJU
Technologist and entrepreneur Paul Shetler led major digital transformations for the Australian and British governments. When those agencies had successes, it led to a changed perception in the community that the government was on their side. He said there had been a fraying of the social contract between employers and employees, governments and constituents.
.@leighsales: How do companies get ahead of community expectations rather than just responding? #govsummit18 #trustinthedigitalage
Jacki Johnson, IAG’s Group Executive for People Performance and Reputation detailed the complex and developing nature of the communities IAG deals with, calling on delegates to recognise communities are not homogeneous. She kicked off the complex ‘Building Trust in the Digital Age’ topic with a simple and penetrating insight: “Trust as a concept hasn’t changed since the dawn of time. It’s the need to rely on other people to do what they say they’re going to do.”
3rd rock from the sun
The issues Australian directors are facing - culture, trust, sustainability, equality, transparency are being dealt with globally. “You could have this same panel in New York. We are having this exact conversation,” said Microsoft’s Tom Daemen.
“All over the world people are looking for new solutions.” said Marcello Palazzi and said business could be more positive in debating this. “Building trust, having a positive impact, all these things are a plus. They are not a cost.”
Australia is the fastest growing community of Benefit Corporations in the world. These are organisations set up with an express objective of delivering a positive impact.
Boards and management were needing to redefine success and prioritise a change in culture.
“We have for the last 20 years readly defined our success in a very fiscal way. I am now seeing this change. I see investors say they will back a very sustainable business,” said Monica Bradley.
Australia should beat the drum more on its innovating successes, the panel agreed.
For example Macquarie Group has innovated over its 50 years and it innovates year on year in global infrastructure and asset management and a range of sectors. “Most people in Australia think we’re a bank,” said Macquarie Group non-executive director Nicola Wakefield Evans.
Board composition and processes need to evolve to accommodate the changing societal demands.
“We are in a period where the role of a director is being redefined,” Wakefield Evans said.
“Boards are always the last group in a company that transform and restructure themselves. We still operate through precedents we’ve been operating through under 100 years.”
Who is leading the charge?
NBNCo Chair Ziggy Switkowski AO FAICD and Blackrock Head of Investment Stewardship teamed up to examine the trends in reporting and engagement. As expectations of companies have grown, companies are looking for how they can provide more meaningful information to shareholders, particularly for the long-term, Bennett explained.
This has led to many companies considering moving toward integrated reporting regimes, though so far Lendlease is the only major ASX-listed company to go through with the change. Not-for-profits have mostly led the charge, Bennett said.
“Boards are asking is what we’re reporting to shareholders meaningful information.” - Pru Bennett of @blackrock on the move to integrated reporting. #GovSummit18 pic.twitter.com/pIvgsX1VrO
Listed boards have been wary of jumping on board too soon for the fear of liability that long-term commitments under integrated reporting regimes might lead to.
Both Switkowski and Bennett agreed that proxy advisors had an important role to play in guiding voting decisions by shareholders. Proxy advisers have made some howlers over the years but their recent judgement has been sound even where you don’t necessarily agree with their decisions, Switkowski said.
Companies need to be aware of the social costs of their business, Bennett told the session.
"Any business has a footprint on society and externalised costs… The company needs to be aware of what it’s externalised costs are. It is up to boards and companies to minimise that externality. If companies manage that well they do build up trust"
Large organisations can and should be nimble
In his keynote address, CSIRO Chairman David Thodey gave a clear call to action, “Innovation is not optional, it is critical to what we do and how we take advantage. There are those that suffer ‘woe is me life has changed’ or the victors ‘we can do something with this’. Our role as board directors is to be victors.” Thodey emphasised that innovation was not simply a moment of brilliance, it is usually the product of “hard disciplined work”.
#govsummit18 the one thing that stands out about @davidthodey every time I listen to him besides his towering wisdom: #humility @AICDirectors pic.twitter.com/PYj5Uo71mO
He drilled down on exactly what can board directors can do and focus on to drive innovation in the face of disruption:
- Turn up to the boardroom with a learning attitude: learning, searching, questioning and moving forward. Directors have to put time on the agenda to think about what might be and what is possible. “Get external speakers into the boardroom, get staff to come in. That’s probably another great truth: you have more innovation inside your organisation than outside.”
- Recognise culture is not motherhood, it’s about a willingness to question the status quo and find new ways of doing things. “We brought Dr Gary Hamel down to spend time with the Telstra – two days with him and you change the way you think about things. We also did other things like set up incubators and accelerators to break the mold.”
- Build organisational structure and process around getting those innovations outside of the business.
- Ask yourself: Are you really willing to reinvent yourself?
#Innovation is the product of hard disciplined work over many years! @davidthodey talks about how innovation can be improving current process, products, or systems, and not simply accepting the status-quo. #govsummit18 #trust #sustainability #MillennialDirector #entrepreneurlife pic.twitter.com/ExYyaLPcCl