What keeps ASX300 directors awake at night?

According to a recent survey conducted by PwC Australia, 70 per cent of directors from ASX300 companies believe a gap is emerging between the role and purpose of listed boards and what the community expects of boards.

Directors are concerned there is confusion around the purpose, role and obligations of directors, versus the role of the management team and think that much of the community does not understand what boards actually do.

Chairman of PwC Australia’s Board of Partners Peter van Dongen GAICD said, “While Australia’s top directors have had their ears finely tuned to governance changes, one of the frustrations we’re hearing from directors is what they perceive to be an unrealistic expectation around what the board is responsible for.

“Directors are concerned that there is confusion around the purpose, role and obligations of directors, versus the role of the management team.”

According to PwC Australia’s inaugural ASX300 Many Hats non-executive directors survey, seven out of 10 company directors report they believe there is a growing expectation gap around the role of listed company boards.

The survey, completed by 112 Directors from ASX 300 companies, shows nearly half of those surveyed say there had been either a significant (6%) or minor (38%) extension of the boundary of responsibilities between board and management in response to recent governance developments. Many highlight they are also doing much more in their roles - including more ‘deep dives’ (80%) and devoting greater time to “connecting the dots” and contemplating emerging issues.

Directors are also concerned that if the expectation gap is not closed, it may lead to an exit of talent from the director pool and a flight to private company boards where the glare of the public company spotlight and regulatory overlay is not as strong.

“A number of leading recruiters have shared with me that five years ago candidates were knocking at their doors for board positions on financial services companies. Today, there are a lot less knocking because people are not willing to take on the time impost and personal risk now associated with these board positions,” said Mr van Dongen.

The survey shows that half of those surveyed are refreshing their board and that one-third do not think their boards have the right skills or experience. The best way to promote board refreshment was seen as frank and confidential feedback given either to the chair or a trusted third party.

Other interesting findings relate to culture, remuneration and non-financial risks.

Top 7 survey findings

• The number one step boards are taking in response to the royal commission is to invest more time in corporate culture (77%), and more than two-thirds are investing in more sophisticated ways to monitor culture in their organisations.
• In second place, board directors intend to invest more time on remuneration. Seventy-three per cent of non-executive directors say their board is changing or has made changes to its remuneration policy. Fifty-eight per cent of those surveyed are reviewing bonus/incentives to ensure they are more effective and 42 per cent are placing a greater weight on non-financial metrics including risk and customers.
• More than one-third of directors feel their boards do not currently have the right skills and experience. When looking for new directors, strategic acumen, financial, operational, and industry expertise and risk management are the most highly rated skills by boards. Fifty-two per cent of directors surveyed are refreshing the composition of the board in response to recent governance developments.
• 21 per cent believe one or more directors on their board have been there too long and 6 per cent say one or more board members are not high-performing and need to be replaced
• When asked what changes to management reporting would be most useful, the top two responses from directors were more detailed reporting from management on non-financial risks (57%) and customer insights and data (55%).
• Finding board talent is getting harder, especially in financial services, with only 62% of non-executive directors confident their boards will find the talent they need, compared to 83% across other industries.
• APRA’s draft remuneration standard - 41% said it will result in more change than they were anticipating making around remuneration (35% slightly more and 6% significantly more) and 38% believe it will result in a substantial (an extra 5-10 hours) or major change (an additional 10+ hours) to their roles and workloads.