National Conference news wrap – day two
And that’s a wrap on Governance Institute of Australia’s 38th National Conference!
With more than 900 delegates and 50 expert speakers across two days, we are absolutely thrilled with this year’s 100 per cent virtual event.
Here is our news wrap of all of day two's sessions and a look at the key themes, lessons and takeaways.
Global risk megatrends
- Chair: Sourabh Pandey, Director GRC, Ansarada
- Besa Deda, Chief Economist, Westpac Business Bank
- Peter Hearl, Chairman, Endeavour Group and Non-executive Director, Santos and Telstra
- Phil O'Reilly, Immediate Past Chair, Business at OECD and Managing Director, Iron Duke Partners (NZ)
Prospects for the global economy are looking up on the back of government stimulus and the reopening of societies as pandemic restrictions on movement and activity are rolled back.
But business needs to be aware that global geo-political risks are on the rise amid rising wealth inequality and the rapid rise of cyber threats.
Hearl says geopolitical risks is headed by what he calls the livelihood crisis.
“The pandemic has highlighted discrepancies in economic inequality. Nations living in extreme poverty are much worse off under the pandemic than they were prior to the pandemic.”
This inequality leads to an increased risk of terrorism fuelled by disillusionment of the youth around the world.
O’Reilly highlights the inequality exposed by the pandemic by using the example of New Zealand’s experience with lockdowns.
“It's not just economic inequality, it's also digital and health inequalities.
“In New Zealand during our big lockdown, about a third of all New Zealanders went to work, about a third of us stayed at home and did our business on Zoom and about a third of us just stayed at home and did nothing much.
“There's the digital divide right there, writ large: a third of New Zealanders more or less basically sat at home and did nothing.”
He says this poses real risks to globalisation because if people don’t think they have a stake in the success of the current system, then “they’ll try to burn it down, often literally”.
Hearl calls out inequality between generations, calling on companies to appoint younger people to boards to build a bridge between old and young and make sure younger people have a voice and a seat at the table.
“There is no doubt the baby boomer generation has got more resources than any previous generation in history but unfortunately our kids and grandkids don't face that same future, so I think there's got to be a bridge to the younger generations,” he says.
Deda points to a close-to-home risk for businesses posed by the pandemic: the new way people are thinking about their employer relationship and how they want to work and learn.
The rise of side businesses and hobbies has given young people more flexibility in how they deal with traditional employers, she says.
“That's contributed to a rethink of what the employer employee relationship looks like.”
Hearl says business and society need to work on improving the way remote working and learning work.
“We sort of fell into new ways of working,” he says.
“I don't think we've put enough effort into teaching employees or students what's the best way to learn remotely, what's the best way to learn digitally.”
Still, despite the success of remote working, O’Reilly says business remains a “contact sport”.
“It's really hard to be influential in my game when you're on a Zoom call at three o'clock in the morning, when all the Europeans are getting together and they're flying again.”
Fissures in nation state relations are another big risk, says Hearl, pointing to the rise of China coupled with US withdrawal as the world’s policeman. This nation state conflict is leading to increased cyber-attacks and threatening supply lines, while the geopoliticisation of resources is another risk businesses need to be aware of.
Deda says this puts Australia is in a difficult position because its major strategic partner is the US but its main trading partner is China.
“It leaves Australia between a rock and a hard place,” she says. “It’s a very difficult path.”
Regulation, accountability and culture
- Chair: Pauline Vamos, Chair, Governance Institute of Australia
- Ilana Atlas AO, Non-executive Director, ANZ Bank, Origin Energy, Scentre Group
- Cathie Armour, Commissioner, Australian Securities and Investments Commission
- Kathleen Conlon, Chair, Lynas Rare Earths Ltd and Non-executive Director, REA and BlueScope
Good corporate governance is about focusing on long term wealth creation, and different boards approach the challenge of good governance in very different ways. Transparency, allowing board members to speak to staff, and getting beneath the plethora of metrics and data is critical for board members to do their job.
These were some of the key discussion points on board accountability and behaviours.
Vamos says her boards approach governance, and discussions on ESG issues very differently and it depends on the organisation and the make-up of the board.
Regulator Armour emphasises that strong governance flows through to long term value creation and effective risk management.
“If you have a good culture, you can make the rules pretty simple,” Vamos says. “From a regulator’s perspective we are interested in outcomes, and actions that allow the goals of long-term value creation.”
She says new legislation can change the culture and the banking Royal Commission was an example. But it’s important that corporate governance goes well beyond legislation and involves a range of stakeholders.
“Non-financial risk culture has been an awakening for firms,” Armour says.
Atlas says organisational culture is a complex outcome of systems, processes, symbols and the behaviour of leaders within an organisation.
“Regulation is an input into an organisation’s culture, but not the determinant… By its nature, regulation is generic … and it’s up to each organisation to work out how to implement regulation,” she says. “Boards have accountability for culture within organisations.”
Conlon says regulations are a minimum standard of community expectations. Some companies ignore them hoping for a competitive advantage, others treat them as a compliance exercise, and another group think beyond the legislation and focus on getting a competitive advantage by doing more.
“Most companies are exceeding the regulatory framework,” Conlon says. She added that regulators were doing the right thing to consult with business. They should be principles based and should spend more time on enforcement rather than more regulations.
So how do boards get the pulse of culture within an organisation?
Atlas said the trick for directors is to get underneath the data and metrics to find out what’s really happening, whether that be information on staff or customers. And confidence in transparency of information is fundamental to boards being able to operate effectively.
Conlon said there was no magic bullet to understanding a business, and the larger it is, the harder it is. She says she considers pulse surveys, staff turnover, whistle-blowers, safety statistics and customer feedback. She also peruses websites where people who tend to complain will. Conlon said as a board member, she wanted a CEO was happy for her to talk to staff.
Armour says boards should ask about bad news if they aren’t hearing any, and all the panel members agree.
In Conversation — The Chartered Governance Institute Update
- Chair: Megan Motto FGIA, Chief Executive, Governance Institute of Australia
- Tim Sheehy FGIA, Director General, The Chartered Governance Institute
- Peter Turnbull AM FGIA, President, The Chartered Governance Institute
The pandemic has been a difficult period for governance practitioners that will leave a legacy of accelerated progress on some important trends and raise risks around some others.
Prime among the accelerated trends is the ascent of ESG – or environmental, social and governance sustainability.
ESG has genuinely resonated with investors and there has been an incredible amount of investment capital chasing ESG compliant investments, says Turnbull.
Turnbull says part of sustainability is about understanding the broad horizon and that thought leadership plays an important role in this.
But he cautions that ESG can also be a source of risk for governance practitioners, particularly if governments “push the panic button” at the Glasgow climate change conference coming up in November.
“That could have some enormous effects over governance practitioners all around the world.”
He highlights the inequalities exposed by the recovery from COVID, which is splitting rich and poor countries and poses risk.
“That could well have some big consequences,” he says.
Other issues coming up for governance practitioners will stem from the accelerated take-up of technology prompted by the pandemic which pose disruption risks to business models.
“Data is another theme. The world is awash with data and people are trying to work out how to capture the value of that data and apply that value.”
Improving risk management is also on the rise post-pandemic as the events of the last year force people to reassess their risk management structures.
“I don’t know anyone who was totally ready for COVID so it has made people think about their structures quite deeply.”
Sheehy says the Chartered Governance Institute is uniquely placed to develop perspectives across multiple jurisdictions.
He points to a recent paper on diversity that drew data from eight different jurisdictions that allows people to compare approaches in a single paper.
Concurrent 3A: Board matters and stakeholder relations
- Chair: Ann Bowering, Chief Executive Officer, Issuer Services, Australia and New Zealand, Computershare
- Craig Katerberg, Chief Legal and Corporate Affairs Officer, Budweiser APAC
- Vicki Robinson FGIA, Executive General Manager, Company Secretariat, Wesfarmers
Eighteen months on from the first Australian lockdowns, governance professionals find themselves in a surprisingly similar position to where they were a year ago. The pandemic continues and lockdowns are ongoing in much of the country.
Robinson says the message for boards is the pandemic is not a passing event and the changes it brings will be with us for the longer term.
“What we're really missing are the opportunities to have the side chats and the discussions to get under the hood of how someone thinks and reacts to a certain situation,” she says.
The pandemic has lifted the focus on environmental, social and governance sustainability.
Institutional investors integrate ESG in two ways: portfolio integration – making buy and sell decisions based on ESG issues – and by engaging with companies and voting their shares for or against issues.
This mean companies need to demonstrate they have adequate ESG oversight and strategies.
“It is a competitive advantage to be connected with a purpose that matters in the long run, that people will care about, and that they are attracted to,” says Katerberg.
Robinson says Wesfarmers has long known that its business depends on doing the right thing by stakeholders including customers, suppliers, the community, the environment, regulators and governments.
“But what has changed is the range of stakeholder issues,” she says.
“You can report on things that might look good, or you can actually report on things that are meaningful.”
Concurrent 3B: Cyber security – the evolving regulatory landscape
- Chair: Lyn Nicholson FGIA, General Counsel, Holding Redlich
- Narelle Devine CSM, Chief Information Security Officer Asia Pacific, Telstra
- Tracey Edwards, Director Security Services, MLC Wealth/IOOF
- Retd Maj Gen Dr Marcus Thompson, Director, Penten, Engineers Australia, and Cyber Compass
Cyber security is one of the hottest topics around the boardroom, influencing the public and private sector. Its complex, its evolving, and it’s everyone’s responsibility.
It now crosses beyond technology into risk, communications and beyond.
While COVID hasn’t upped the pace of attacks, the shift to online increases opportunities for criminals.
Nicholson says there’s been a huge amount of work in the cyber security space involving governments, regulators and businesses, across everything from surveillance and telecommunications to directors’ liability, critical infrastructure and ransomware.
Devine says in recent years the cyber threat has grown significantly. The big shift has been the stealing of information and on-selling it to make money. In ransomware particularly, the number of attacks has risen and the criminals are getting smarter at stealing information, on-selling it and locking up systems.
“Cyber is not a technical problem. It’s a business problem,” Devine says. “Boards have changed their risk appetite over the past five years ... and are much less tolerant.”
Edwards says boards have traditionally been made up of legal and financial experience, and that’s been required over the past few decades. However, as accountability moves to regulatory legal liability, the need to have technology and cyber skills at the table has become mandatory.
One of the big challenges has been converting technology talk into business talk so boards and non-technical managers understand cyber risk.
This has meant cyber professional need different and sometime new skills,” Edwards says. They need to be able to influence people, have communications skills, business acumen and even be a data scientist are now parts of the job description.
Board appetite around cyber risk is constantly shifting, Edwards says. Boards have to get more comfortable with being uncomfortable. And reporting has become more important.
Thompson says that smart generalists in the military were struggling to get their heads around the cyber threat. Since leaving the military last year, he is seeing the same thing in boards.
Board, C-suite and senior leaders know cyber is important and have an some understanding of the threat and legislative environment. But they aren’t sure of how to think about it, and how to weigh cyber risks against other risks.
Thompson recommends thinking about cyber risks in four parts – self-defence, passive defence, active defence and offence, though the latter normally applies to governments.
Self-defence is about self-protection. What are we doing for ourselves to stay safe in cyber space?
Passive defence is the domain of communicators and systems administrators. Are we backing up data and patching our systems? Have we virus walls? What about the number of people with rights to information?
Active defence is about having people in an organisation actively seeking out threats, Thompson says.
Thinking under those three headings, and asking cascading questions flowing from them, is a good place to start for directors or senior management to start.
Devine says regulation provides a minimum bar of compliance, and regulating globally would be great, albeit highly unlikely. And not everyone sticks to the rules. Thompson says the approach should be around risk management, rather than compliance.
Reporting around cyber risk is difficult, Edward says. Even basic hygiene reports can be challenging – what are vulnerabilities and what are patching levels like. The next layer is even more difficult. It's about knowing where the risks are, what’s important to the business and being able to report on those to the board.
As an industry, the cyber industry is sharing information among businesses to help prevent attacks, though the networks are informal. Being transparent with the board and staff is important, although businesses and individuals remain reticent to discuss cyber-crime, compared to other types of criminal activity.
Beyond reconciliation to meaningful action
- Chair: Melinda Cilento, Chief Executive Officer, Committee for Economic Development of Australia. Co-chair: Reconciliation Australia
- Shelly Cable, Chief Executive Officer, Generation One, Minderoo Foundation
- Sean Gordon, Managing Director, Gidgee Group
Indigenous affairs, including reconciliation, is a governance issue. But unfortunately, often it’s not considered one.
Boards can learn much from indigenous governance, Cable says. Over tens of thousands of years, Indigenous governance managed people and the land balancing stakeholder interests, stewardship and legacy for generations to come.
Indigenous affairs is sometime seen as a risk, but boards and companies don’t measure Indigenous affairs, she says. And reconciliation is not just about including Indigenous Australians but also learning from them.
"Doing reconciliation well has an immense upside,” Cable says. “For example, Australia is struggling with labour shortages and yet only half of working age indigenous Australians are in work.”
“Capability when it comes to Indigenous affairs is sorely lacking and [within companies] there's a sense of fear and nervousness about what they can say [and do]. … But they should forget the eggshells and get the job done,” she says.
Cable says the more relations and engagement companies have with communities will help. So too cultural awareness training. But it takes dedicated resources.
Gordon says it’s frustrating to still have conversations about reconciliation, but it’s reflective that Australia has not experienced a mass movement towards respecting Indigenous peoples and their rights.
“I was a strong critic of Reconciliation Action Plans (RAP) because people weren’t really implementing them ... or implementing them internally without input from indigenous people,” he said.
But Gordon’s opinion has changed because RAPs are now increasingly including the input from Indigenous Australians. Corporates need to listen to Indigenous Australians and understand the values of the community.
“Non-Indigenous Australians in the COVID world are experiencing disempowerment, which is the experience of Indigenous people for 200 years. We have been in a state of disempowerment for such a long time,” Gordon says.
He welcomed Rio Tinto’s appointment of Ben Wyatt as the first Indigenous board member of a top 200 company. But he noted the fact he was a former state treasurer didn’t always sit well with the community.
“That's a high benchmark [to become a top 200 board member] and the rest of the Indigenous community wonder if they can ever achieve that benchmark.”
Cilento says to get change it takes a sharing of information to redress the power imbalance between groups.
“If you have a project... if you hold the information and don’t share that information with community... how can you expect them to sit at the table with you?” Cilento says.
She agrees that the best RAPs came from organisations who put resources into it.
All speakers agreed that better results for communities would occur if Indigenous Australians had greater input to the best ways the spend money. There are many examples of poor policy that could improve if people in communities had greater input.
Cilento says racism should be discussed within organisations. Gordon says over 200 years racism has always been part of the landscape. It’s often hidden and can be an unconscious bias. It’s particularly a challenge in the health sector around COVID where indigenous Australians fear the police and health workers which can be detrimental to their well-being. True reconciliation can help address these challenges. Cable says racism is everywhere and is much more than just derogatory comments. Understanding racism is a big part of the answer.
Visualising the future of professional development in governance
- Professor David Glichrist, The University of Western Australia
Visualising the future of professional development in governance is a critical issue for all of us, not just those people who might be in the governance industry.
The goal of professional development in governance must be to build longevity and resilience into the people who will be steering their organisations into a future filled with unknown challenges.
Gilchrist says professional development is often thought of as a just-in-time service focused on helping people respond to current issues.
A better way to think about it is that people need to build the skills to deal with today’s problems – including specific requirements such as regulatory change – plus they need to develop the capacity to negotiate the problems and challenges in the future.
Gilchrist says professional development is sometimes seen as about simply raising awareness of challenges, but it also needs to arm people with the ability to act and respond effectively.
The University of Western Australia is conducting a research program to identify professional development needs among Governance Institute members. Research will include round tables and a survey.
Fireside chat: Not-for-profits — challenges for governance and service delivery
- Chair: Dr Lisa O'Brien, Non-executive Director, Bupa Australia and New Zealand
- Audette Exel AO, Founder and Chair, Adara Group
- Lucas Patchett OAM, Co-Founder and Chief Executive Officer, Orange Sky
The not-for-profit faces some significant challenges. There's been an increase in demand for services, alongside falling revenue.
The sector is facing the same workforce issues as other organisations and a big reduction in the number of volunteers. There are also many service delivery challenges due to COVID.
O’Brien says fundraising has been on a roller coaster ride, from the highs of 2019 following the east coast bushfires, to a huge fall during the emergence of COVID.
“Hardest hit are organisations that rely on donations, fundraising face-to-face, and those that rely on volunteers,” O’Brien says. “Many of the them are vital small community organisations.”
The greater uncertainty means boards and management in the sector need to increase their focus on risk.
“It is critical for boards to have a very clear and current view of their risk appetite,” O’Brien says. “That will allow organisations to take advantage of opportunities when they arise.”
She says focus on culture must be a priority because long term uncertainty impacts the resilience of an organisation.
Exel says 120 million people went into extreme poverty last year and less than two per cent of all vaccines have gone to poorer communities globally. The consequences range from teen pregnancy and nutritional insecurity through to children not going to school thus increasing the chance of trafficking.
Patchett said last year the world changed for many people. Some volunteers and donors leaned in and could do more, and some stepped out.
Donors and investors are now looking at where they can invest with the most impact. Connection matters more than ever, he says.
Uncertainty in the not-for-profit sector has put more pressure on directors.
Patchett said he was “blown-away” by the contribution of his board members during COVID. It demonstrated the benefits of an experienced board with external experience.
Exel said her global board helped the organisation “think”. It helped consider what tools were available to provide services, given the world had changed.
“When you get people who are really passionate and knowledgeable and prepared to put their brains together, it can be an amazing thing,” Exel says. “It’s a lot less lonely when you have a good board.”
Exel’s Adara Group is grappling with the COVID crisis in poor or middle income countries.
“There’s a well-tried framework for disaster recovery … and it’s a needs base service delivery,” she says. “But these principles have been ignored with rich countries stockpiling vaccines … and reducing supply to poorer countries.”
“We need to get back to needs based servicing,” Exel says.
“It’s not just the right thing to do but also the smart thing to do... COVID has ripped bare the inequity in our planet. We must come out of it in a different place. We must raise our voices and use our skills to make sure that happens.”
- Chair: General Manager, Membership & Engagement, Governance Institute of Australia, Leon Cox
- Anders Sörman-Nilsson, Futurist and Founder, Thinque
Technology and innovation are at the core of building a sustainable future and re-imagining what the world looks like.
But for many businesses, innovation is a difficult outcome to deliver.
Sörman-Nilsson tells the story of the 104-year-old family retail business run by his mother being disrupted by online competitors. The business filed for bankruptcy last year, unable to adapt to the digital future.
“It’s our personal Kodak moment and my mission is to make sure no business should have to suffer the same fate as my mum has,” he says.
Sörman-Nilsson asks clients the question: who led Digital Transformation of your organisation? The answer tends to be not the CEO or CIO – but COVID-19 instead.
“We were handed a burning platform for transformation,” he says.
He says recessions and pandemics are a proven birthplace of innovation.
McKinsey research shows companies that innovated in the great recession outperformed their peers by 30 per cent during the subsequent recovery.
In the US, Airbnb and Uber arose out of the ashes of the global financial crisis. In China, JD.com, Taobao and Alibaba sprung out of the SARS epidemic.
“The question is whether this recession will have the same kind of impact in terms of bringing our innovations to the fore,” he says.
Adapting to digital does not have to be about cold technology but can be about delivering genuine human need.
He tells the story of Sweden’s equivalent of the Big Issue magazine sold by homeless people to generate an income.
The sellers were losing sales and wondering whether it was because people were becoming less empathetic before realising it was because people no longer carried cash. By switching to cashless transactions, sales rose 59 per cent.
“Ask yourself the question, in your own organisations, what friction exists that prevents people from actually doing business with you?” he says. “This should be on every board’s agenda.”
Sörman-Nilsson says just as the Black Plague laid the groundwork for the Renaissance, so too we are at an inflection point in history today.
“We're seeing the emergence of a second renaissance, a flourishing of human creativity and truly humane, sustainable creation.
“Start preparing for that future today because it is where you, your kids and your grandkids will spend the rest of your lives.”