THE CHAIR OF THE FUTURE - Towards 2025 - Korn Ferry Focus
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THE CHAIR OF THE FUTURE Towards 2025
Header.
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I......
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Contents
Our approach 4
Acknowledgement 5
Key findings 6
Introduction 7
The Chair of the future – from 2020 to 2025. 8
10 ways Covid-19 will impact boards in the future. 11
Demand for digital understanding will shape board composition. 14
ESG issues will rise in priority – and climate risk will feature
more strongly. 16
The ability to manage divergent shareholder and stakeholder
interests is paramount. 18
Mixed views on business activism. 19
Risk and regulation will remain an issue – and non-financial
risk will continue to be elevated. 20
Diversity is an enduring challenge for boards. 22
Preparing for 2025 with strategic Chair succession. 24
The NEDs of the future. 26
Our uncertain future needs strong and resilient boards. 29
Contact 30
Korn Ferry 31
3
Our approach
Korn Ferry conducted 28 hour-long interviews, 18 with Chairs
of ASX listed companies. The superannuation industry fund
sector was represented by two Chairs, three CEOs and one Chief
Investment Officer. We also spoke to three representatives of
proxy adviser firms.
The interviews were conducted between March and June 2020.
4
Acknowledgement
Korn Ferry would like to acknowledge the David Gonski AC
generosity of those who gave their time Chair, ANZ Bank
and shared their knowledge to assist in the
preparation of this report. Rick Holliday-Smith
Chair, ASX and Cochlear
Respondents Vas Kolesnikoff
Head of ANZ Research, ISS Governance
Patrick Allaway
Chair, BOQ Catherine Livingstone
Chair, Commbank
John Atkin
Chair, AICD and Qantas Super John McFarlane
Chair, Westpac
Ilana Atlas
Chair, Coca-Cola Amatil Rebecca McGrath
Chair, Oz Minerals
Debby Blakey
CEO, HESTA Super Fund Hamish McLennan
Chair, REA and Rugby Australia
Michael Carapiet
Chair, Link Group, Smartgroup Corp and iCare Robert Murray
Chair, Metcash, Southern Cross Austereo
Gordon Cairns and Hawke’s Brewing Company
Chair, Origin Energy and Woolworths Group
Pat O’Sullivan
Philip Chronican Chair, Carsales
Chair, NAB and The Westmead Institute for
Medical Research Bernard Reilly
CEO, Sunsuper
David Clarke
Chair, Charter Hall Group Deanne Stewart
CEO, Aware Super
Neil Cochrane
Chair, Aware Super Anne Ward
Chair, Colonial First State Investments Ltd
Louise Davidson and Redbubble Ltd
CEO, ACSI
Peter Warne
Mark Delaney Chair, Macquarie Bank
CIO, Australian Super
Karen Wood
Paula Dwyer Chair, South32
Chair, Tabcorp and Allianz Australia
Sir Rod Eddington AO FTSE
Chairman, Lion
Philip Foo
Director of Research, CGI Glass Lewis
5
Key findings
Attributes of the Chair of the future
RESILIENCE – NEEDS TO BE A FEATURE OF THE CHAIR’S LEADERSHIP.
AGILITY – MUST THRIVE AND MAKE COURAGEOUS DECISIONS IN AN
INCREASINGLY AMBIGUOUS ENVIRONMENT.
HIGH EMOTIONAL INTELLIGENCE (EQ) – THE ABILITY TO TAP INTO
OTHER PERSPECTIVES AND ENGAGE WITH DIVERGENT STAKEHOLDER
INTERESTS.
COURAGE – ABLE TO LEAD A BOARD IN UNCERTAIN AND COMPLEX
TIMES AND HAVE COURAGE OF THEIR CONVICTION.
CURIOSITY – BE TUNED INTO EXTERNAL FACTORS THAT ARE NOT
USUALLY PART OF THEIR PURVIEW.
A LEARNING MINDSET – BE COMFORTABLE WITH CHANGE AND
DIFFERING PERSPECTIVES.
Issues Chairs face towards 2025
DEMAND FOR DIGITAL/TECHNOLOGY UNDERSTANDING WILL SHAPE
BOARD COMPOSITION.
ESG ISSUES WILL RISE IN PRIORITY – AND CLIMATE RISK WILL FEATURE
MORE STRONGLY.
RISK AND REGULATION WILL REMAIN AN ISSUE – AND NONFINANCIAL
RISK WILL CONTINUE TO BE ELEVATED.
DIVERSITY IS AN ENDURING CHALLENGE FOR BOARDS.
6
Introduction
The global economy is facing an increased key factor of an exceptional NED. Since 2012, the
risk of stagnation, climate change is risk focus of boards has increased substantially
and with it the spotlight on NEDs has increased,
striking harder and more rapidly than particularly the public profile of the Chair. And,
expected, and fragmented cyberspace while thinking big is still valued, it is pragmatism,
threatens the full potential of next- clear headedness and high EQ that are the
characteristics needed for NEDs to take us into
generation technologies — all while
2025.
citizens worldwide protest political and
economic conditions and voice concerns What does this mean for Chairs and the
boards they lead? What will ‘greatness in the
about systems that exacerbate inequality. boardroom’ look like in 2025? What are the
The challenges before us demand global and domestic trends and events that will
immediate collective action, but fractures influence the profile of a Chair in 2025 and how
are Chairs resetting the boards they lead to be
within the global community appear to
fit for the future?
only be widening. Stakeholders need to
act quickly and with purpose within an Korn Ferry interviewed Chairs of our most
prominent organisations and other leaders with
unsettled global landscape. a stake in future board governance, among them
World Economic Forum, Global Risks Report, many who hold leadership roles in Australia’s
2020.1 largest superannuation industry funds along with
the increasingly influential proxy advisers.
As the world reels from the impact of Covid-19
We discussed the key challenges now and in
and economies are being restructured at pace,
the future that are shaping board effectiveness,
the Chairs of Australia’s leading companies
composition and the skills and experience of
are reacting to the crisis while ensuring the
Chairs and NEDs.
companies they serve have resilience and
strength for the future. The Chair of the Future – Towards 2025 is a
resource for boards, executive teams, investors
It is clear that Chairs and the boards they lead
and others with a stake in board quality.
face challenging headwinds. When defining the
scope of this research, which is to learn the skills,
experiences and attributes of the Chair of the Tim Nelson
future, the full risk of coronavirus wasn’t known. Chief Executive Officer
Understanding the impact of the virus coincided Korn Ferry, Australasia
with the timing of our interviews and has served
to sharply focus this research through the lens of Alexandra Goodfellow
risk and ambiguity. Vice Chair
Korn Ferry, Australasia
In 2012, Korn Ferry conducted research on the
theme of greatness in the boardroom. Then,
the highest ranked characteristic of exceptional
NEDs (76%) was that they should be a big
picture thinker. Just 30% of interviewees
nominated a deeper understanding of risk as the
1
https://www.weforum.org/reports/the-global-risks-report-2020.
7The Chair of the future – from 2020 to 2025.
It’s a changed world from what we’ve known for they serve equipped to manage an uncertain
the last, say 20-30 years. It’s more difficult to and potentially erratic future.
have long-term strategies, therefore companies
need a culture of real agility so that as Chair, Some current features of board oversight will
when you’re not quite sure what’s coming over amplify as we journey towards 2025. They will
the horizon, you are still able to respond. And provide both challenges and opportunities for
you need to be confident that your company Chairs and, depending how companies manage
has people with the ability to respond in an each, will reveal strengths and weaknesses
appropriate way. at board level. Sir Rod Eddington noted
– Gordon Cairns the breadth of the role: “It would be all but
impossible to find a Chair who is experienced in
Asking Chairs to look forward five years may, in financials as well as all aspects of the business.”
usual times, be a reasonable period to forecast,
but in the time of Covid-19 this is proving to be The foundational skills of a Chair will remain,
impossible. As one Chair noted: “Anyone who however our interviewees agreed that the long-
tells you they know what’s going to happen, term impact of Covid-19 will be keenly felt and
doesn’t. Nobody knows.” will influence the composition of boards and the
attributes of the Chairs who lead them. It is clear
Covid-19 has been a formidable disruptor, that boards require a strong leader who thrives
however predicting five-year cycles with any in an ambiguous environment. The Chair of the
certainty is difficult in ‘normal’ times. Businesses future needs to possess a learning mindset,
operate in an environment of continuous resilience, agility, high EQ, courage and curiosity
transformation making it challenging at any to guide their boards towards 2025.
time to set the business model and strategy for
five years. Most are continuously reviewing their The bottom line, as a Chair and with your
strategy and in this time of Covid-19, they have board, is that you have to have the courage
had to become very comfortable working in of your convictions. There are many interests
changing market conditions. The ‘new normal’ with different perspectives. There are many
is that there is no ‘new normal’. The ability to stakeholders as well as shareholders. Therefore,
deal with ambiguity, to be agile and resilient has you have to be persuasive with your arguments,
quickly escalated to the top of the skills and which means being absolutely convinced of
characteristics required of Chairs and NEDs. your position – that is the courage of conviction
I’m talking about.
I think the future is likely to be very different – Catherine Livingstone
to the past. There will be need for careful
Chairs of the future will be multi-dimensional in
rethinking of strategy, together with an agile
their approach. They will be equally comfortable
and continual review approach to strategy.
applying a conservative regulatory mindset to
This will need the involvement of experienced
risk as they are at recognising and supporting
people with sufficient thought capacity to
technology-enabled innovation.
really understand the shape of the future
business, in addition to understanding the
cultural and governance issues.
– Rick Holliday-Smith
While our interviewees could not with certainty
consider the specifics of market forces they
expect their companies to face in 2025, they did
discuss what makes boards and the companies
8I think the best Chair has a good idea of the us because the growth of technology is
strategy and success factors of the business. exponential; the machines are inventing
They need to be a good listener, but they also the machines.
have to be more than collegiate; they have – Robert Murray
to be leaders at the same time. It’s balancing
the two, at times, conflicting objectives. If you ESG reporting has been growing in
consider financial success as the objective of prominence for some years and will be
the business and stakeholder management more dominant in 2025. Vas Kolesnikoff
being the constraints around that objective, noted that in Australia, ESG solutions
then Chairs have to manage those constraints were among the highest selling research
effectively. products for ISS Governance in 2019.
– Mark Delaney Social licence to operate, which is linked
to ESG, requires deeper understanding
I think the boards, and particularly the Chairs of by corporate Australia. Shareholder
the future, or even the present for that matter, activism will also increase, and Chairs
need to have a real learning mindset. They can’t will need to be able to manage
come to it thinking they know all the answers, divergent shareholder interests and
and that their experience is all that’s required. community expectations.
They need to be good listeners and must listen
to multiple stakeholders to hear comments and Corporate Australia has been focused
challenges from every direction. But they also on the profit motive but come 2025
then need to be able to challenge others. It’s no the importance of a social licence
good just being challenged and defending the to operate will be something that
current position. people need to better understand.
– Peter Warne They will also need a much stronger
understanding of governance and
Four key issues that will be prevalent in 2025 that it goes well beyond just the
were identified by most leaders interviewed for legal implications of governance;
this report: technology, ESG, regulation and it reflects the way we approach
diversity. They are summarised here with further business. I think that’s going to be
commentary in the chapters that follow. a quality that a director will need
to understand clearly.
Technological forces will continue to have – Neil Cochrane
a major impact on how companies conduct
business in the coming years, and Chairs will Community expectations of Chairs
need to ensure the NEDs on their boards have and the boards they lead have
the right mix of experience, and understand changed over the past few years,
the challenges and opportunities that a greater and this will continue. Boards
reliance on, and exposure, to various aspects are operating in an environment
of technology will bring. Whether boards of increased transparency and
accelerate their understanding of technology with that, a stronger voice
and its profound impact on all aspects of from community stakeholders.
business in 2025 will depend to some extent on Directors need to be in tune with
board composition decisions made now. community expectations of the
companies they represent and
Technology is the biggest global risk. I haven’t their governance role.
seen a single industry I’m involved in that
hasn’t been fundamentally disrupted in the last
five years, and it’s happening so fast for all of
9Australian business operates in a highly regulated Diversity is an enduring issue for boards. It was
environment and that will continue. The amount frequently cited by interviewees in discussions
of compliance that a board addresses increases on how boards need to adapt for the future.
most years, and this has in turn increased the Our conversations went beyond discussions on
workload of directors. Some interviewees felt gender diversity − which in Australia, where it
regulatory intrusions and enforcement are a is 30.9% (May 2020) for ASX200 boards, has
growing component of the market rather than been the main driver of diversity for boards − to
a leading indicator. Chairs and NEDs need to diversity of ideas, perspective and experiences.
be satisfied that they deeply understand what
and where risk lies within the organisations they The thinking around diversity on boards needs
serve as directors. to change to be more than gender. Age is
becoming as important depending on what
A flexible and innovative mindset will become board you’re involved with, and diversity in
more important as will the need for an even terms of background is also becoming more
more powerful risk radar. The Hayne Royal important.
Commission and other recent issues have – Pat O’Sullivan
shown the critical importance of non-financial
risks, the impact of culture and the risks of The Chairs and other leaders we spoke to are
flawed decision-making. Conduct in small parts confident that diversity strengthens boards
of organisations can dramatically affect the and that true board diversity – where NEDs
reputation of the whole company. Boards will have different backgrounds, experiences and
need to be even more vigilant around reputation views – is the next challenge in Australia. As
risks and their duty as directors to protect the John McFarlane noted: “Diversity is important
company’s reputation. to ensure the best ideas and alternatives are
– Anne Ward pursued.”
In June 2020 Korn Ferry surveyed NEDs in Australia and New Zealand to
learn how Covid-19 had affected how their boards work, and the insights
they gained from the experience. The key findings were:
The cadence of board meetings changed significantly.
Virtual meetings to continue.
NEDs are deeper in the business.
60% of NEDs gained a deeper appreciation of the ELT.
https://focus.kornferry.com/coronavirus/boards-in-the-time-of-covid/
10ways Covid-19 will impact boards
10 in the future.
We asked the Chairs we interviewed to reflect upon Covid-19 and its future impact.
1 Covid-19 is the most serious crisis our community − government, business, citizens
− has collectively experienced. It is having and will continue to have a more serious
impact on performance than the global financial crisis.
2 The world order will be changed following this and there will be more uncertainty
surrounding what we have previously relied upon. Financial risk is always important
but increasingly risks such as geopolitical, societal and technological will be an
area of focus.
3 Chairs are working in the present and in the future. They are working with their
boards and executive teams on how to manage the crisis now with their business
recovery skills − and plan for a future rebound. This involves great resilience and
agility from all parties.
4 Many of the learnings that have come through managing business recovery will
be part of the rebound − in particular the speed at which organisations adopted
digital solutions.
5 Covid-19 gives boards an appreciation of the interdependence across the world
and all sectors. There will be lessons around liquidity and greater understanding of
the protections needed to build resilience.
6 It is important that early learnings from the impact of Covid-19 are not lost as we
go through the survival stage. Those learnings will impact how we come out of the
crisis and dictate how the business operates in the future.
7 There will be a lasting impact on companies and on society. There have been a lot
of people living beyond their means and many companies that have set themselves
up to take advantage of that. It is not sustainable.
There are key attributes required of NEDs that have been highlighted by this crisis.
8 They are: courage, humility, listening, agility and resilience.
9
If there was one great bureaucracy buster that we should be thankful for it was the
sense of urgency created around the Covid-19 response.
10Board diversity is increasingly important as we move on from this crisis. We must
have diversity of thinking, ideas and experiences.
11Chairs working deeper in
the business.
I’ve been a CEO and I’m
conscious that I don’t want
to be seen as a meddling
chairperson but the truth is
that finding good contact
points within the business,
whether they be strategy days
or meeting staff or clients who
are important to the success
of the company, does help.
– Hamish McLennan
12While Covid-19 has temporarily drawn Chairs into day-to-day
decisions for the business, many Chairs noted that in recent years
they have needed to work more deeply. For some, it was to better
inform themselves in their board committee work by engaging
directly with those responsible for a particular area. For others it
was to support the CEO and the business by working as a mentor
and sounding-board to the leaders.
However, for most, this trend was due to increased risk-management
demands on the company and the board’s role in setting the risk
appetite of the company. The tendency in recent times of the Chair
needing to be closer to business operations than previously does
not mean they are becoming more operational. It relates more to the
recent focus on non-financial risk, and clear lines of responsibility for
the culture of the company, reaching up to board level.
It is counter-productive for individual directors to have open access
to managers at will and divert executive resources − the Chair has
to play a leading role in facilitating communication between the
board and management. The principal forum by which the board
informs itself and engages with management is through scheduled
board and committee meetings; it is important not to undermine
the formal structure and rhythm of engagement. However, it is
also very important that the leaders of committees understand the
responsibilities vested in them by the board and spend appropriate
time engaging with key executives to fulfil their responsibilities as
Chairs. This does, inevitably, require deeper engagement in the
business for some directors.
– Paula Dwyer
13Demand for digital understanding
will shape board composition.
The biggest issue that boards and management meet the challenges of technology and, more
teams are going to face in 2025 is the flow importantly, use the often small window of time
of data – correct or incorrect – about their available to grab opportunities.”
companies and their activities. How they weed
through that data, what they respond to, their That’s not to say that Chairs of the future,
policies and approaches will lead to a profound or their fellow NEDs need to have specialist
breaking down of the corporate veil, leading to backgrounds in technology; rather that they
transparency − intended or not. understand how technology impacts the
– David Clarke economic environment they operate within.
Broad commercial, cross functional experience
Technology, including digital, is both enabler was valued highly by all respondents with
and disrupter, providing a platform for different boards needing a number of directors with
operating models and new styles of competitors industry experience.
that can quickly establish a market presence.
It also shapes and changes how customers I would say there is less demand for very
interact with companies, and how companies specific functional experts who don’t have
interact with their customers. The challenge is wider commercial experience. Now that’s fine
to anticipate, rather than react to, the speed of if the person also has significant business
change. experience and has run a relevant business but
there was a period when boards wanted digital
It isn’t surprising that an understanding of directors and I think that era of very functional
digital was highly valued in a discussion with our experts is coming to an end.
interviewees on the skills of a NED, especially – Rebecca McGrath
when considered in the framework of taking
a board into the future. An understanding of, None of the Chairs advocated for ‘digital
and interest in, technology and innovation are directors’, preferring that all directors need to
important characteristics of Chairs if we are to understand operations through a digital lens.
have strong boards in 2025. Chairs of today have
Technology is pervasive. It is a fundamentally
to stay current if they wish to be Chairs of the
different way of looking at a business and every
future. They need to understand the impact of
director should be able to apply that lens.
technology-enabled risks and their impact on
– Catherine Livingstone
corporate resilience. This doesn’t mean they will
have core technology skills, but more that they What qualities do Chairs now need that were
understand the role and potential of technology. not so important five years ago? It’s got to be
Digital risk is growing along with developments tech because if you look back, the heads of IT
in technology, with cyber-risk a clear and across most organisations at that time were
present threat. neither the most commercial nor the most
senior amongst the executive service providers.
Anne Ward cited a broad and deep
You’d struggle to find a major organisation now
understanding of technology and the
where the head of tech and innovation wasn’t
opportunities that come from technology as
either the most important or the second most
an important quality for Chairs and NEDs now
important executive after the CEO.
and in the lead-up to 2025: “Digital, machine
– Michael Carapiet
learning, AI, all present disruptive challenges,
but also huge opportunities. Often there’s quite Complexity of board work is expanding, and
a small window to grasp an opportunity and every skill required will not be found among
boards need to be able to understand and seven or eight directors. This may increase the
14need for specialist board advisers who
can be commissioned by the board
at the very time their specialist skills
are required. For example, cybercrime
was singled-out in our conversations
with Chairs as an ever present and
increasing threat, as it escalates at
pace with the expanded volume of
data. A board may receive the best
advice from an adviser who lives and
breathes the issues relating to cyber-
crime daily and can offer insights to
the board that few NEDs will possess.
If you look at the practical
applications of artificial intelligence,
machine learning, robots and a
greater shift towards a digital
workplace, technological trends
and applications are becoming
more prevalent. I think boards
and Chairs are going to be
required to keep pace.
– Pat O’Sullivan
The organisational challenges of
adapting for the digital era are
undeniable and Chairs who do
not understand its full potential
will not remain relevant in the
future. The entire board needs
to understand how digital
can transform organisations
time and again to respond to
change.
15ESG issues will rise in priority – and climate
risk will feature more strongly.
When we think about the broader ESG issues, that climate risk is investment risk. Indeed,
of which climate is obviously one, we consider climate change is almost invariably the top
how our investors and our employees might issue that clients around the world raise with
be prepared to see continued investment BlackRock.”3
into broader ESG strategies, and how they
will view the trade-offs we need to make to It has become very clear and accentuated
continue that investment – not only as a result by events over the last couple of years, that
of this crisis but as we evolve through the next directors need an understanding of how
decade. community expectations are changing. You
– Karen Wood can’t only have a static view about the role
and purpose of a company, or about what
The ESG reporting framework has increased in role the company plays in society. It has to
prominence throughout the past decade and be very much attuned to what else is going
will further frame the performance narrative for on in the organisation. A lot of that does rest
companies towards 2025. with the board because executives, quite
understandably, get fully engrossed in the
The Chairs we interviewed, when asked for their issues they’re dealing with at a point in time
view on global challenges impacting risk, all and one of the roles of the board is to inject
identified environment as a major risk for now that external perspective into the operations
and in the future.2 of the group.
– Philip Chronican
It is unsurprising that the leaders who represent
industry superannuation funds were clear on Climate change ranks consistently high as a
their ESG expectations of the companies they financial risk for investors. A recent survey
invest in and the ESG experience of Chairs. conducted by the McCombs School of Business
found that 91% of investors expect climate risks
Shareholder value is always there, it’s never
to be financially material to their investments.4
not on the table. But the role of the Chair is to
This view is supported by Australia’s industry
understand all the drivers of shareholder value
superannuation funds whose domestic
and drive that long-term view of what it means
shareholdings are a sizeable proportion of
to deliver for shareholders. It is going to be
ASX investors, and whose influence is growing in
critical. We’re seeing this focus on responsible
accordance with their size.
investing in resolutions at AGMs and we’re
certainly very active in terms of what we expect We have always believed that we have a
on climate change or from a social governance responsibility to invest in ways that deliver
factor. strong returns for members and at the same
– Debby Blakey time improve outcomes for the community
and the environment. Climate change poses
Any business leader who doubts the impact of
one of the most significant risks to Australians’
climate change on investor sentiment might read
retirements savings, and as a long-term
BlackRock Chairman & CEO, Larry Fink’s, 2020
investor we are taking bold action to protect
letter to CEOs where he writes: “Climate change
our members’ retirement savings and we’re
has become a defining factor in companies’
taking a leading role in advocating for better
long-term prospects...Investors are increasingly
environmental outcomes.
reckoning with these questions and recognizing
2
Interviewees were asked to consider future risks identified by the WEF – economic, environmental, geopolitical, societal and
technological.
3
https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter.
4
https://www.sciencedaily.com/releases/2020/02/200218161717.htm.
16As an example, this year we will divest from
businesses what derive more than 10% of
their revenue from thermal coal mining. We’ve
committed to reduce emissions in our listed
equities portfolio by at least 30% by 2023 and
we will use our influence as a major investor to
advocate for an economy-wide 45% reduction in
greenhouse gas emissions by 2030 – and we’re
aiming to replicate this in our own portfolio in
the same timeframe.
– Deanne Stewart
To tackle climate change – and other ESG
issues − a long-term, outward-looking focus is
required. As Debby Blakey observed: “You can’t
expect people to be tackling climate change
if they are worried completely about next
quarter’s performance rather than the 10-year
horizon.”
The Chair needs to balance the needs of the
business across different time frames and be
able to make sound judgement on what is
needed most and when. Balancing short-
term needs with potentially divergent long-
term aims is part of their skill.
The rhythm of ESG priorities also changes
depending on external forces, such
as extreme weather events, a global
health emergency like we are currently
experiencing with the coronavirus,
or market failure, such as the global
financial crisis. The zeitgeist also shifts
due to political or generational change.
Therefore, a Chair of the future will lead a
board that is tuned in to external factors
that are not usually part of their purview
and which appear, on the surface,
beyond their reach.
17The ability to manage divergent shareholder and stakeholder
interests is paramount.
The principal responsibility of the board is to ensure the company makes a
lasting contribution to society and a positive long-run economic returns –
in that order. It is perfectly legitimate for us to have a societal, sustainable
philosophy. I don’t think it’s inconsistent with producing superior long-term
returns. It does stop you doing the wrong things.
– John McFarlane
The Chair of the future will be a skilled
communicator and experienced at managing
diverse shareholder interests. They will also
understand the importance and influence of
stakeholders who are not investors but who,
through their connection to the company – as
employees, community, consumers or affected by
decisions made by the company – deserve to be
heard.
I try to understand exactly where they’re coming
from and why they hold the views they hold. Some
of them have a long-term investment horizon,
others have a very short-term one,
while others desire an ESG type outcome, a social
benefit or even a philosophical one.
– Peter Warne
Boards adhere to a ‘shareholder primacy’ approach
which traditionally may have led directors to act
solely to further the interests of shareholders.
Clearly, over recent years, this approach has
broadened to include the interests of other
stakeholders. Providing a return to shareholders
remains the core role of a listed company, but as
the profile of shareholders becomes more divergent
and the influence of other stakeholders rises, it is
incumbent on the board to listen to and understand
divergent views.
18Mixed views on business inclusiveness and equality, sexual harassment,
human rights, mental health, Indigenous issues
activism.
and LGBTIQA rights. Climate change advocacy
If a company is going to take a is also represented in ESG reporting and is
frequently advocated for by executives. This is
public position on something,
evidenced by its prominence in a list of public
there must be a business statements of corporate leaders on social issues,
case which clearly explains produced by media research company Streem.5
how taking that position will
be to the long-term benefit The views among Chairs in relation to business
activism and advocacy were mixed. For some,
of the company. It could
issues that are important to the operation of
be the creation of value for the company should be addressed within the
shareholders or improving company but not necessarily in public forums.
employee engagement and Others felt where the business case was solid,
morale. It might be directly then public advocacy is warranted.
related to the products or
There were also Chairs who noted that there are
services that the company political and social issues that are important to
provides, or it might have a their stakeholders – including their employees –
positive impact on reputation and relate to their purpose. It is therefore
which will allow us to do certain appropriate that the company has a view and
other things. But if you cannot states it publicly.
explain the business case you It’s perfectly legitimate for us to advocate
should not do it. for inclusiveness for the 34,000 people who
– Anne Ward work for us. It’s perfectly sensible for us to
have views on things that will affect our
commercial interests going out 5, 10, 20 years,
and that would include climate-related issues.
There are some issues where the linkage is so
During the latter part of 2017 a postal vote was tangential that it’s probably better that we
held to decide whether Australia should adopt don’t have a view and I think that’s the filter
marriage equality laws. This was a watershed that most boards, Chairs and CEOs should
period in Australia politically and socially, and apply and ask: how is my view legitimised by
several businesses nailed their colours to the our organisation’s needs and requirements?
mast by contributing their voice and resources Because if it is just a personal view then
to campaigning ‘Yes’ for marriage equality. The you don’t really have the right of using the
‘Yes’ vote won the day and marriage equality corporate platform to make it.
became law in Australia. – Philip Chronican
Marriage equality is one of several issues that
business has taken a position on publicly. Others
include: anti-slavery, domestic violence,
5
https://www.smh.com.au/business/companies/bhp-boss-andrew-mackenzie-most-outspoken-ceo-on-social-issues-analysis-finds-
20191020-p532dx.html
19Risk and regulation will remain an issue – and
non-financial risk will continue to be elevated.
Risks are there to be managed, not eliminated. And the more you eliminate the risks, the more you
compromise the value in the business. Therefore, it’s managing the risk that’s the key.
– Catherine Livingstone
There’s no doubt in my mind that boards need to be more alert and more agile in the way in which
they think about risk and governance.
– Philip Chronican
The board has ultimate oversight over the statement. One pointed to a lack of a globally
company’s risk-management framework and, accepted measurement for risk appetite as a
as such, risk and regulation are a prevalent part challenge for boards, while another suggested
of board work. The focus of boards is towards a local risk appetite parameter needs to be
strategic risk-management – an approach that developed.
considers the risk appetite of the company
when evaluating various aspects of risk Patrick Allaway noted that disruption and speed
including compliance, financial, non-financial and of change will continue to accelerate against
reputational risk. a backdrop of erosion of trust in institutions:
“This needs to be addressed and leadership
The Chairs interviewed cautioned against a risk- must respond to that. You’ve also got a further
management approach that focusses too heavily backdrop of increased regulation across all
on compliance ‘box ticking’ at the expense of industries trying to deal with poor conduct and
creating value. better cultural issues in companies. So, we’ve got
a very different dynamic that Chairs, boards and
Being overwhelmed by the compliance burden senior management teams are looking into as
in itself and spending all your time ticking we look forward to the next three to five years.”
boxes becomes a pretty empty exercise. You
certainly don’t want that as you may become Ambiguity in determining risk appetite impacts
risk averse on the substance. It comes down to the board’s ability to apply a benchmark of what
balancing and accepting risk but also managing too much – or too little – risk looks like. This is
and mitigating it. That’s how you create value – more prevalent when assessing non-financial
you don’t make money without taking risk. You risk where there are challenges in measuring and
also need that entrepreneurial spirit where you valuing reputational and cultural risk.
do embrace risk.
– John Atkin NEDs need a better understanding of non-
financial risks including ESG health and the
Non-financial risk will receive more attention in broader social licence issues. They also need
the future as ESG issues are further amplified. a view on how to manage stakeholders other
In 2019 Korn Ferry hosted a roundtable of 15 than customers and staff; regulators are
NEDs, representing 90 listed companies, for a the new group of stakeholders they have to
discussion on risk.6 The directors noted that the manage.
process of risk – and identifying risk appetite – Mark Delaney
– has changed in the past five years. Some
directors questioned whether the risk appetite
framework is properly understood and called
for greater debate between the board and
executive committee on setting the risk appetite
6
https://focus.kornferry.com/wpcontent/uploads/2020/08/TheRiseoftheCRO_Nov2019.pdf..
20The flipside to tightly managing risk and emphasising compliance in
the risk-management framework is creating a compliance mindset
that prohibits opportunities for growth. There is a tension between
value creation and risk management which involves continually
addressing risk appetite.
There is no doubt that well considered risk and governance
frameworks deliver better outcomes for businesses and
consumers and we are going to see increasing emphasis on this
over the years ahead. But the good organisations won’t see risk
and compliance simply as a barrier to growth; rather they provide
a foundation to guide decision-making processes that align to
organisational values and strategy. I think it is the alignment
between values and strategy that will create differentiation,
competitive advantage and opportunities for growth into the
future.
– Deanne Stewart
The 2019 Hayne Royal Commission and APRA’s 2018 prudential
inquiry into CBA that preceded it, identified lessons for boards
in all sectors in relation to culture and trust. Restoring trust in
our institutions is challenging and an important area of focus
for all boards.
I think companies could and should join the dots for people
on major issues because that also helps corporate Australia
move its reputation from being seen as self-indulgent or
not connected with the average person. I think shying
away from that, as some have done, has been ineffective.
It doesn’t make people trust you more, it probably makes
them trust you less. Preparedness to address issues and
have an opinion is almost a necessity. Not on everything
but on those things which really connect to a company’s
purpose and its core strategies. Pick those themes which
are really going to be important to your company, its
purpose and its success and have a view on them and, as
necessary, tell that story; don’t wait for someone to ask it
necessarily.
– Rebecca McGrath
21Diversity is an enduring challenge for
boards.
I don’t think boards are diverse enough at The number one request Korn Ferry’s board
all. On the CCA Board we have two directors practice receives from clients is help in
who were born, raised and have worked all diversifying boards – in terms of gender,
their careers outside of Australia in markets as ethnicity, background, culture, thought and
diverse as India, Japan and Mexico. The value global experience.
that they add from their different perspectives
is immense and goes to what true diversity In Australia, diversity on boards has long been
means and how much it can improve board focussed towards improving the number
performance. of women on boards. It is clear from our
– Ilana Atlas conversations with Chairs that diversity itself
needs to be more inclusive and should include
The aspiration for greater diversity on boards NEDs with different backgrounds, skills, gender,
has two layers; the first, is how a board can ethnicity, lived experience, and ways of thinking.
attract talented leaders who, whether it be This should not however have an unintended
their culture, gender, education, work history consequence of excluding women from board
or exposure to a diverse range of experiences, roles by creating further hurdles to their board
will make the board stronger. The second layer career.
is how this diverse group fits together. Rick
Holliday-Smith believes a good board should be It is clear that diversity enhances discussions
a major contributor to success: and decision-making by including multiple
opinions and perspectives, but diversity doesn’t
A good board is one where directors have automatically bring inclusion.
a diverse range of commercial and societal
experiences. At the same time the core group It’s really important to have a diverse board,
must have extensive subject matter expertise but that’s only one half of the equation. The
in the activities of the business. As a collective other half of it is inclusion. Unless the Chair
they need substantial intellectual bandwidth, understands and commits to inclusion then
must be able to think and act in a collegiate they may as well not have diversity. And
way, and must be independent. The Chair plays there’s not enough work being done on
an important role in forming the board and inclusion. When you do that, you’re going to
ensuring they function in a cohesive way. The have a better understanding of where all the
Chair is selected by his or her colleagues to stakeholders are coming from, and therefore,
play an important role and is both a leader and it’s not a threat; it’s an opportunity.
their servant. He or she has the right to set the – Neil Cochrane
agenda, sets the tone from the top, and is the
Board diversity is an important area of focus for
key point of interface with the Chief Executive.
proxy advisers. EY, in its 2020 preview of the US
The Chair is the ultimate coordinator of proxy season, asked investors what elements
the board as a team, and also manages of board composition currently need the most
the interaction between the board and the attention from nominating committees. The
management. If the Chair has done a good job investors ranked board diversity across gender,
all the board members are involved with proper race and other personal characteristics (e.g.,
interaction with management and together the age, nationality) highest, with 72% of investors
broader team can accomplish superior long- saying personal diversity characteristics
term performance in a properly governed and should be a priority.7
strategically focussed way.
7
https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/topics/cbm/cbm-2020-proxy-season-preview.pdf
22The proxy advisers also spoke of the importance
of broader diversity on boards. Philip Foo
pointed out, “It is easy for us to recognise if
someone is male or female, however we will
need to crack the diversity egg beyond gender
to promote the best outcomes.”
One of the things we need to see in the future
– and the Chairs need to drive it – is greater
diversity of thought and background of people
on boards. I do worry that a lot of people on
boards are in a bit of a bubble and I think the
increase in gender diversity has helped but
it hasn’t eliminated it because people still
come from very similar backgrounds. It would
be great if we could think more about how
we could diversify the backgrounds people
come from aside from these very traditional
pathways.
– Louise Davidson
No one is saying that NEDs skilled in legal or
accounting have lesser value on a board; it is
more that they work best alongside NEDs with
other skills and experiences who will come to an
issue from a different perspective.
Diversity of experience has kind of morphed
into gender diversity, because that’s really easy
to see and because gender is a rough proxy for
different life experience. However, in my view
the drive for diversity on boards has often been
hijacked by people who think boards need
to be representative but that’s a completely
different concept to diversity. You can have
so-called diversity appointments but if they
all think the same and have the same kind of
background or experience then you don’t have
diversity. You just have a representative board
that makes certain people happy because it
ticks a set of boxes. That’s not diversity.
– Anne Ward
23Preparing for 2025 with strategic Chair
succession.
The Chair has to start planning three years in During the past decade the process for CEO
advance of stepping down and engage with the succession has become more planful but less
Nominations Committee to set parameters and so for the role of the Chair. There are various
expectations of what the next Chair will need reasons for this: some Chairs are reluctant to
to bring. It involves setting a job description move on and their board is reluctant to have the
in the way you would for a CEO. It is a very conversation; others stay on longer than perhaps
comprehensive piece of work. In describing intended because there is no obvious successor;
what you’re looking for you need to be acutely or there is an external event that requires stability
aware of the nature of the business and how on the board. There are of course long-term
it’s changing, how the culture of it works and Chairs who are presiding over high performing
to find somebody who will engage with all boards and companies where there isn’t any
the stakeholders, and I really mean all the appetite, from the board or investors, for change.
stakeholders.
– Neil Cochrane There isn’t a set tenure for Chairs, nor does the
ASX recommend one. Some Chairs interviewed
The relationship between the Chair and the CEO expected tenure for Chairs to be tightened over
is the most important workplace partnership in the next few years with the generally accepted
any , and boards work to limit a situation where twelve years moving down to nine. Others were
both roles retire in the same year. This isn’t less fussed about the tenure and more about the
always avoidable and emergency succession ability of the Chair to lead a strong board.
of both roles has been a feature, in financial
services in particular, in Australia during the past If you think about the qualities of a good Chair,
few years. whatever their tenure is, I want to see a person
who builds on what they’ve delivered and that
Chair succession has not had the high profile that it can be taken into the future. And it should be
CEO succession has, yet the role of the Chair in someone different who does that because you
the performance and stability of the company is don’t just want more of the same.
of equal importance to that of the CEO. – Debby Blakey
Chair succession planning framework – a process not an event
Access Accelerate
Assess Accelerate
Align & Assess Transition & Absorb
(internal talent) Development
(external talent) Impact
Facilitate strategic Identify & Accelerate Benchmark Identify Embed
alignment & evaluate NEDs readiness through external talent successor & progression
create success on the board. development incl: against success ensure smooth planning on
profile of Chair. committee work. profile. transition. the Board.
Source: Korn Ferry
24ACSI follows the UK model of annual director You always want to be building a board where
elections for, as Louise Davidson explained: “We you think you have one or two potential
think it would lead to greater accountability successors for Chair from within. But it’s
and avoid situations when something has gone not completely uncommon to have Chair
wrong in a company, that the only way investors succession from outside and you need to be
can express their concern is to vote against a open to that. I don’t have strong views about
director who may not be considered the most the merits of either because it is about having
appropriate target because other directors are the right set of skills for the company at the
not up for election.” time.
– Philip Chronican
Best practice succession planning on boards
extends to the important committee roles on a Early discussions and clear parameters for
board and there should be planned succession Chair succession are best practice and the
for these roles. Nominations Committee should set the
parameters.
The timing of Chair succession will be
determined largely by the timing of CEO You need to be engaging early with candidates
succession to ensure there is, ideally, at least and align their strengths with corporate
twelve months buffer between both roles being strategy. For example, if the company has huge
vacant, but preferably two, or even three years. growth plans, they need someone who fits
This buffer is less important when the Chair is that profile. And discussions need to be early
succeeded by a NED who has served on the when talking about Chair succession. Otherwise
board for some time and has established a boards risk disruption and lack of continuity.
relationship and working rhythm with the CEO, – Bernard Reilly
but very important if the Chair is coming from
outside.
Key Points
Chair succession to start early.
Timing of succession of the Chair and CEO should be staggered.
Chair succession to align with the future strategy of the company.
The Chair should be considering succession as he/she builds the board.
Have a Chair Succession Plan that can be invoked at short notice.
Chair succession should extend to important committees.
The choice of next Chair should suit the future needs of the organisation.
The process is best managed by the Nominations Committee.
25The NEDs of the future.
statements’ however the other skills are largely
for individual boards to decide as they consider
The best of the directors I work with are the right mix of directors to suit their industry
those who are not scared to ask a question, and the market conditions. Most NEDs will
obvious or not obvious, and who have an possess financial numeracy, an understanding
openness of mind to listen to different views of financial and non-financial risk and the
around the table. They have the curiosity governance rules that relate to their industry.
and courage to ask questions when perhaps The executive experience NEDs bring to boards
things are proceeding in a different direction evolves to meet market conditions and boards
and they assist the Chair and other directors are becoming more specific in how they identify
to synthesise the different answers to that their talent needs at any given time. NEDs must
question; that person is the really effective be comfortable with the ‘big picture’, and also
independent director of today. be able to operate at a high level but not at the
– David Gonski expense of offering pragmatic advice.
Many NEDs transitioned to their board career Pragmatism is important. Every board that I’m
after a successful executive career and, while involved in operates in the fluid environment
boards are composed of a team of experienced that we live in. The coronavirus is a classic case
leaders, the tone is not set from the top in the in point. Just a few months ago, interest rates
same way as it is in a management role. The were low, the stock market and the property
board is a cohort of equals – with the Chair the market were up, and we were feeling very good
first among equals. about the future. It is so gratifying right now to
have directors who can offer advice in real time
This context for how boards operate influences based on experience. So, I really appreciate
the type of leader who will succeed in a NED those directors. Most directors on my boards
role. John McFarlane said he prefers everyone offer honest, pragmatic advice that’s really
on the board to contribute within the framework helpful.
of the agenda and end with consensus. “I have – Hamish McLennan
never been on a board that has voted. I think
of the Chair role as an orchestral conductor: In the past few years, driven partly by the
choosing what and how to play, ensuring increased exposure boards have to non-financial
everyone is on point and playing their role risk, the traits and characteristics of NEDs have
well, but recognising it’s the overall quality become as important as a mark of suitability for
and result that matters in the end.” Catherine a board position as their skills and experience.
Livingstone said: “if you go back to the role of
Chair, it’s about focusing on how you get a good
discussion going. You want directors that help
you with the discussion. Not just proving the
point that they’ve read the papers and can ask a
question and seem terribly thorough. That’s not
what we need.”
Most observers of board governance will agree
that there is a core set of skills and experiences
that have long been associated with NEDs. They
must, as is mandated by the ASX Code, have
‘an understanding of accounting matters to
fulfil their responsibility in relation to financial
26Courageous – Collaborative – Resilient – Agile
In our conversations for this report, we a great director of a listed company. ”His
asked interviewees to describe the traits or view was shared by Ilana Atlas who said:
characteristics of the most effective non- “NEDs need to challenge but should always
executive directors. be constructive. They have to put the
interests of the company first, which may
Courageous, collaborative, resilient and sound trite but actually, particularly in the
agile are highly valued. These traits, when current world where we’re talking about
combined with a high EQ, diversity of ideas, significant numbers of stakeholders, that is
pragmatism, a clear head and good listening actually quite challenging.”
skills paint a picture of a NED who works
to strengthen the team effectiveness of a RESILIENCE has, arguably, never been
board, but not to the detriment of their core as important as it has been this year.
role as custodians of governance. Resilience needs to be built into the business
model, and it also needs to be a feature
COURAGE was mentioned often, of leadership. Patrick Allaway noted that
particularly in relation to contesting resilience is always needed on a board:
accepted thinking on a board by being “We’re in a world that changes very quickly
willing to put forward a different point of and the impact of that change on businesses
view – not, as Pat O’Sullivan described: “just is very fast. Whether it be this current
for the hell of having a devil’s advocate, crisis [COVID-19] or continued business
but because they truly have a different disruption, boards are going to need to be
perspective.” resilient.”
Having the courage to ask tough questions AGILITY is a close cousin of resilience and
is most valued when it is constructively is found in people who are able to act and
applied. This view is shared by many Chairs think quickly and who are available to step
who were dismissive of questions that add in when it’s needed. In an environment of
little to the matter being discussed or just constant change, complexity and ambiguity,
echo questions previously asked by others. learning agility has become mission critical.
Respectfulness for the views of others was Korn Ferry’s research into learning agility
also valued. “It’s fine to speak up but if identified people who excel at absorbing
you don’t have a view there isn’t any point. information from their experiences and
You have to have something meaningful to then extrapolating from those to navigate
contribute, you’ve got to be humble and you unfamiliar situations. They are often
have to assume you could be wrong,” said described as flexible, resourceful, adaptable,
Michael Carapiet. and thoughtful − in short, an ideal fit for
mission-critical roles and for NEDs of the
COLLABORATIVE rather than
future.
individualistic is considered one of the most
important drivers of board effectiveness. Boards, and the companies they represent,
navigate many unfamiliar situations. They
Much is made of the relationship between
meet more often, making ‘single page’
management and the board, but the
decisions on many matters quickly as they
relationship among board members is
deal with a whole range of matters that
equally important. David Gonski believes
require speedy resolution. NEDs need to be
“Teamwork is a given for NEDs and
increasingly more agile – in the way they
somebody who is solely antagonistic is not
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