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board
DEC/JAN 2020
room
Magazine of the Institute of Directors in New Zealand
Top five issues
for directors
Regulators outline
their priorities
BOARDROOM DETAILS
boardroom SENIOR LEADERSHIP TEAM
Chief Executive Officer
BOARDROOM IS PLEASED
TO ACKNOWLEDGE THE
SUPPORT OF
Kirsten Patterson
Boardroom is published six times NATIONAL PARTNERS
a year by the Institute of Directors General Manager, Members
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CONTENTS
A note from the editor
As we enter 2020, this issue looks at
what directors will be focussed on
in the new year.
The Agenda
DEC / JAN 2020
The annual “Top Five Issues for Directors”
12
and Director Sentiment Survey INSIDE IoD
bring together the expertise of our
Governance Leadership Centre and the 02 CEO letter –
A letter from America
views of directors.
Pressures on directors’ time, increasing
04 UpFront
personal liability and the challenge of 22 Ask an expert with
meta-issues such as climate change Peter Bailey
and technological disruption feature high
on the agenda. 38 How our members
see us
Our Chief Executive Kirsten Patterson
offers some personal notes on future 40 Governance
governance from a trip to the US in career growth
her regular column. Along with IoD THE TOP FIVE ISSUES
President Alan Isaac, she attended the FOR DIRECTORS IN 2020 42 Out & about
2019 National Association of Corporate
44
28
Directors conference in Washington, Events diary
where she also caught up with Kiwi Chris
Liddell, deputy chief of staff for policy FEATURES
coordination in Trump’s White House.
12 The top five issues
Continuing the forward-facing theme, for directors in 2020
three of New Zealand’s key regulators
– the RBNZ, FMA and Commerce 20 Director Sentiment
Commission – provide an insight into Survey
their work plans for 2020.
26 Regulator focus 2020
So there’s plenty to keep your brain ticking
over while on your summer holidays. 34 Two views on
shareholders and
stakeholders
Merry Christmas and a happy New Year, THE BUCK
STOPS HERE
Aaron Watson
36 Governance gives
Boardroom editor
36
FROM OUR PARTNERS
30 Managing climate risk
/ Marsh
32 The buck stops
here: governance,
accountabilty and
risk culture
/ KPMG
BoardRoom is the magazine
of the Institute of Directors
in New Zealand iod.org.nz GOVERNANCE GIVES
Dec/Jan 2020 1
CEO LETTER
A letter from
America KIRSTEN PATTERSON
CEO, INSTITUTE OF DIRECTORS
Tēnā koutou katoa threat”). In a metaphor from ice hockey frustration with the attitudes of the
– we were in the US, after all - it was said previous – baby boomer and older –
At the beginning of October, IoD that boards need to be where the puck generations.
President Alan Isaac and I attended the is going to be, not where it is right now.
2019 National Association of Corporate At the NACD conference, the “OK,
Directors (NACD) Global Board Leaders’ In short, boards need to raise their game. boomer” mentality was investigated as
Summit in Washington DC. part of a presentation on the differing
At a pre-conference panel event views of the generations in the US.
The NACD Conference is the largest sponsored by KPMG, it was noted that
gathering of professional non-executive boards are not leading the discussion The first point to note is that the oldest
directors globally. It attracted more than on some of the greatest challenges millennials are now 38 years old. They are
1,800 attendees from the US, Canada, of our time. The world’s largest civil not as young as they are often portrayed
New Zealand, Australia, Singapore, disobedience event, the global climate in media commentary and they may have
Malaysia and Hong Kong. strike in September, for example, was children, or even adult children.
led by schoolchildren.
The conference was of an extremely high This coming generation has the potential
quality and the issues discussed will help Boards also need, speakers reiterated, to swing public debate on many trends
inform our work here at the IoD. to come to grips with tremendous in modern thought.
shifts in diversity of our consumers
We also used the opportunity to connect and communities. US millennials are more likely to
with a number of potential speakers for disapprove of the Donald Trump
IoD events. OK, BOOMER presidency (67% vs 52% boomers), they
believe the economic system is unfair
LEADERSHIP One of the major shifts noted at the (69% vs 62% boomers) and that the
conference was generational – the amount of profit made by corporations
In the lead up to the conference, the attitudes and economic power of the is unfair and unreasonable (63% vs 53%
NACD set the scene with the launch of millennials is beginning to be felt in boomers). They look to government to
the white paper Governance Fit for the the marketplace and the boardroom. step in to solve communal problems
Future: an Urgent Imperative for Board (64% vs 49% boomers) and they believe
Leadership. This is very evident at home in New immigrants strengthen the nation
Zealand, where Green Party MP Chlöe (75% vs 52%). On climate change,
The paper argued that there is an urgent Swarbrick recently made headlines a 56% majority believe human activity
need to avoid complacency (Governance for using the phrase “OK, boomer” in is the main driver while only 45% of
Fit for the Future actually describes parliament. “OK, boomer” is a somewhat boomers say the same.
complacency itself as “an existential dismissive phrase that expresses
2 BOARDROOM
CHANGING OF THE GUARD Admiral James Stavridis, and NATO worth members of Kiwi Expatriates
Supreme Allied Commander Europe Abroad – KEAs) to provide a global view
Speakers noted that few US boards offered an interesting observation on The in New Zealand board conversations.
discuss how the board will evolve over Economist magazine.
time. It was quipped that it’s easier to get This is currently difficult due to the usual
on a board than it is to be removed. In his experience, the information in NZ board cadence (monthly meetings).
The Economist dovetails with presidential Liddell recommended that boards consider
What will the ideas of this new generation security briefings he saw while in NATO an advisory board (non-statutory with no
mean for governance as the millennials role. If you want to stay abreast of geo- liability) that meets one or two times a
take an increasing number of seats at political issues, you could do worse than year and sits alongside the main board
board tables? read it, he said. to allow overseas directors to return home
for a dedicated “advisory board week”.
Add in that we are about to see the largest A the IoD, we try to help members stay up
transfer of wealth in history – estimated to date – through courses, publications, This idea could have merit and you
by one presenter at US$24 trillion – from research and opportunities to network may wish to consider it in your board
boomers to millennials and you have a with their peers. But as directors, we discussions. We would appreciate
social change that boards should have on are all responsible for our own lifelong your feedback.
their radars. education. What are you reading to inform
and educate yourself? New Zealand IoD members are able to
Board composition puts the spotlight attend the NACD conference at local
firmly on board diversity and skill mix. ON THE WAY HOME member rates, and we would welcome
Boards need to be refreshing and driving any NZ based members to join us when
performance of all members, making sure After the conference, we met with New we attend the conference on 10-13
that the have the right talent. Talking Zealander Chris Liddell (deputy chief of October 2020.
about diversity is ultimately driving staff for policy coordination for President
conversations about strategy and future Trump) in the West Wing at the White
opportunities. House. We discussed the work the
US is doing on deregulation, the future Ngā mihi
A NOTE ON STAYING UP DO DATE of work and AI.
Kirsten KP
In a presentation on “21st Century We also discussed how New Zealand
Security: Risk & Opportunity”, former boards could attract more overseas
NATO Supreme Allied Commander Europe directors or global kiwis (the high-net-
Dec/Jan 2020 3
UpFront True or false: Directors
should use the full name
of their company on emails
and other documents in
Directors’ duties and climate risk company dealings?
In October, the Aotearoa Circle’s Sustainable Finance Forum published a legal
opinion on the obligations of New Zealand company directors (and managers of retail
managed investment schemes) in relation to climate risk. The opinion summarises
the international and domestic scientific, political and regulatory context before
considering directors’ duties under the Companies Act 1993 and other obligations.
Key findings include:
ANSWER
True: Section 25 of the Companies
climate change is a foreseeable risk directors should assess the risk in Act 1993 provides that a company
of financial harm to many businesses, the same way they would any other must ensure that its name is clearly
especially in relation to the impacts financial risk to the business and take stated in every written communication
arising from transitioning to a low- action (if appropriate) sent by (or on behalf of) the company
carbon economy and in every document issued by
directors of some companies may be
directors duties, including the duty required to disclose climate-related (or on behalf of) the company that
to act with reasonable care, mean risk to their businesses. evidences or creates a legal obligation
directors should (and in some cases of the company.
must) take climate change into
account in their decision-making From our Governance Leadership Centre
Shifting to a sustainable NZ easiest
financial system country in which
to do business –
The Sustainable Finance Forum also
published in October an Interim Report on
how the financial system in New Zealand
World Bank
may be redesigned to meet sustainability The World Bank’s Doing Business Report
challenges and opportunities now and in 2020 names New Zealand as the best
the future. out of 190 economies for the ease of
doing business.
The report explores the purpose, the
role, and responsibilities of business and The World Bank economies across
finance in society and sets out potential a number of indicators from starting
pathways for achieving a sustainable a business to resolving insolvency.
system. Topics covered include fiduciary
duties, performance management Singapore was named in second place
and remuneration, education, system for the fourth year in a row, with Hong
architecture, data and reporting, and Kong, Denmark and Korea completing
scaling positive impact. The report is the top five.
intended to be finalised by July 2020
and is the first step in designing a road
map to 2030.
From our Governance Leadership Centre
4 BOARDROOM
UPFRONT
Audit quality Education hubs
improves but abandoned
inconsistencies The Tomorrow’s Schools Independent enrolment schemes will be carried out
by the Ministry of Education (and not
persist - FMA Taskforce delivered its final report in
July to the government setting out
recommendations to reform the school
by boards)
a new role of Leadership Advisor
Audit quality has broadly improved again system. In November, the government will be established to support boards
but auditors continue to apply standards released its response Supporting all and principals
inconsistently, the FMA’s annual Audit schools to succeed: Reform of the
Quality Report 2019 has found. Tomorrow’s Schools system. mandatory governance training for
boards and specific training for chairs
It highlighted the need for directors and The government intends to progress is being considered
company management to keep good nearly all of the Independent Taskforce’s
accounting records and provide auditors recommendations in substance. possible mandatory mana whenua
with high-quality information. Boards will retain most of their current representation on boards is still
governance responsibilities and the being explored
The annual review is part of a three-year controversial proposal for education hubs a new code of conduct for board
monitoring cycle of licensed auditors. has been abandoned. Providing greater members will be created and this will
Each of the audit firms reviewed for this support and training for boards is also specify individual and collective duties.
report have been reviewed previously and a key focus. Key matters relevant to
the FMA found most auditors had made trustees include: A detailed timeline for changes can be
improvements. found in Appendix 1 of the government’s
board responsibility for property response. Reports are available at
and major capital works has been conversation.education.govt.nz
removed from boards of state schools,
although there is an option to retain From our Governance Leadership Centre
responsibility for some schools
property maintenance, financial and
procurement services will be made
available to boards
What advantage could successful
franchising or licensing add to
your company?
25
CELEBRATING
Find out more. Call Dr Callum Floyd 09 523 3858 or email callum@franchize.co.nz
Since 1989, leading local and international companies have relied upon Franchize Consultants’
specialist guidance to evaluate, establish and optimise franchising and licensing networks. YEARS
1989 – 2014
Six times winner – Service provider of the year – Westpac New Zealand Franchise Awards
www.franchize.co.nz
Dec/Jan 2020 5
Climate-related
financial disclosures
APPOINTMENTS The government has consulted on a listed issuers, banks, general insurers,
proposed regime for climate-related asset owners and asset managers. The
financial disclosures in the discussion Task Force on Climate-related Financial
Director Search document Climate-related financial Disclosures reporting framework is
disclosures — Understanding your proposed as a default framework.
Keiran Horne business risks and opportunities related Reporting would be required in annual
Chartered Member, has been to climate change. reports and it is not proposed that
appointed to the board of assurance be mandatory at this stage.
Quayside Holdings Ltd. The document considers adopting
mandatory climate-related disclosures From our Governance Leadership Centre
(on a comply or explain basis) for
Regular
Sandi Beatie QSO
Member, has been appointed as
chair of Education Payroll Ltd.
ASIC corporate governance
Laurissa Cooney
Chartered Member, has taskforce report on non-
been appointed to the board
of Air New Zealand. financial risk
The Australian Securities and Investments 3. Material information about non-
Murray Horn CNZM Commission (ASIC) taskforce, set up in financial risk was often buried in dense,
Chartered Fellow, has been 2018, has been engaged in conducting voluminous board packs. It was difficult
appointed as chair of China targeted reviews of large Australian to identify key non-financial risk issues
Construction Bank (NZ) Ltd. listed entities to gain insights into their in information presented to the board.
corporate governance practices. The Boards should require reporting from
first report of the taskforce, Director management that has a clear hierarchy
Elisabeth Welson and Officer Oversight of Non-financial and prioritisation of non-financial risks.
Member, has been appointed a Risk Report, was released in October.
commissioner of the Commerce Below are four key findings in ASIC’s 4. Companies generally sought to use
Commission board. own words: board risk committees (BRCs) to
achieve desired outcomes, but their
1. All too often, management was effectiveness could be improved. BRCs
Jane Wrightson operating outside of board-approved should meet more regularly, devote
Chartered Member, has been risk appetites for non-financial risks, enough time and be actively engaged
appointed as New Zealand’s new particularly compliance risk. Boards to oversee material risks in a timely
Retirement Commissioner. need to actively position themselves and effective manner.
to hold management accountable to
operate within their stated appetites. Questions for boards are set out in
appendix 1 of the report. A second
2. Monitoring of risk against appetite often report by the taskforce on executive
did not enable effective communication remuneration practices is due to be
of the company’s risk position. Boards released this year.
need to take ownership of the form
and content of information they are See asic.gov.au
receiving to better inform themselves
of the management of material risks. From our Governance Leadership Centre
6 BOARDROOM
UPFRONT
Litigation funding in the latest
Governance Update
In October, two litigation funded actions of disclosure obligations. The action is
relating to CBL Insurance Ltd (CBL) against CBL and its former directors.
were announced.
At this stage, it is unclear how the courts
The first class action against CBL was will deal administratively with the two
announced by litigation funder IMF actions. Read more in the our latest
Bentham and law firm Glaister Ennor. Governance Update, which also covers
The class action against CBL will allege
that the company breached disclosure the latest policy and advocacy matters
obligations under the Financial Markets including a focus on escalating director
Conduct Act 2013. responsibilities
a look at the future of board
The second action funded by LFP Group composition
is being fronted by Harbour Asset
Management and Argo Investments, resources and guidance on matters
as representative shareholders in CBL. relevant to directors.
The action will allege that there were
false or misleading statements made in See the full update at iod.org.nz
CBL’s IPO documents and also breaches
Dec/Jan 2020 7
UPFRONT
Institute of Directors
honours John Spencer as a
Director
Distinguished Fellow Vacancies
Director Vacancies is a cost-effective
way to reach our extensive pool of
membership talent. We will list your
vacancy until the application deadline
or until you find a suitable candidate.
A full list of vacancies can be viewed
at iod.org.nz
Contact us on 0800 846 369
Unless otherwise stated, the following
positions will remain open until filled.
ASTHMA AND RESPIRATORY
FOUNDATION
Role: Board members (2)
Location: Wellington
Closes: 20 December
Long-time company director John of Kiwirail (2010-2016), Tertiary
Spencer CNZM DistFInstD has been Education Commission (2012-2017), INLAND REVENUE
conferred the Distinguished Fellow award Hamilton Airport (2013-2019), Raukawa Role: Risk and Assurance Committee
by the Institute of Directors (IoD) - the Iwi Development Ltd (2012-present) and members (2)
highest accolade the IoD bestows on its Tainui Group Holdings (2003-2012. Location: Wellington
members. The award was presented at the He has been director on the boards of Closes: 31 January
IoD Wellington Branch’s annual dinner. Solid Energy NZ (2005-2010), NZ Dairy
Group (2009-2014), Mitre 10 NZ (2011- INZONE EDUCATION
The Wellington-based director, whose 2018) and Tower Insurance (2003-2015), FOUNDATION
extensive governance experience to name some. Role: Board chair
spans over 17 years, has served on Location: Auckland
a variety of boards - for private and “I am deeply honoured, humbled and Closes: 24 December
publicly-listed companies, iwi, state- grateful to receive this award - there
owned enterprises, crown agencies and is nothing more satisfying than being RIVERLEA THEATRE
cooperatives. Included in John’s long list recognised by your peers,” Spencer said Role: Board chair
of directorships are being chair when receiving the award. Location: Hamilton
Scientists in the boardroom
As organisations and society face In our November 2019 Directors’ Brief
increased uncertainty and complexity, “Scientists in the Boardroom: Enhancing
the breadth of issues that directors Evidence-based Decision Making”,
are having to consider is expanding prepared in collaboration with the
to new territory. With simultaneous Royal Society Te Apārangi, we look at
complex challenges on the horizon, the skillsets that scientists bring to the
boards need to ensure that they have boardroom and how boards can improve
the right information and diverse decision-making through greater use
perspectives to operate at their best of evidence.
when making decisions.
All Governance Updates and submissions
are available at iod.org.nz
8 BOARDROOMNEW MEMBERS
Welcome Welcome and congratulations
to the newest members of the
institute of Directors.
New Members October–November
AUCKLAND Susan Lowe CANTERBURY Tim Raateland
Emmett Mackle Mark Rawson
Chris Alderson Geraint Martin Ben Austin Avesh Vather
Daniel Alexander James McGhie Mark Bragg
Phil Alexander-Crawford Jill McMillan Ngaire Briggs
Becs Annan Lovina McMurchy Craig Brosnan OTAGO SOUTHLAND
Marie-Eve Bacon Ziahad Mohammed Mark Calcott Mark Bryan
Dianne Ball Les Morgan Alan Chapman Susan Finlay
Matthew Band Andrew Newlands Jono Cox Kate McMahon
Mark Bekhit Campbell Newman Wendy Dallas-Katoa Michael Price
Patrick Brennan Bill Newns Graham Dockrill Nigel Rickerby
Phil Brosnan Kelly Newsome Vanessa Doig Vincent Sharp
Debbie Burrows Virginia Numans Bruce Findlay Nicola Whiston
Tom Byrne Dash Patel Meika Foster
Dave Chambers Charles Porter Michelle Gillman
Kaison Chang Marc Potter Madeleine Hawkesby-Browne TARANAKI
Johnathan Chen Fraser Robertson Greg Hay Marie Collins
Bryan Chong Debbie Sew Hoy Tori Hunt Anna Davis
Paul Couper Ajay Sharma Jaana Kahu Deirdre Nagle
Varun Dhani Joanna Simon Steve Kelsen Leigh Sampson
Malcolm Dunn Jacky Simperingham David King
Wade Eatts Aaron Skilton Katie Kinraid
Chris Esther Cory Spence Guy Marquet WAIKATO
Steven Fast Brodie Stevens Craig McInnes Anna Gallien
Lani Fogelberg Mark Stockton Quentin O’Toole Nick Humphries
Brigitta Galambos Merryn Tawhai Chris Ponga Debbie Lee
Earl Gasparich Ben Thompson Gina Pritchard Caroline McCurdie
Deb Godinet Anna Thorburn Michelle Robin Asad Mohsin
Brad Gordon Luke Wee Ana Rolleston Tania Pointon
Emma-Kate Greer Gina Solomon Rebekah Revell
Ken Griffin Tumanako Stone-Howard Ruth Robinson
Brian Hayr BAY OF PLENTY Liz Thompson Leanne Salisbury
Stuart Henderson Mike Dawson Michelle Turrall Michael Sentch
Cath Holland Evelyn Forrest Claire Waghorn Bruce Sherman
Daniel Hopkirk Simon Hepburn Rachael Walkinton Jenna Smith
Geoffrey Horne Kumaren Perumal Eric Souchon
Shane Howell Blanche Reweti Jarred Stent
Dickie Humphries Regan Studer NELSON MARLBOROUGH Sandy Waters
Tom Igusa Anne Tolley Brandon Beveridge Ellie Wilkinson
Barbara Imlach Nigel Tutt Lea Boodee Kathryn Williams
Nettie Knetsch John Waaka Das Das Annette Williams
Iain Laxon Karen Walmsley Matthew Dodd
Deborah Lind James Warbrick Hugh Morrison
Bruce Lochore Wayne Werder Michael Playford
Jonathan Lockyer
10 BOARDROOMNew Associates, October–November
WELLINGTON Simon Neale AUCKLAND WAIKATO
Cobus Nel
Hazel Armstrong David O’Brien Mauro Barsi Terri Hohneck
Stuart Ayres Wharemako Paewai Shaun Brooks Blair Muter
Alan Beesting Matiu Park Jayne Brophy John Smithells
Wayne Butson Andy Prow Stephen Cairns
John Campbell Laura Quin Tracey Chand
Gemma Carroll Rachel Ritchie Rob de Lacey WELLINGTON
Donatella Cavagnoli Shaun Sexton Annika Dickey Andrea Black
Murray Chandler Karen Tate Richard Frogley Nicole Braun
David Cochrane Di Taylor Kat Haworth Lisa Clarke-Watson
Neil Cree Jill Thorburn Jeanette Kini Toni Dodds
Peter Dengate Thrush Andrew Tompkin David Lilburne Hamish Frame
Matthew Dolan Shelley Turner Daniel Lund Andy Fulbrook
Trudi Duncan Niki van Paassen Jason Mclennan Steph Gartrell
Sara Eddington Pat Ward James Nair Andrew McSweeney
Naomi Ferguson David White Brayden Print Stephanie Murphy
Ralph Goodwin Karen Whitehead Navin Rudra Angela Natoli
Hamish Goodwin Aimee Wiley Udit Singh Tina Ng
Greg Harford Tristan Will Jackie Waddams Koren O’Brien
Wayne Hastie Paul Williams Brendan O’Sullivan
Troy Hobson Carmela Petagna
Jeremy Holmes CANTERBURY Nic Quill
John Holt OVERSEAS Anna Johnstone Paul Reeve
Jim Inglis Ryan Freer Margie Spencer-Bower Feamor Vyn Tiosen
Paul Jepson Patrick McCawe Charlotte Westwood
Lewis Karaitiana Pete Ydgren
Reuben Lawrence OVERSEAS
Alexandra Lipski Shavin Chand
Mark Mabbett NELSON
Rob McGregor MARLBOROUGH
Ivan Moss Sue Brown NEW CHARTERED
Petra Muellner Karien Bruwer da Silva FELLOWS
Joy Nagrampa Shanell Kelly Auckland
Dame Roseanne Meo
Dec/Jan 2020 11As we enter 2020,
the IoD’s Governance
Leadership Centre
identifies five issues that
should be top of mind
for directors in 2020.
AUTHOR
FELICITY CAIRD,
GOVERNANCE
LEADERSHIP CENTRE
GENERAL MANAGER
12 BOARDROOMFEATURE
1. Climate
action
There is no delaying. If you are in business, the impacts
The past 12 months have Climate accountability means and risks – such as business disruption,
taking action now. physical and financial risks – are
seen climate change
T
becoming clearer.
mitigation and the he climate crisis, with rising sea
levels, more frequent extreme A legal opinion published in October
“purpose” of businesses weather events and apocalyptic by the Aotearoa Circle’s Sustainable
cement themselves as the fires, is the most important issue of Finance Forum says directors have
our times. Urgency to take action is legal obligations in relation to climate
key challenges that boards intensifying. risk. It considers directors’ duties under
must grapple with as they the Companies Act 1993 and other
In November, a letter signed by more obligations. Key findings include:
strive to ensure the long- than 11,000 scientists warned that the
term sustainability of their Earth was clearly and unequivocally climate change is a foreseeable risk
of financial harm to many businesses,
organisations. facing a climate emergency.
especially in relation to the impacts
The global movement led by Greta arising from transitioning to a low-
Data and privacy, Thunberg and students around the world carbon economy
reputation and trust, saw an estimated 170,000 people march directors duties, including the duty
in New Zealand as part of the September
and board leadership school climate strike in September.
to act with reasonable care, mean
directors should (and in some cases
in changing times round must) take climate change into account
out our top five issue for Boards have a critical role to play in in their decision making
responding to climate-related issues to
this year – major issues ensure the long-term sustainability of directors should assess the risk in
that show the challenges their organisations. In the 2019 Director the same way they would any other
Sentiment Survey we saw a lift in the financial risk to the business and take
and aspirations for number of boards that said they were action (if appropriate).
directors in 2020. engaged and proactive on climate
change, but it was still only 35%.
Dec/Jan 2020 13FEATURE
“I don’t want your hope.
I don’t want you to be hopeful.
I want you to panic and act as
if the house was on fire.”
Greta Thunberg
The Forum also published Financing the
Future, which looked at how the financial
system in New Zealand may be redesigned
to meet sustainability challenges.
It explores the purpose, role, and
responsibilities of business and finance
in society and sets out potential pathways
for achieving a sustainable system.
The Climate Change Response (Zero
Carbon) Amendment Act passed into The Task Force on Climate-related
law in November, amending the Climate Financial Disclosures (TCFD) reporting
Change Response Act 2002. Its long-term framework is proposed as a default
2050 emissions reduction target will: framework. Although mandatory
assurance is not proposed at this stage
reduce emissions of biogenic methane reporting would be required in annual
within the range of 24% to 47% below reports. This will be a significant focus
2017 levels by 2050, with an interim for 2020.
requirement to reduce emissions
to 10% below 2017 levels by 2030 Pointers for 2020:
(biogenic methane is all methane
greenhouse gases produced from the Understand the potential impact
agriculture and waste sectors) that climate change can have on
your organisation and identify key
reduce net emissions of all other risks and opportunities.
greenhouse gases to zero by 2050.
Consider early adoption and disclose
material climate-related risks,
The government is consulting on opportunities and strategic decisions
Climate-Related Financial Disclosures — to all stakeholders.
Understanding Your Business Risks and
Opportunities Related to Climate Change Assess skills and experience to ensure
and is considering adopting mandatory your board is (or develop it to be)
climate-related disclosures (on a comply climate competent.
or explain basis) for listed issuers,
banks, general insurers, asset owners
and asset managers.
14 BOARDROOMFEATURE
Purpose is the driving force to remaining
competitive and sustainable in the long
term and needs to be led by the board.
We expect to see greater focus on purpose
as companies continue to adapt to
shareholder and stakeholder expectations.
2. Governing
This is also evident in a significant focus
on environmental, social and governance
factors. In the Director Sentiment Survey,
for purpose
70% of directors say these were very
important to their boards.
The British Academy’s Principles of
Purposeful Business notes the need to
reform business around purpose, trust,
Purpose beyond profit values and culture including to “profitably
solve the problems of people and planet”.
is the key to remaining Although purpose is getting greater
competitive and attention in the corporate sector, it has
always been the raison d’être for not-for-
sustainable in the profit (NFP) organisations.
long term. The Centre for Social Impact’s report
What is the Future for NGO Governance
says that NGOs generate $20 billion in
annual income in New Zealand and employ
around 100,000 people (nearly 5% of the
T
workforce). Good governance in charities
hat purpose is critical to Previous versions endorsed principles of and other community organisations is
governance is not a new concept. shareholder primacy (ie, that corporations critical to a thriving and sustainable
Determining purpose is, after all, exist principally to serve shareholders). society and economy.
the first pillar of the IoD’s Four Pillars
of Governance Best Practice for New The shareholders-versus-stakeholders The NFP sector is in the midst of the most
Zealand Directors. Recently, however, debate was reignited in New Zealand significant changes in over 100 years.
it has been getting much greater this year by the FMA CEO Rob Everett A new Trusts Act 2019 has been passed,
attention as the effectiveness and value in a speech to the New Zealand Capital the Incorporated Societies Act 1908 is
of capitalism and corporate governance Markets Forum. due to be replaced, and work to modernise
are questioned. charities legislation includes considering
Changes in listed company ownership the need for governance standards or
In recent years, Larry Fink, chair and CEO and a move towards greater institutional a code for charities. Social enterprise and
of the world’s largest investment company, investor holdings have altered the impact investing are also on the rise.
BlackRock, has been exerting increasing relationship between investors, boards
influence on corporate governance and management. It’s all about purpose.
through his annual letter to CEOs.
He highlights particular areas from an The issue is not whether a company Pointers for 2020:
investment perspective and the 2018 and should account for stakeholder interests
2019 letters place organisational purpose but, rather, the extent to which it should. Lead on purpose to ensure the
firmly up front. organisation remains successful and
In the decade since the Global Financial sustainable in the long term.
In August, the US Business Roundtable Crisis, corporate governance regimes Engage with the community and
gained global attention with its new around the world have been reformed and other stakeholders to build and
Statement on the Purpose of a Corporation, strengthened. The pendulum has swung maintain your licence to operate.
which committed its 181 signatories to away from shareholder primacy towards
leading their companies for the benefit of giving more recognition and weight to Promote your purpose to gain a
all stakeholders – customers, employees, stakeholder interests (including in risk competitive edge, including attracting
suppliers, communities and shareholders. management and corporate reporting). talent and consumers.
Dec/Jan 2020 15FEATURE
3. Data
and privacy
In a world of data and digital dependency it is
no surprise that data governance features again
in our annual Top Five Issues.
T echnology continues to reshape
companies, and the business
and social environment. Giant
tech companies are dominating new
and traditional industries in ways that
Despite potential consequences of a
cyberattack or incident, only 50% of
boards (in our 2019 Director Sentiment
Survey) reported discussing cyber
risk and that they were confident their
responsibilities and liabilities. Boards
should be able to say what they have done
to ensure the organisation and its people
know how to treat data and privacy.
demonstrate the opportunities and company has the capacity to respond Again it is concerning that only 33% of
disruptive risks of technology. These to a cyberattack or incident. Only 41% directors in the Survey said that their
include new ways of doing business, said that their boards were getting board has the right capability to lead their
the impact of data privacy scandals and comprehensive reporting from organisation’s digital future. This statistic
cyberattacks. management about data risks and has been stubbornly stagnant since 2016.
incidents (down from 47% in 2018).
Artificial intelligence, the Internet of Directors do not need to be digital
Things, big data, data analytics, data It is critical that boards receive experts but digital literacy and savvy is
privacy, ethics, and security all fall under comprehensive reporting from essential, including being able to ask the
a board’s role in data governance. It management about cyber risks and right questions and hold management
means leading to stay on top of new incidents, and actions taken to address to account.
and emerging technologies, risks, them. The IoD and Aura Information
opportunities and innovation. Security guide on reporting cybersecurity
to boards includes guiding principles and Pointers for 2020:
This includes understanding your outlines some important questions to ask
organisation’s value and how to protect when developing cybersecurity metrics Develop board digital capability to meet
and maximise it. Up to 80% of company and dashboards. the board’s current and future needs.
value is made up of intangible assets such Prioritise privacy, understand your data
as brand, data, IP and organisational/ Data privacy and protection is a core and ensure transparency about how
social capital, but they are still massively concern for customers and citizens across data will be used.
under-represented on the balance sheet. the globe and New Zealand will have a
Having good knowledge of your critical new privacy act in 2020. It’s more than Ensure the board is getting
assets is vital for any board member. a quarter of century since the Privacy comprehensive and timely reporting
Act 1993 was introduced and in that time (good and bad news) from
More than a third of New Zealand the rise of the internet and the digital management (and other sources)
businesses have been subject to a economy have transformed organisations about cyber security and risks.
cyberattack in the past 12 months – and how we use personal information.
(Aura’s Cyber Security Market Research
Report 2019). Cyber-attacks and data The new Privacy Act is focussed on
breaches are a real and continuous threat, modernising the privacy landscape
and it really is a matter of not if but when and will introduce mandatory privacy
it will happen. breach reporting, bringing increased
16 BOARDROOMFEATURE
4. Reputation
and trust
Trust and accountability underpin
reputation and brand.
I n a world of fake news in which “talk”
is cheap, opinions can be overwhelming
and the speed of sharing them is
just a click away, it is hardly surprising
that public scrutiny for businesses and
Transparency is a key opportunity to help
foster trust, showing what businesses
are doing, how they’re doing it, and their
impact on the environment and society.
Some risks to reputation and trust can
be mitigated proactively but there will be
times when unexpected incidents occur
such as a viral social media incident. Being
prepared is critical. In the 2019 Director
individuals is on the rise. Trust needs to Public attention and the power of social Sentiment Survey, 65% of directors
be earned – it can take decades to build – media, active regulators and the rise said their boards had discussed crisis
and just a moment to destroy. The media of litigation funding and class actions management plans in the last 12 months.
is a hungry machine with more and more all add to an operating environment of Crisis preparedness is something for the
channels on offer and negative stories are heightened accountability for directors. 2020 board plan, if it is not already on it.
newsworthy. Cast your mind back – even
just one year – it’s easy to name a host There are many issues that can impact This is even more critical given the rise of
of very public failures and scandals that on reputation and ESG (environmental, deep fake video technology (which is very
have, rightly or wrongly, violently rocked social and governance) matters are difficult to identify) and synthetic media,
reputations. And some will never recover. particularly important in today’s business where what you see and hear may appear
environment. real but is actually digitally fabricated.
The 2019 Edelman Trust Barometer
revealed that the most trusted institution A key issue for boards is executive pay and Pointers for 2020:
is now “my employer”. Globally, “my allowances which are major governance
employer” (75%) is significantly more issues globally and were in the spotlight Identify, assess and oversee key non-
trusted than NGOs (57%), business (56%), during 2019. Issues include the size of financial risks, including organisational
government (48%) and media (47%). executive remuneration packages, use of culture and conduct risk.
Building and retaining trust should be company assets, inconsistent alignment Be prepared. Have communication and
front of mind for boards. And this trust is between executive pay and company crisis management plans in place to
what underpins your brand and reputation. performance, and pay disparity between deal with unexpected incidents that
executives and employees. Boards should can impact reputation, brand and trust.
The value of reputation is dynamic, expect increased attention on these
intangible and hard to quantify. In fact matters and be prepared to be held to Engage meaningfully with stakeholders
there are whole organisations who exist account on them. to understand their interests and
solely to value a brand. And Forbes engender trust.
publishes an annual summary of the top Organisational culture and conduct should,
brands by value. All of this provides a very if not already, be high on the board agenda
big pointer for boards that protecting following a raft of enquiries and reviews in
brand and reputation should be top of New Zealand and Australia, particularly in
mind and feature as a key risk on the the financial and sports sectors.
board risk register.
Dec/Jan 2020 17FEATURE
5. Board
leadership
As stewards for The IoD and MinterEllisonRuddWatts
publication Always on Duty: the
their organisations Future Board explores board
boards have a critical leadership and innovation in more
depth, including how to manage
leadership role. increasing demands on directors’
time. Read it at iod.org.nz
I f you’re a director you are a leader,
one that has an important role to play
in transforming the future of your
organisations, which will in turn help build�
our communities and drive the nation’s
sufficient focus on strategy, opportunities
and innovation.
Time is not the only challenge,
information overload definitely holds
and EQ, they also need CQ and AQ –
cultural intelligence and adaptability.
Directors set the tone and lead
through high standards of ethical
prosperity and wellbeing. a prime position. The right information conduct, commitment, candour
is crucial to drive strategy and to ensure and integrity. They are curious and
Serving on a board gives directors an that directors can discharge their they challenge. They embrace new
opportunity to make a difference and responsibilities. Decisions have to be competencies and diversity of thought
have positive impact. It is rewarding, based on sufficient, accurate, relevant and capability. They are proactive
exciting, and definitely challenging. and timely information. It’s up to boards about strengthening professionalism
Governing today for tomorrow means to define the information they need – and embrace continuous
being across a vast array of complex and and raise any gaps with management improvement. This includes regularly
diverse issues and being responsive to as a priority. evaluating board performance and
increasing stakeholder expectations. It’s capability, having robust succession
also about kaitiakitanga – guardianship Board leadership in a dynamic and planning and director development to
and stewardship. The majority of directors complex operating environment requires ensure the board has the skills needed
(81%) in the 2019 Director Sentiment continuous learning and development. for today and the future.
Survey said their boards had in the past You need to understand the business,
12 months discussed long-term value the industry and the wider operating Pointers for 2020:
creation and their roles as stewards. environment. You will need to move
beyond the boardroom and connect Set the tone and exhibit the ethical
The expectation, and need, for directors with the business and its people. And values and behaviour you expect
to be across so many things means they you will also need to embrace change in the organisation to demonstrate.
are increasingly spending more time on the way the board operates, for example Embrace continuous improvement
board work. The 2019 Directors’ Fees optimising the use of committees to and be a learning board – evaluate
Report showed a 10% increase in time support the board and asking how board performance and feed
spent on board work since 2018. The 2019 technology and innovative practices findings into succession planning
Director Sentiment Survey also showed can help transform the way your and director development to
time had increased for directors over the board works. ensure capability fits future needs.
past 12 months on risk oversight (for 71%
of directors) and on compliance activities Putting people at the forefront is key to Ask how technology and innovative
(for 80% of directors). effective leadership and relationships, practices can help transform how
including between directors, and the board operates to enhance
A key challenge for boards is balancing with management, shareholders and board efficiency and effectiveness.
time spent on risk and compliance with stakeholders. Leaders don’t just need IQ
18 BOARDROOMDirector Sentiment
Survey 2019
Directors are wary of increased personal liability and
half of all boards to not feel they have the right
capabilities to deal with business complexity and risk.
Spotlight on…
increased risk
and liability
57%
47%
47%
43%
PERSONAL LIABILITY
39%
39%
This year we saw an increase in the
proportion of directors (47% up from 39%
in 2018) agreeing they are more cautious
in business decision making due to
increased personal liability.
2014 2015 2016 2017 2018 2019
The results are particularly high for
directors of small companies with 60%
Increased personal liability has made me cautious (compared to the 47% total) agreeing
that they are more cautious.
Over the past 12 months there have been
proposals/reforms to introduce criminal
liability for cartel conduct, personal
liability under the Credit Contracts
57%
57%
Legislation Amendment Bill, and a
56%
50%
50%
proposal to make directors personally
liable for some company tax debt.
DIRECTORS’
RESPONSIBILITIES
Directors are increasingly wary about
the broadening scope of responsibilities
2015 2016 2017 2018 2019 they face and the associated personal
and reputational risks. This year 40% of
directors (up from 33% in 2018) agreed
Right capabilities to deal with increasing business complexity and risk that the scope of director responsibilities
is more likely to deter them from
taking on a governance role now than
12 months ago.
20 BOARDROOMFEATURE
Other key findings
ECONOMIC PERFORMANCE
There was little optimism among
respondents about New Zealand’s Economic
economy, with just 11% anticipating
performance
improvement, down from 17% last year.
Over the past three years there has been
a marked downturn in directors’ views of
11%
the economic outlook.
BUSINESS CONFIDENCE
Directors are far more positive about
the prospects for the businesses that
they oversee with 47% expecting their
organisations’ performance to improve Business
Spotlight on… over the next year (although his is again confidence
board capability down from a year earlier, when it was 52%).
COMPLEXITY AND RISK
Many of the front-of-mind considerations
are home grown - workforce challenges,
47%
red tape, infrastructure and low demand
Just 50% of directors (down from 57% are the main concerns.
in 2018) agreed that their board has the
right capabilities to deal with increasing CLIMATE ACTION
business risk and complexity.
The Survey found only 35% of boards are,
Board capability and composition by their own directors’ accounts, engaged Climate action
are major considerations for board and proactive on climate change. But 70%
on the rise
effectiveness and performance. (up from 66% in 2018) agree that their
Undertaking a formal board and director
evaluation process may help identify
potential gaps and opportunities.
board considers environmental and social
issues very important to their business. 35%
All boards should ensure they are aware
HEALTH AND SAFETY of the potential impacts of climate change
CAPABILITY and take action to mitigate climate risks.
A majority of 68% of directors (down CULTURE AND ETHICS
from 75% in 2018) agreed that their
board has the right capabilities to meet While 77% of directors said their board
their health and safety obligations. monitors and regularly discusses the
culture of the organisation, only 43% said Culture on
DIGITAL CAPABILITY they receive comprehensive reporting the agenda
77%
from management about ethical matters,
Only 33% of directors agreed that their conduct incidents and follow up actions
board has the right capability to lead (down from 46% in 2018).
their digital future. This has remained
consistently low over the past four All boards need to ensure robust
years, hovering between 30% and 35%. monitoring of organisational culture
and conduct, and that the right
processes are in place for potential More information
issues to be raised – including
effective Speak Up arrangements Read the full 2019 Director
and whistleblowing systems. Sentiment Survey at iod.org.nz
Dec/Jan 2020 21Ask an expert
What do the responses to the Director
Sentiment Survey 2019 tell us about
cybersecurity?
WITH PETER BAILEY, GENERAL MANAGER OF AURA
1. My board has a clear picture of our 2. My board regularly (at least annually) 3. My board receives comprehensive
organisation’s overall cybersecurity discusses cyber-risk, and is confident reporting from management about data
strategy and how it relates to industry our company has the capacity to breach risks and incidents, and the
best practice. respond to a cyber-attack or incident. actions taken to address them.
Agree: 32%; Neutral: 41%; Disagree: 27% Agree: 50%; Neutral: 29%; Disagree: 20% Agree: 41%; Neutral: 33%; Disagree: 27%
I think this shows that while New Zealand This is an interesting response, and It is imperative that boards receive
is not quite there yet for security strategy, perhaps an overly optimistic one. Based comprehensive and accurate reporting on
we are moving in the right direction. on what we’re seeing in the market, far too a regular basis about any incidents or data
few NZ organisations take the time to run breaches.
Five years ago, most boards were through regular cyberattack simulation
generally unaware of cyber risk, often exercises to ensure that their recovery In the same way that we report on health
leaving it as an operational task for plans and policies work. and safety incidents, we should report on
IT teams to deal with. With increased cyber security incidents. Boards need to
awareness of the impact cyber-attacks It is of material importance to test push for this, as they cannot afford to be
can have on business, organisations are your response capability, as too often caught unawares.
starting to realise there is a real need organisations are confident that they
for a cyber strategy. can quickly recover from an attack, Aura’s research found that 62% of
only to find that their approach does organisations report on cybersecurity
Based on the findings of the Aura not work when placed under the strain to their boards, but worryingly this is
Information Security Cyber Market of a real attack. down from 73% last year. There is real
Research Report (November 2019), nervousness from the security industry
organisations are aware of the importance When Aura asked organisations about that businesses are becoming complacent
of understanding cyber risk. When asked their ability to defend against cyber- about cyber security, either becoming
whether senior management viewed cyber attacks, only 25% felt that they were numb to it from over-reporting, or feeling
security as a key risk or concern, over “very mature”. While this is up from 15% helpless to do anything to stop attacks
66% of those who class themselves as last year, there is still a long way to go from happening. They seem therefore to
security-related decision makers in their until a large slice of NZ companies feel be reducing the reporting they are taking
organisation felt they did, although this is they can adequately respond to, and to their boards.
a drop from 70% last year. While we still recover from, an attack.
have some way to go before this number At a time when more and more businesses
is where it needs to be, I feel that as a (and individuals) are becoming
business community, we are heading in significantly reliant on technology, we
the right direction. must ensure that the spotlight stays on
the impact a cyberattack can have on
22 BOARDROOMASK AN EXPERT Dec/Jan 2020 23
ASK AN EXPERT
an organisation. Also, with the changes While companies should be investigating
Up-to-date software: Software
to the privacy legislation coming in the benefits of security tools and services
companies are constantly releasing
2020, we must ensure that businesses in the market, the best thing they can
updates, and while it might be
are in a position to report to the privacy do for the safety of their business is to
annoying to keep installing them,
commissioner on any breaches of ensure some of the basic security hygiene
it is also very important. There are
customer data. practices have been met. This includes:
often known vulnerabilities in older
Staff awareness: Make sure that staff versions of software, and hackers are
Cyber security trends and insights
are aware of phishing and other scams, looking for these older versions in
what they look like and how to avoid order to gain access to the system.
The main trend in cyber security
them. This may include changing Keep all of your software up to date.
continues to be the manipulation of users
online. Cyber criminals have realised that some policies to ensure there are extra Back-up and restore: Ensure that all
the most cost effective and results-driven security steps in place, but if staff of your data is backed up, and that
approach is to bypass people rather than are vigilant (and this includes senior you can restore it from your back-ups.
technology. management) the number of attacks This means that if you do suffer a
can be significantly reduced. ransomware attack, you can restore
New Zealand has the rather dubious Passwords: Too often passwords can all your files, rather than paying the
honour of being the most-scammed be easily guessed (or cracked) by an ransom, or losing your data forever.
country in the world in 2019. Our trusting attacker, or default or basic passwords
nature as a nation leaves us open to are left in place. Using password These might seem like simple steps,
phishing and vishing (voice phishing) lockers and longer passphrases are but these basics are still the greatest
attacks, as well as other frauds and scams. great ways to ensure that attackers challenge to companies becoming
won’t use your password. truly secure.
“To unlock a workforce’s true potential, a mental health and wellbeing
strategy should aim to both protect workers from harm and include activities
to foster and support wellbeing. ”
What boards can expect in 2020
The outlook for 2020 is a continuation of manipulation of staff for these viruses that sounded like the manager of an
what we have seen in 2019. The trend in to gain access to systems, but once in organisation and used this to convince
manipulation of staff will continue, and they could become incredibly difficult one of his employees to transfer funds.
it will escalate. As we have seen, this to get rid of. He had no idea it was not his boss until
sort of attack has become somewhat it was too late.
commoditised through criminal Also, with the rise of deepfakes, the
organisations operating on the dark web possibilities for manipulating people are Finally, while all of these technological
and attackers will continue to use these endless. Deepfakes use video and audio innovations are only around the corner,
tools and techniques until it is no longer technology to create videos that look and the inability of companies to implement
profitable for them. sound like anyone. So far, we have only the basic security hygiene rules I gave
seen videos of well know personalities above, will continue to see organisations
We are seeing attackers start to play with (politicians, film stars) but soon this could attacked and data stolen through 2020.
AI and how that can be used in attacks. be used on anybody to create a video. It might be the start of a new decade,
The ability for attackers to create viruses Imagine receiving a voice message or but until we get these basics right, we
that can adapt to and learn from the video message from your boss asking will continue to make the same mistakes
environment they are trying to infiltrate you to transfer funds? This has already we have might throughout the 2010s.
is not far away. If this is perfected, then been done in 2019 with the first AI voice
it is likely hackers would still use the hack – the attackers created a programme
24 BOARDROOMYou can also read
