The importance of public engagement by business leaders, and the tensions involved in managing competing stakeholder interests, were among the themes that emerged in the second in a series of Directors’ Conversations being convened by UTS Business School doctoral candidate Rosemary Sainty.
The recent Melbourne conversation built on key themes that emerged in the first Directors Conversation, in Sydney earlier this year, on reframing the role of the board, evolving definitions of corporate governance, stewardship in an increasingly complex environment and the importance of engagement with key stakeholders – including an increasingly active investor community.
“The series aims to investigate the convergence of corporate responsibility and sustainability with corporate governance at board level, to build momentum and mainstream discussion and to support others working in this growing area,” says Sainty, from UTS’s Centre for Corporate Governance, who was founding Australian representative to the UN Global Compact. The conversations are held in an intimate setting under the Chatham House Rule to promote robust deliberation.
The Melbourne conversation was hosted by Ernst & Young, with the support of UTS Business School’s Management Discipline Group, the Australian Council of Superannuation Investors (ACSI) and the Governance Institute of Australia.
A panel of business leaders offered their perspectives: Simon McKeon AO, Chairman of AMP and CSIRO; Nick Sherry, former Assistant Treasurer and Minister for Superannuation and Corporate, now Chairman of FNZ Australia and an independent director of Spotless;Rebecca McGrath, non-executive director at OZ Minerals, CSR, Incitec Pivot and Goodman Group; James King, non-executive director at JB Hi-Fi, Navitas and Pacific Brands; and Gordon Hagart, Chief Executive Officer, ACSI.
A diverse audience – company directors, secretaries and CEOs, regulators, investors, representatives from sustainability initiatives, practitioners, associations and industry bodies – took part in the conversation.
Cbus chief executive David Atkin, who is on the board of the Principles for Responsible Investment, opened the evening with a briefing on the PRI’s annual global conference in Montreal, held a week earlier. Atkin updated the audience on key investor developments in Montreal and the recent Climate Forum at the UN on carbon divestment.
Under the new Montreal Pledge http://montrealpledge.org/ investors commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis, while in the 2014 Global Investor Statement on Climate Change,http://investorsonclimatechange.org/ nearly 350 global institutional investors representing more than $24 trillion in assets have called on government leaders to provide economically meaningful carbon pricing.
A lively discussion of emerging issues for boards followed, including:
The importance of public engagement by business leaders
'To run better companies we need to better understand our communities. Business benefits from being more closely aligned to the environment in which it operates.'
'So many of us are reticent to become involved in community debate. But if we become increasingly disengaged from our community we are seen as having narrow concerns.'
'Why isn’t there more of this in Australia? Why this handicap? Where are the associations that represent business?'
The dominance of “post-GFC” risk management in corporate governance
'The increase in focus on risk since the GFC has been extraordinary and has led to a generational shift in attitude towards risk.'
'By being risk averse in Australia we are not taking up opportunities in innovation.'
'There is an under-investment in innovation in Australia, with low numbers of PhDs on boards compared to the US. The biggest risk comes from not understanding and investing in innovation.'
Managing competing stakeholder interests
'Since the GFC, life on the board has been remarkably different and challenging. This has led to a focus on risk, especially where there is little growth. Tough decisions and trade-offs may need to be made – for example, offshoring and outsourcing. This may present directors with moral dilemmas.' Further tensions lie ahead in the shift towards a low-carbon economy.
The importance of a dedicated board committee on sustainability
'There has been an evolution in the role of sustainability related sub-committees - from a compliance orientation, checking past performance typically around safety and environment to morphing towards a much broader range of issues and a more forward-looking strategic view. This includes understanding the consequences of risk – especially financial and reputational.'
'It is important particularly for industrial companies, for board committee members to understanding the relevant sustainability issues in depth, including through site inspection. Being a director is more than a desk job! There is a challenge for boards in keeping it manageable, relevant and material.'
The rise of superannuation and its impact
'Super fund trustees have a much broader set of responsibilities than company directors, with double the set of duties and obligations. Given that super funds now are responsible for approximately $1.9 trillion of investments concentrated in the Australian economy, this is significant – driving increasing accountability of the companies they invest in on behalf of their members. The power of collaboration by like-minded investors through initiatives such as the PRI sees the development of a new conversation between (asset) owners and boards.'
'Where once the touch point for boards and asset owners was mainly reactive, now it’s a two-way conversation with a longer-term focus and interest in the corporation – we are in this together: learning by doing.'
The evening closed with consideration of the view that – given developments in the science and economics on climate change – corporate governance inaction on climate change is increasingly likely to breach a director’s duty of due care and diligence, as proposed in a prize winning paper by Australian lawyer Sarah Barker, launched at the PRI’s Montreal conference.
The third and final Directors Conversation will be held in early 2015.