Issues Facing Directors in 2011
What governance issues should Directors expect in 2011? ASX changes to governance guidelines has highlighted issues such as gender diversity, board performance and remuneration. But that is not the whole story: directors of companies of all types and sizes will be interested in discussions regarding what to watch for this year.
2011 is already posing substantial challenges to Directors. The national disasters in the eastern states will substantially impact on those companies operating there, while the two speed economies, best seen by contrasting this impact with the surging mineral boom in the west of the country, brings its own challenges. Boards in companies that operate nationally and internationally have to take this divergence into account in their planning for this year.
Much of what is new is old in 2011. A short list of issues generated in a recent online forum include stakeholder activism, understanding the demands of shareholders and communicating with shareholders and all stakeholders the value of the Board strategy and processes. In 2010, the increased pressure on Board and CEO remuneration, and the proposed legislative changes to the processes around remuneration will require Boards to think more carefully about their direction and whether they should be positioned for longer term outcomes rather than short term gains.
On a global scale food and energy security while not a new issue is becoming more pronounced as company Boards grapple with building strategies that allow their organisation to adapt to and thrive in an economy more and more focused on the cost of power and the logistics of food/produce distribution.
Sustainable practices have been a buzz word for a long time; now it is becoming an essential part of the reality of how organisations work. In 2011 Boards need to take on these issues seriously, irrespective of the size of the organisation.
In Australia the ASX is mandating diversity on the Board. In this instance the emphasis is on gender diversity; although the ASX amendments to its corporate governance principals and recommendations extend this to diversity beyond gender. The new principals became effective on 1 January this year and include the recommendation that annual reports should include measureable objectives for achieving gender diversity, and report on the proportion of women in the organisation and on the Board.
Boards will be encouraged to consider diversity beyond gender. The term “cognitive diversity” has been coined to express the notion that Boards benefit from different ways of thinking and different life experiences and backgrounds. The emphasis is on the diversity of thought rather than any specific manifestation based on gender, race, religion, professional background and so on. It is said to lead to a more sophisticated approach to problem solving on the Board.
This becomes even more significant as an aspect of talent management – on the Board and throughout the organisation. It encompasses gender, skills and socioeconomic issues. Talent management has itself spawned a new acronym; ROCK or Retention Of Critical Knowledge. Boards will focus more and more on retention programs that reduce the risk of loss of knowledge even if a key employee leaves the business.
Management and harnessing of emerging technologies and social media are likely to gather pace this year. Care must be taken as companies have already been found liable for misleading or deceptive conduct when a third party has posted erroneous information on a corporate forum and the forum has not been properly monitored. Advances in processes for the delivery of Board papers electronically, the use of short form public announcements via Twitter, and electronic meetings and resolutions will give impetus to novel forms of governance, and dove-tail into sustainability practices.
Overall one thing is certain and that is that the pace of change and the speed at which decisions must be made by a Board has increased and will continue to increase during 2011.
Jonathan Casson
Partner
T: +61 2 9390 8316
E: jonathan.casson@holmanwebb.com.au
Disclaimer – The contents of this newsletter are general in nature and should not be relied on as legal advice. No reader should act on the information contained without first consulting us.