National Conference - day one wrap up
We have just wrapped up day one of our virtual National Conference – a fascinating day of insights from leaders and experts around the world.
Here’s your recap of our first day and we look forward to you joining us tomorrow for another packed day where we will hear from some of Australia’s most dynamic young leaders, examine the future of the workforce, and drill down on technology – the opportunities and risk.
Be sure to follow along for further updates at #GovCon20
State of the nation
- Chair: Elysse Morgan, Journalist, Australian Broadcasting Corporation
- Panel: Saul Eslake, Economist and Vice Chancellor’s Fellow, University of Tasmania
- Gail D Fosler, President, The GailFosler Group LLC
Australia has legitimate grounds to be confident about the economic outlook as it emerges strongly from a brief virus-induced recession, says Saul Eslake.
But Gail Fosler sounds a more cautionary note for the global economy, saying she is not confident a vaccine will provide a quick resolution to the pandemic.
The main reason Australia has a bright outlook is its remarkable success containing the virus, helped by the compliance of the population and the way governments acted on the advice of the health professionals, as well as the fact Australia is an island, says Eslake.
The Australian economic policy response has also been effective.
“We've been able to do what needed to be done without raising serious long-term questions about the sustainability of Australia's public finances,” says Eslake.
As a result, as of last Wednesday, Australia is no longer in recession.
Perhaps more surprisingly, Eslake says that if it was not for the bushfires earlier in 2020, Australia would never have entered a recession at all - at least in the classic definition of two consecutive quarters of negative growth.
Looking forward, Eslake says the prospect of a coronavirus vaccine is a reason for optimism, but he warns of the twin headwinds of slower population growth and the deterioration in the relationship with China.
But Fosler says she is sceptical of the notion that the virus can be controlled, “and more sceptical that a vaccine will have effects at the pace that many people - and certainly the financial markets – expect.”
Despite this, she says the US has already recovered pre-pandemic income levels, although is falling short on employment.
Regardless, she says her economic forecast for 2021 is positive, saying economic life is re-centering around the individual, the family and the home.
Panel discussion: Pillars for modern governance
- Chair: Brian K Stafford, Chief Executive Officer, Diligent Corporation
- Panel: Jillian Broadbent AC, Non-executive Director, Macquarie Group Limited
- Bill Cox, Chief Executive Officer, Aurecon
- Michelle Edkins, Managing Director Investment Stewardship, Blackrock (USA)
One theme dominates discussion in The Pillars for Modern Governance panel – how the culture of organisations and boards is being tested in 2020.
Bill Cox says companies that are driven by values are most successful navigating the challenges of 2020.
“Culture has been a very important part of the success,” he says.
Jillian Broadbent, who was a director at Woolworths during the crisis, tells the story of the supermarket having to change its ways as distribution of essential supplies and food became a critical service for the community.
“It was almost like a military manoeuvre. We turned on a pin … having to run the machinery just so much faster. Then we said ‘how do we bottle that’.”
All the panellists say there have been positives for boards from the pandemic.
“I think the explosion of a few myths around how businesses have to operate and how governance has to operate has been a good thing,” says Cox, who cautions against boards snapping back to the old world after the virus passes.
Michelle Edkins says the pandemic has demonstrated the importance of directors managing their workloads effectively.
“We heard through director surveys and similar when directors had too many commitments they couldn't turn up even virtually,” she says. “Directors need to be very disciplined about how much they take on.”
National keynote and fireside chat
- Chair: Jennifer Hewett, National Affairs Columnist, Australian Financial Review
- Michael Chaney AO, Chairman, Wesfarmers
Governance has moved from being an issue for lawyers and business schools to being a mainstream issue, regardless of whether directors are overseeing sporting bodies, government-owned corporations, listed companies or charities, according to Michael Chaney.
“It's become a very topical issue. Members of governing bodies are much more under the microscope than they have been in times past,” he says.
“And the risks associated with being a member of the governing body have increased quite significantly I think in recent years.”
Chaney says there are two main issues faced by modern corporations – the rise of corporate social responsibility and the question of how companies should make the choice between paying dividends and making investments.
He says the issue of corporate social responsibility has led to unnecessary questions about the very purpose of a corporation.
“The fundamental purpose of a listed company is to provide good returns to shareholders,” he says. “We should not be shy or embarrassed about it.”
On dividends, Chaney notes that some heads of government bodies have been calling on companies to reduce their dividends and invest the money instead.
“The reason Australian companies pay out a higher proportion of their profits than companies overseas is very simple. It's called dividend imputation.”
“And the challenge for almost all listed companies is not a shortage of capital, but a shortage of investment opportunities.”
- Chair: Diane Smith-Gander AO FGIA, Chair, Committee for the Economic Development of Australia
- Panel: Tim Reed, President, Business Council of Australia
- Ming Long AM, NED, Chairman, AMP Capital Funds Management, Deputy Chair, Diversity Council
- Matt Bekier, Managing Director & Chief Executive Officer, The Star Entertainment Group
COVID-19 has accelerated the impact of the forces shaping our business world, according to Diane Smith-Gander, host of the Boardroom Q&A on issues as diverse as social issues, corporate culture, population growth and inequality.
Tim Reed says companies must focus their firepower when seeking to help drive change in social issues rather than feeling they had to have a position on all the issues.
“You can't make it a ‘theme of the month’ type thing,” he says.
Reed says companies who really want to make an impact must also link social issues to business outcomes.
“How do we deliver financial performance by making a positive contribution to society?” he asks.
Ming Long says aligning to a cultural ‘North Star’ is critical.
But how can directors influence culture when they can’t walk the shop floor?
The panel advises directors to get exposure to more people in an organisation, have more people come to the meetings, be present at company events and keep an eye on internal and external social media.
The panel is confident about Australia’s long-term population growth despite the migration caps of 2020.
Matt Bekier – who says as a migrant he is a big believer in the benefits of migration – says businesses should not be concerned about a short term “blip”.
“If you take a slightly longer-term view, there’s nothing to be worried about,” he says.
But the panel is concerned about inequality in Australia.
“Inequality is being amplified” during the pandemic, which saw low-income earner jobs lost while high income roles were created, says Long.
Leadership and governance concurrent 1A: The influential leader – leading calmly through the storm
- Chair: Simon Pordage FGIA, Company Secretary, ANZ
- Philipp Kristian Diekhöner, Trust Futurist and Innovation Strategist (Singapore)
Trust is a leadership superpower that offers a transformational opportunity for leaders and the people around them, according to Philipp Kristian Diekhöner.
“If you distrust your team, your team will distrust you,” he says. “As a leader if you want to be trusted, you have to trust first.”
Diekhöner uses the example of a pit crew in a motor race. If every decision by the pit crew needs managerial approval the pitstop will take hours rather than seconds.
Yet this is exactly the trap organisations fall into – a culture of distrust views people as problems that need to be managed.
Diekhöner rails against using rules to govern behaviour.
“By moving towards more meaningful and fewer rules you can actually increase the rate of compliance,” he says, adding that the more rules are placed on people, the more sceptical they become in return.
“When people do things with passion and voluntarily, they're naturally better at it as well.”
He says large organisations can begin the journey to a trust culture by examining their organisation for so-called trust gaps, where people feel they are being distrusted or where there is actual hostility between people.
“You will soon realise that some of the rules you have are well-intentioned but they might not be effective,” he says.
So how do you build trust in a remote working environment?
“What you want is to use the natural flexibility of technology and its scalability to amplify the culture that you want to have,” he says.
Risk concurrent 1B: Rethinking the three lines of defence approach
- Chair: Mark Salomon, Controls Project Manager, Growthpoint Properties Australia
- Panel: Adriaan van Jaarsveldt, Senior Advisor, Risk, Brookfield Asset Management
- David Tattam, Director of Research, Protecht
- Lucienne Layton FGIA, Chief Risk Officer, Crestone Wealth Management
Three lines of defence are central to the corporate governance framework. However, with COVID-19, there an indication that these lines have not worked as well.
Adriaan van Jaarsveldt focuses on the role of the board, saying its critical to making the three lines model work.
“A board is like a general sitting on top of the mountain … and making sure three lines of defence are talking to each other.”
Ultimately the board is responsible for the risk management framework and needs to ensure everyone understands the framework and appetite. The board also needs to monitor emerging risks. It’s encouraging that boards are talking more about risk. If the three lines model isn’t working, it may be the board’s fault and it is important that everyone in the organisation needs to understand how the three lines model works.
Lucienne Layton says the key objective is to ensure organisational ownership of risk management and separation of duties. “Risk people love it... but business people hate it.” So how to embed it? “Get the culture right. It’s important to make sure people within an organisation understand the intent of risk management.... Three lines risk management must be cognisant of culture and change.”
David Tattam believes the three lines of defence is also about attack. Risk managers can defend against risk coming in, but also need to capitalise on the opportunities. A risk manager should be able to say you guys are taking too little risk and not capitalising on opportunities. Every single person is a risk manager, and increasingly training now is for line one people.
Leadership and governance concurrent 2A: Forward-looking boards
- Chair: Byron Loflin, Global Head of Governance, NASDAQ
- Belinda Gibson FGIA, Non-executive Director, Citigroup, Ausgrid and Brisbane Airport Corporation
- Sue MacLeman FTSE, Chair, MTPConnect
Boards have been dealing with an unprecedented rate of change in 2020 as the pandemic compresses several years of change into a few short months, raising the question of whether they can keep up the pace post-COVID-19.
Sue MacLeman says she observed many directors moving quickly to manage change in 2020 as the pandemic hit and watched them build the new skill set of seeking more diverse views and listening to different groups of people than they would have in the past.
“I think that that's given people a bit of a taste for that,” she says.
It is important that directors continue to lean in to change and ensure they are keeping up to date, the panel agrees.
Byron Loflin suggests directors need to get more deeply involved in their organisations.
Macleman says “COVID made us go to the experts in our organisations and often that wasn't the general manager or the lead operational manager. Often you needed to go deeper.”
But there remains debate over how deeply to get involved.
“There was quite a discussion in the board community about how much and how often do you check in and what is the form of the check in,” says Belinda Gibson.
On the future of working from home, Gibson suggests people are going to have to come back into the office in order to be part of the culture and corridor conversations of the company. “I mean how do you onboard someone in a senior role on Zoom?”
Risk concurrent 2B: Risk management in the new world
- Chair: Catherine Maxwell FGIA, General Manager Policy & Advocacy, Governance Institute of Australia
- Panel: Jason Brown, National Security Director, Thales
- Minali Gamage, Manager Risk and Assurance, Fortescue
- Joshua Hayward, Deputy Head Internal Audit, EnergyAustralia
Leaders and decision-makers must develop new approaches to risk and work with risk leaders to build a multi-stakeholder risk management plan.
Jason Brown says boards must own the risk, and accept accountability, and approve appropriate resources to achieve objectives.
“And the best boards think about the world in five years, not just next year. Successful risk management happens when the board is asking questions. Risk people need to think about enabling things to happen, not just prevent things from happening.
“Risk managers must understand the purpose of the company, and principles-based behaviour is very important. But they also need to think very broadly and bring in other ideas. And they need to bring imagination into risk.”
Minali Gamage says risk management can be very process driven and siloed, or it can be a response to strategy and what is driving a business.
“There’s no right or wrong – risk management has to be fit-for-purpose and help you make better decisions to achieve your objectives. In the future, it will become more important for risk managers to maintain a child-like sense of curiosity. They need to ask better questions, without judgement or bias. And listen... they need to listen when people respond and be humble and willing to learn from others.”
Joshua Hayward says the key is being aware of your purpose. “That gives you the light on the hill to go back to. In the future skills will need to be different. It’s hard for a risk person stay on top of it.
“The sweet spot of being right across what’s happening day-to-day … and also scanning the horizon. It also important for a risk manager, who is thinking of a long list of things, to stay relevant in the moment. They need to understand how risks change in different environments.”
International keynote — Risk management in uncertain times
- Chair: Nathan Lynch, Asia-Pacific Manager, Regulatory Intelligence, Thomson Reuters
- Dr Klaus Moosmayer, Member Executive Committee & Chief Ethics, Risk and Compliance Officer, Novartis AG (Switzerland)
Considering ethical concerns can provide boards with a new framework to manage risk, says Klaus Moosmayer.
Moosmayer says modern risk management starts with basic ethical challenges, even more so in the pharmaceutical industry where decisions directly affect people lives.
“There's an intrinsic link between ethical considerations and good risk management. Because, risk management, really, is ethical questions, and vice versa. And the big question is what does ‘doing what is right’ mean in your specific context.”
Moosmayer uses the example of artificial intelligence: “Companies have to apply foresight to see the ethical dilemmas in order to address humanity, accountability, privacy and transparency when deploying artificial intelligence.”
Moosmayer says it is important to create an environment where people feel safe to speak up about risk.
He tells the story of his first job as a young lawyer when his General Counsel cautioned that the department was so important it could not afford to make mistakes.
“This leads to a lack of psychological safety and speaking up,” he says.
Instead, Novartis runs a concept it calls ‘unbossed leadership’ where leaders are encouraged to put their team’s success above their win success and staff are trusted to implement and learn from mistakes, he says.
“I believe such a leadership model, which unleashes the power of the people is much more sustainable in uncertain times,” he says.
Moosmayer says one big impact of the crisis was lifting the profile of business continuity professionals: “Now they are the heroes who kept the company going this year. And I think this will enhance the visibility of risk management and business continuity.”
International keynote — A new relationship with governments and community
Professor Ngaire Woods CBE, Founding Dean, Blavatnik School of Government, & Professor, Global Economic Governance, Oxford University
The worst economic crisis since the Great Depression has posed an enormous challenge for governments who are faced with a decision between the traditional austerity playbook and a new investment-led recovery plan, says Ngaire Woods.
“The austerity playbook is the one that we know,” she says. “Since the 1980s has been the dominant … tighten your belts, make sure that you keep public debt under control.”
But with interest rates at all-time lows, governments have an opportunity to take a different path, a so-called ‘investment playbook’ that will see governments use public sector finances to lead the world out of crisis.
“Every dollar of public sector investment catalyses so much more private sector investment,” she says.
Woods calls on nations to put differences aside and co-operate on the things that matter to keep the economy afloat and the health crisis at bay.
“Without an absolute core of cooperation, the world is in an extraordinarily fragile place where countries will neither be able to contain the health crisis nor be able to kick start their economies and get them back going.”
She says some countries will be forced into austerity because of lack of access to capital markets and calls on wealthier countries to support them, otherwise they would face having to cut back on essential spending like schools, hospitals and healthcare.
“We saw this after the global financial crisis in southern Europe,” she says.
She says business is extraordinarily aware that governments have supported them through the crisis and understand the public expectation on them as a result.
“On tax, I'm hearing a very different message … many, many companies have pledged not to undertake aggressive tax policies but to make responsible tax policies.”
Why ESG remains a priority in conversations on the corporation
- Chair: Andrew Buay, Vice President Group Sustainability, Singtel Group
- Sanda Ojiambo, CEO and Executive Director, United Nations Global Compact
- Panel: Susan Lloyd-Hurwitz, Chief Executive Officer, Mirvac
- Sharanjit Paddam, Head of ESG Risk, QBE Insurance Group
Companies that take sustainability seriously have a better understanding of their own operations and supply chains and can adapt more quickly to unforeseen challenges like COVID-19, says Sanda Ojiambo.
Ojiambo says the UN Global Compact is challenging businesses to take more comprehensive action across their operations and their value chains to meet the goals of the UN’s Sustainable Development Goals Ambition Benchmarks.
The benchmarks include a living wage for workers, gender balance at all levels of management, the use of 100 per cent sustainable materials, and science-based targets to reduce carbon emissions.
The importance of these kinds of environmental, social and governance goals is highlighted by the events of the past year, from the Australian bushfires to the global pandemic crisis, says Andrew Buay.
Susan Lloyd-Hurwitz says if the world can take such strong collective and difficult action against an immediate threat in the form of a virus, maybe we can take even stronger collective difficult action around sustainability.
“You do need to leave the world a better place than when you found it. It's not virtue signalling. It’s not green theatre,” she says.
But she cautions against the box ticking mentality of having to answer every sustainability goal: “We'd be very clear that we will participate in these two or three which we think our investors value the most.”
Sharanjit Paddam, who has been working to get a common understanding of the impact of climate change in the financial services industry, says the bushfires changed the way insurers think about bushfire risk.
In previous years, the areas affected by bushfire were on edge of populations and not normally insured. But as bushfires are getting worse, insurers are re-evaluating risk.
Sharanjit says the pandemic has taught us of the risks of long supply chains which can magnify disruptions.