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President’s commentary —The ‘other’ sustainability — defeating the short-term mindset

Often when the term sustainability is used in business circles it is assumed it refers to environmental sustainability. I want to focus on overall organisational sustainability, which is built around long-term value generation and based on strong corporate governance.

This was top of mind while participating in a panel discussion at our recent Governance and Risk Management Forum in Perth, ‘What’s in store for the company secretary from 2019–2020?’

One of the key themes that came out of that discussion was the impact of the Hayne royal commission on boards, corporate governance professionals and organisations in general, especially given the recent NAB and Commonwealth Bank resignations.  And how this brings increased focus on the role of the company secretary.

Unfortunately, when strong company secretaries and corporate governance professionals are making the case for strengthening the corporate governance of organisations as a whole, the tendency is still to see this as a ‘cost centre’ rather than a long-term wealth creator.

Culture, governance and remuneration are interconnected — they can’t be treated as separate issues. Corporate governance should not be seen as something that can be cut to improve the bottom line at end of the financial year. If this approach is adopted, it is clear that one of Hayne’s strongest comments was about short-term strategic planning in the industry is not being heeded.

The purest example I can think of to demonstrate this point, is the Enron collapse 18 years ago.

The central failure there was financial manipulation and off-balance sheet financing, using loopholes signed off by their lawyers and accountants with the view to improving quarterly profit figures, and boosting the share price in the short term. This was of course attached to performance bonuses for the leadership team.

Enron’s culture had become so poisonous, and so normalised within multiple levels of the leadership that when a loophole or grey area was found, it was viewed as an opportunity to be exploited. Enron’s executives preyed on the ambiguity and complexity of the reporting laws and regulations governing their businesses. That was their culture.

This kind of temptation exists in every organisation — but the key question when determining culture is not ‘can we?’ But ‘should we?’.

Investment in sound corporate governance structures provides the foundation for all organisations. As well as stopping short-termism, it enables sustainable wealth creation over the long term, which benefits all stakeholders. If Enron had sound corporate governance structures shareholders would have been protected by strong whistleblowing frameworks, strong board oversight of remuneration packages, healthy auditing of the actual financial figures, and a sound, positive workplace culture that encouraged staff to not only perform to the best of their ability, but to speak up when problems arose.

Enron has now become a history lesson in bad governance. Culture, governance and remuneration must always march together to strengthen organisational sustainability in the long term.

Rachel Rees FGIA FCIS
President and Chair

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