Boards seek better communication with management

21 October 2019 4 min. read
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PwC has conducted a survey amongst company directors of several firms listed on the Australian Stock Exchange (ASX), revealing that boards in the country are increasingly falling out of touch with what the public expects them to do. Less that 40% of these companies appear to have taken action to rectify the situation.

The Big Four accounting and advisory firm surveyed more than 100 directors on various ASX 300 boards, to gauge their views on relevant leadership. Respondents hailed from a number of Australia’s most significant sectors, including energy & resources, consumer markets financial services and property.

70% of these directors indicated that the board that they work on is out of touch with community expectations. Despite this, not many feel the need to make any significant changes. PwC questioned these directors about how companies are reacting to the recent developments in the governance landscape across Australia.

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Short of 40% indicated that they had already taken action of some form to change the state of affairs. This group is waiting for these changes to take effect and have a tangible impact of some sort. Changes usually include more engagement between the board and senior management. Meanwhile, more than 25% of the respondents told PwC that their company did not feel the need to adapt.

Others recognise the need for change. Despite the fact that CEOs in Australia are displaying dynamism and riding market changes proficiently, it is crucial for members of the board to be on the same page, to ensure that governance standards are complied with. Short of 20% of the directors indicated that the change in the governance landscape has brought about an attitude of change within their firm.

These respondents acknowledged the need to make more effective changes. The remaining 15 indicated that they had not taken any action as of now, but not out of the lack of intention. This group is ‘at the early stage’ of preparing to make significant governance changes.

When asked about the exact nature of changes being made, most have revealed that the most appropriate solution is to invest more time and energy in developing a strong and coherent corporate culture. The second most popular policy has been to bring changes to remuneration structures to make them more appropriate.

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Others have tended to focus more on the communication between the board and management, indicating that they are trying to bring more clarity to the expectations being set for management. Drawing on from this is the practice of ensuring that the objectives of the company are in alignment from top to bottom.

Some have even engaged in comprehensive structural changes, opting to shift the composition of the board. These structural changes are primarily aimed at making the board’s skill portfolio better align with contemporary market demands. Strategic acumen, risk management expertise and gender diversity are some of the potential goals when it comes to new board compositions.

However, these demands vary from one company to the next. A range of other priorities have been cited in response to the PwC survey, including financial expertise, industry expertise, digital expertise and cyber risk expertise, all of which are remarkably relevant to the current business environment in Australia and around the world.

While making such far-reaching changes to board compositions is a challenge on the one hand, many have indicated their confidence in their board’s capacity to draw talented new directors. The majority is confident, although some have indicated that the risk involved with being a director might deter talented applicants.