Boardroom Culture Under Scrutiny

Shrinks in the Boardroom

Corporate watchdog Australian Securities and Investments Commission (ASIC) is trialing sending a psychologist into the boardrooms of top ASX20 companies to observe corporate behaviour. The program has been met with mixed feedback with directors voicing concerns about the regulatory intervention into boardroom meetings. Elizabeth Arzadon from Kiel Advisory Group has been engaged by ASIC to attend board meetings, develop a report with her insights regarding governance practices and current boardroom practices in relation to managing non-financial risks.

I don’t intend to waste much air time criticizing the concept of sending in a psychologist or authorised board observer to gather anecdotal evidence into boardroom behaviour, as it just may assist ASIC in developing meaningful reforms in our top boardrooms which is much needed. If they are willing to try a novel approach to achieve that outcome, I will be the first to commend them for taking action. The Banking & Financial Services Royal Commission shone a light on some of the worst boardroom behaviour we have seen in corporate history in Australia and unfortunately I suspect we are not even close to fully understanding how serious the issues really are and how deep they run. A major stress test on the Australian economy may be just around the corner, and its curious what gets flushed out during a major stress test. Watch this space.

The Haynes Report highlighted board directors asleep at the wheel, complicit in bad and unethical decision making and in some cases there is even evidence of criminal behaviour. That is not something that is fixed easily overnight or on the back of well intention psychologists engaged by ASIC. Radical and significant reform is required to change the makeup of our boardrooms in top ASX-listed companies and the governance structures that underpin the current listed business environment. There are several key areas that need attention in my opinion but it requires a radical change on how things are currently operating.

Board Recruitment for top ASX companies needs to be reviewed and I believe a much wider selection of Board Search firms should be engaged each and every time a board director vacancy becomes available. By using a wider range of board search firms will we start to see variety in the long and shortlists of recommended candidates – this is crucial if we want to see next generation director talent being appointed to ASX-listed boards. Currently the same old search firms are engaged and they present the same old lists of ‘suitable’ candidates. Recently for example Korn Ferry was engaged by the Government to shortlist for the ABC Chairman position – there was not a single female candidate on the shortlist. Leveraging existing board directors networks has resulted in a ‘boys club’ at the top end of town and this needs to be broken down with a complete rethink on the current recruitment process which is maintaining the status quo.

Genuine Diversity Required at the boardroom table. There has been literally decades of discussion about improving gender diversity in the ASX and there has been little progress unless you regard the current ‘golden skirt’ phenomena as a good outcome. I believe there should be two quotas for boards – a gender quota and a skills diversity quota. Greater diversity in our boardrooms will lead to better discussions and ultimately better decision making in my view.

Governance Framework needs serious debate on the back of the findings of the Royal Commission. The bottom line is that the Royal Commission has shown that greed is alive and well at the top end of corporate Australia. But unless there is a major shake-up of the governance model that underpins Australia’s largest corporate boards, very little will change in my opinion. Board members focus on shareholders to the exclusion of customers, employees and the environment can have devastating effects. Shareholder primacy cannot continue if we expect better from our major public institutions. There needs to be a significant and radical rethink about board director priorities and unless there is change at board director level, very little will change in the operations of the business.

Director Institute Next Generation Directors is a private enterprise that is focused on developing and connecting the next generation of board directors with Australian and International organisations and boards.

Members have access to one-on-one advice, mentoring, peer-to-peer education and business networking opportunities as well as exclusive board opportunities available no-where else in the market. Our easy to navigate resource centre provides members with regularly updated articles, how-to guides, opinion pieces, videos and webinars as well as thought-leadership from some of the world’s most respected authorities on board, leadership and management practices. Are You a Next Generation Director interested in pursuing a Board Career in 2019, take advantage of Director Institute’s mentoring, eLearning, business networking events and exclusive services. 

Leave a Reply

Your email address will not be published. Required fields are marked *