In a year that should have been dominated by the coronavirus, some of Australia’s top listed companies have found themselves instead buffeted by unexpected cultural scandals.
From the swift departure of QBE chief executive Pat Regan following a complaint by a female employee, to the board and executive clearout of AMP and Rio Tinto after separate scandals relating to governance and culture, to regulatory actions over poor customer outcomes and allegations of cartel conduct and price-fixing, Australia’s top 50 boards have had a busy year.
And it has resulted in some serious self-reflection.
A landmark report has found directors of Australia’s biggest listed companies are increasingly prioritising cultural issues and believe a greater boardroom focus on culture will lead to better long-term performance.
The report is based on interviews with ASX 50 directors conducted on behalf of the Australian Institute of Company Directors (AICD) and one of the most powerful shareholder representatives, the Australian Council of Superannuation Investors (ACSI).
Almost all directors said the ultimate tool influencing company culture was how they selected and monitored the performance of the chief executive. The directors agreed they also need to act swiftly if their expectations were not met.
“If someone is a good executive, but turns out to have significant negative character traits, you might want to counsel them and give them an opportunity to change,” QBE deputy chair John Green said.
“But if they can’t or won’t, getting them off your bus might be a very wise option.”
It’s a scenario Mr Green knows well after Mr Regan abruptly left the company after a complaint by a female employee at the insurance giant.
Mr Green said boards should consider the soft skills of CEO candidates as well as their financial performance before making appointments and should reach out to more junior staffers such as director reports or executive assistants to assess the character of an incoming CEO.
Leading company director David Gonski, who recently retired as chair of ANZ Bank and is a director of Sydney Airport Corporation, believes a company’s culture should be set by directors and regularly monitored through board and executive committees.
“If the board doesn’t ‘walk the talk’, management will pick up on it very quickly, and it will permeate through the organisation” he said in the report.
But another senior director at an ASX top 50 company who declined to be named in the report gave the impression there was only so much a board could do to stamp out poor conduct. “The most important person in any organisation is not the CEO or chair; it’s your immediate boss. If your immediate boss is a bully, that’s the culture in which you operate,” the unnamed senior director said.
Commonwealth Bank chairman Catherine Livingstone knows this too well having overseen a cultural review at the bank sparked by a series of scandals over the bank’s dealings with customers.
“If the infrastructure is not working well, people have to work around imperfect processes, policies and systems,” she said. “That’s when mistakes or the wrong outcomes happen.”
AICD managing director Angus Armour said during COVID-19 it was clear many boards had strong cultural foundations in place to successfully manage changes in workplace operations. “Now, it is just as important as ever that boards make clear statements about what they are doing to understand the culture and practices of their organisation, as well as taking the necessary steps to ensure effective oversight.”
ACSI chief Louise Davidson said investors welcomed the increased focus on cultural issues by boards. “Investors have long understood the link between company culture and long-term value creation, and the damage poor culture can have on company performance,” Ms Davidson said.
“The ACSI/AICD research shows that directors overwhelmingly see that culture isn’t just a job for management. The role of the board is crucial. That wasn’t a common view five years ago.
Investors would value greater disclosure to discern companies’ cultural strengths and weaknesses. Yet the report found there was a wide variance in public disclosure and a lack of market consensus regarding the most valuable metrics to report against. In the meantime, some companies are actively including cultural metrics as part of the remuneration framework for senior executives.
But some directors think those metrics need to flow through an organisation to ensure the cultural aims of a company are adhered to. “Pay is overrated in terms of its capacity to do good. There is more potential to do evil. We’ve seen that. It’s amazing what people will do to get relatively small amounts of additional money,” an unnamed senior director told the survey.
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Source: Thanks smh.com