Directors Australia Board and Governance Specialist, Jane Crombie shares her insights on trends, focus areas and advice for boards and their directors
What key trends are you seeing in your work with boards at present?
A range of emerging issues are top of mind for the boards I’ve been working with in 2023. Generative AI, cyber security and skills shortages are in the media spotlight currently, but I’ll focus on three issues I’m seeing widely discussed and which have significant implications for directors’ duties.
The first is ESG and sustainability. Sectors such as mining, energy and agriculture have been managing ESG risks and opportunities for years. Increased community expectations and heightened regulatory focus are now driving boards across all sectors to consider which elements of ESG are material to their organisation, and how ESG should be embedded in the board’s strategic planning and risk oversight. Access to capital, attraction and retention of staff and reputational factors are motivations for boards to prioritise this area.
Secondly, greenwashing is an ESG-related issue which is attracting significant regulator interest and therefore the attention of boards. Greenwashing occurs when an organisation misrepresents the extent to which a product or service is environmentally friendly, ethical or sustainable, and is a form of misleading and deceptive conduct. Shareholder and community activists and regulators such as ASIC, APRA and the ACCC have increased their activity around greenwashing in the last 12 months. ASIC has flagged the practice as an ongoing surveillance priority with multiple enforcement actions already undertaken this financial year.
Finally, directors’ have a positive duty of care in regard to work health and safety and boards are discussing how they best oversee new and emerging risks around mental health, psychosocial safety and prevention of sexual harassment and discrimination in the workplace. Boards are considering the culture, policies, training and reporting required to ensure a safe and respectful work environment, and in particular what KPIs will enable board visibility of these non-financial risks.
What do you suggest boards should be focussing on?
Boards need to determine the extent to which emerging risks intersect with their business. We suggest the following actions for boards considering the issues described above:
- Assess material risks and opportunities relevant to the business
- Conduct an audit to establish a baseline for planning. What is the organisation already doing to address the issue?
- Assign responsibility at board and management levels (full board, existing or new board committee, working group or executive ‘champion’)
- Develop a policy, strategy and workplan aligned to the organisational culture and values
- Establish a reporting framework and determine relevant KPIs
- Monitor and review progress regularly
Do you have any other advice for boards or their directors?
It’s vital that boards remain current with evolving governance, regulatory and industry issues relevant to their context. While individual directors are not expected to be deep subject matter experts in every aspect of their company’s operations, to fulfil their directors’ duties they do need to ensure they have sufficient collective knowledge to ask the right questions.
This can be achieved by:
- engaging external consultants or external committee members to bring additional insights to board discussions
- developing an annual plan for whole-of-board and individual director development
- ensuring directors have opportunities to engage with multiple stakeholders, and to bring any insights gained back to the board for discussion
- establishing appropriate induction processes for new directors, including inductions for those joining board sub-committees, and
- reviewing and refreshing the board composition matrix annually to ensure the skills, expertise, attributes and diversity on the board remain aligned with strategy as it evolves.
Organisations across all sectors have opportunities as well as challenges to consider in the current environment. It’s a privilege to work with a wide range of boards and their committed directors to help elevate governance performance via continual improvement.
Directors Australia provides board and governance advisory services to a wide range of boards across Australia. Our services included tailored governance workshops, board composition assessments and board performance evaluations.
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