ISSUES FOR DIRECTORS
Challenges for Boards in 2022-2023
Boards Face Significant Challenges in 2023
The 2021 Edelman Barometer ranked Australia the 12th lowest of 28 countries surveyed when it came to the informed public’s trust in our institutions. The Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry, the Prudential Inquiry into the Commonwealth Bank of Australia (CBA) prepared for APRA, the ACCC Report of Retail Electricity Prices and various other reports and enquiries have all raised serious issues of corporate governance.
In particular issues that centre around Core Purpose, Credibility, Reputation, Visibility, Board Renewal and Structure. The findings in these reports, whilst confronting, provide boards with a unique opportunity to examine their own processes and dynamics.
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CORE PURPOSE
Progressive companies are now taking the step of articulating their “Core Purpose” and publicly making a stand for why their company exists.
A core purpose statement is not a clever advertising slogan; it describes how the company is present and committed to the communities they are part of. Core purpose goes beyond vision, mission, values and strategy: it speaks directly to the organisation’s constituent base.
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VISIBILITY
The majority of customers, employees, suppliers and other stakeholders see directors as shadow figures in the background. Being unseen means being unknown. It is easy to trust those you know and to mistrust those you don’t know.
Visibility has strong links to credibility, better communication, and promoting a feeling of trustworthiness. Being a company director is not a passive role. All directors need to be present in the organisations they govern and the communities in which their organisation operates.
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STRUCTURE
The foundations of effective board functioning (structure) are not always applied with agility and awareness.
Company and industry changes may call for structural review and development resulting in innovation and adaptation. That is, structures also need adaptation and fresh eyes in times of change.
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RENEWAL
Board renewal is not just about finding new directors. It also includes time out to work on the board as well as in the board. It's about finding opportunities for self-assessment and fresh approaches to old problems. It requires innovative thinking and new conversations. This can be challenging. Board dynamics can be positive and enhance functioning. But they can also be negative and inhibit effective decision making.
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REPUTATION
Reputation is a fragile asset. Issues emerging from the Banking Industry Royal Commission highlight the very real risks to an organisation’s reputation if its conduct dips below good governance standards and community expectations. Some commentators assert that up to 25% of a company’s market value is tied up in its reputation. The AMP share price since the Royal Commission revelations provides a clear testament to this. In today’s world of social media, incidents that might previously have gone unnoticed very quickly spread throughout the world. Just think of the damage a rogue trader or dubious financial planner can do to a financial institution’s reputation. It takes many years to build reputation and only one incident to destroy it.
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CREDIBILITY
Credibility is linked to core purpose and reputation. When an organisation acts in ways that are perceived as deceitful or dishonest by its stakeholders, it very quickly loses credibility. A loss of trust and questionable authority very quickly erode an organisation's standing in the community. The Board sets the tone for a company’s credibility. How directors are perceived both within the organisation and in the public arena is critical for maintaining a credible corporate presence.
“Trust is clearly a top board priority. Let’s not sugar-coat it: Australian business is still not performing well on trust……As leaders, we’re still ranked poorly on trust by the community and Australia is going backwards on trust, overall, according to Edleman.”
How Boards Can Help Australia Recover From Its Trust Crisis,
Dr Nora Scheinkestel AICD Feb. 2018