Governance Commentary

Some analysts maintain that reputation accounts for between 40% and 60% of a company’s value. Once lost it is very hard to re-build. Just consider the recent episode with Australia’s corporate icon, Qantas, which trashed it’s brand through a raft of ill conceived survival strategies during the pandemic.

Our major retailers are looking a bit shaky at the moment. The long awaited ACCC report into the pricing and competitive practices found there is little incentive for the majors to compete on price.

The 2025 Edeleman Barometer showed that 51% of Australians do not trust corporations, governments, the media and NGOs. A sorry state of affairs.

Boards, non-executive directors and CEOs need to ensure that Reputation Risk is front and centre for the Audit and Risk Committee.

Board fees remained relatively flat during 2024. According to our Utilities and Renewable Benchmark reports most kept board fees on hold for the third year in a row. Some awarded modest increases in the range of 2.0% to 2.5%. A very small number awarded catch-up increases above 5.0%. But overall the market has been flat. There are a number of reasons for this:

1. During the pandemic boards led they way with restraint on fee increases.

2. Directors have taken on regulator and public sentiment about the need for restraint in board fees and executive remuneration.

3. Rates for chairs and NEDs remain comparatively high considering the workload.

We’re forecasting 2.5% increase for NEDs in 2025.

Environment, Social and Governance (ESG) has been the latest in a series of acronyms inviting companies and governments to lift their game when it comes to ethical and socially responsible conduct. Regulators and stakeholders have been calling on boards to take a balanced perspective and not simply pursue shareholder returns regardless of the consequences.

Over the past few years I’ve had the good fortune to serve on a number of NFP boards. The dedication and commitment of NED’s in these organisations has been quite extraordinary. They take a multi-stakeholder perspective and often contribute above and beyond.

Equanimity and breadth of focus is essential for NEDs in all organisations.

Perhaps the greatest challenge any board faces is finding the right CEO. There are few cases when you can “try before you buy” and a poor selection can have devastating consequences. We can all remember cases scattered across the Australian corporate landscape of dramatic failures. But mostly boards get this right and there are a few hints from those who do:

a) If you are using a search consultant check out reputation before choosing.

b) Make sure you know who’s who in your sector. The good CEOs stand out and have industry presence.

c) Focus on specifying the job accurately. Include the capacity to fit with the governance approach, industry outlook, integrity and capacity to lead in disrupted times.

d) Choose your selection panel carefully. Include an independent or two if this will broaden the perspective.

e) Be prepared to dig deep for the right person. They know their worth.

Here are some useful guidelines from the AICD: https://www.aicd.com.au/finance-governance/australian-accounting-standards/ias/selecting-a-ceo.html

“The technological singularity—or simply the singularity —is a hypothetical future point in time at which technological growth becomes uncontrollable and irreversible, resulting in unforeseeable changes to human civilization. According to the most popular version of the singularity hypothesis, I.J. Good's intelligence explosion model, an upgradable intelligent agent will eventually enter a "runaway reaction" of self-improvement cycles, each new and more intelligent generation appearing more and more rapidly, causing an "explosion" in intelligence and resulting in a powerful superintelligence that qualitatively far surpasses all human intelligence.” https://en.wikipedia.org/wiki/Technological_singularity

Arguably we are there already.  If not, it’s just around the corner.  In a brilliant ABC article on 24 March 2025, Alan Kohler warned that we are plunging blindly towards an AI revolution that could collapse human society.  Microsoft has teamed up with inait (Open Brain Institute) to commercialise the first digital brain.  It’s smarter than we are.

AI has the potential to benefit humankind in many ways. Boards and CEOs need to be vigilant and ensure human centred values and a commitment to ESG principles guide their policy decisions.  The technology is there to serve organisations and their stakeholders. Not the other way around.

The impact of the 2024 US presidential election has been a seismic shock to the world .  Not only has the threat to the environment increased exponentially, but the very foundations of democracy and the rules based order are being challenged. All boards and audit and risk committees need to be on top of the new challenges and ensure they have the right strategy and risk executives in place to advise on strategy. Some of the most challenging risks are:

1. Sovereign Risk: the risk that governments (around the world) may take actions that imperil a successful business operating model.

2. Diversity Risk: We’ve heard about U.S. companies abandoning diversity, equity and inclusion policies in favour of strictly merit based appointments.  This is a sound approach provided we make space in our major organisations for those who might be regarded as diverse. 

3. AI/Cyber Risk: Every day we hear about data breaches including the bank and super accounts of customers. It has never been more important to have the best cyber security team and to deploy AI with integrity.

4. Compliance Overload: Australia is one of the most regulated countries in the world. Every time a case of misconduct occurs another round of regulations emerge. Sound governance helps to minimise this risk.