Agenda

A round-up of recent governance news.

In conversation
Company Director asked Rebecca Davies FAICD, president of the Heart Foundation (NSW), for her advice on transitioning from an executive to a non-executive career. Davies, a former lawyer is also on the boards of LCM Healthcare, cancer treatment centre Chris O’Brien Lifehouse and arts charity Palestrina Foundation. She is an Australian Institute of Company Directors (AICD) course facilitator.

Here are her tips:

1. Executive trajectory
“For most people, the best springboard into a non-executive career is their last executive job. Boards typically look at the seniority of your last executive role and the diversity of your experience. Think seriously about where your executive career needs to get to, at least a few years before pursuing a board career.”

2. Fill the gaps
 “Identify any experience gaps in your CV that might deter board appointments; for example, a lack of finance skills. Consider extra education or look for opportunities to gain experience in those areas. Even if you don’t pursue a board career, closing those experience gaps can boost your executive career.”

3. Package your experience
“Emerging directors who have not had C-level experience need to work hard to promote their experience to boards. For example, they might have led a large division of their company and successfully driven change. Find a mentor who can critique your CV to help boards better understand your skills and work on packaging yourself as a ‘product’. I have seen situations where people undersell their experience to boards.”

4. Show your commitment
“Consider gaining board experience in the not-for-profit (NFP) sector, but only if you can genuinely contribute. Never treat NFP boards as just a stepping stone to something bigger. Be prepared to jettison your executive career to build a full-time portfolio of non-executive roles as it shows real commitment to governance. It’s very hard to have a foot in both camps as they both require considerable time and focus.”

5. Be realistic
“Give yourself enough time to think through what life as a full-time director is like. Although it can appear glamorous, directorships are hard work and many are unpaid. Do not expect to have a full portfolio of S&P/ASX 200 directorships. More likely is a mix of paid and unpaid roles that might take years to build. Talk to experienced directors about their board work, understand if it is for you, and what you have to offer. Go into it with your eyes open.”s.

The big question

Question
Is there anything in the Corporations Act that precludes the chairman of the board also being employed as the chief executive officer (CEO)? I understand this is not ideal in terms of good governance; however, [our] board would like to know if there are any legal impediments to this arrangement.

Answer
There isn’t anything in the Corporations Act that prohibits the chairman also being the CEO.

The Australian Securities Exchange’s (ASX’s) Corporate Governance Council’s Corporate Governance Principles and Recommendations aim to provide best practice corporate governance and a listed company must apply them on an “if not, why not” basis.

These principles include a recommendation that the chairman be an independent director and, in particular, should not be the CEO. So even in the context of a listed company, if there is good reason for the CEO and chairman to be the same person, it can be done. However, it is not recommended.

The only other issue would be if there was anything in the governing documents of the organisation that prevent it (eg. the constitution).

This Q&A is taken from Director Assist, a complimentary member service operated in partnership with IFX. Answers are provided by a network of specialist practitioners. 

Gender diversity uptick

Women made up 30 per cent of all new appointments to S&P/ASX 200 boards last year, the best outcome since the Australian Insititute of Company Directors (AICD) began recording such data in 2008.

The actual number of women appointed to ASX 200 boards in 2014 was 54 – a marked improvement on the previous calendar year but still shy of the record 68 appointments made in 2011 and the 56 appointments made in 2010.

Female appointments in 2014 included Megan Clark FAICD as a non-executive director of Rio Tinto, Ilana Atlas MAICD as a non-executive director of Australian and New Zealand Banking Group and Jann Skinner FAICD as a non-executive director of QBE Insurance Group.

The rebound in female appointments in 2014 means that women now hold 19.3 per cent of directorships on ASX 200 boards, compared with only 8.3 per cent in 2008.

The slow but steady increase is welcome but more still needs to be done to improve the ratio of women to men on the boards of Australia’s biggest listed companies. A total of 35 boards in the ASX 200 still have no female directors.

Applications for AICD’s new Sector Development Scholarships close on 16 March. For more information on scholarships go to here.

AICD member to represent Australia at UN

Maria Osman MAICD, a member and scholarship recipient of the Australian Institute of Company Directors has been appointed as a non-government delegate to represent Australia at the 59th Session of the United Nations Commission on the Status of Women (CSW59).

Maria has spent 40 years working in the areas of gender equality, human rights, anti-racism, humanitarian programmes and community development.

She has won awards for her work with migrant communities in Western Australia including the Multicultural Community Service Award in 2007 and the National Living Legends Award in 2012.  Maria has been a member of numerous state and national committees on gender equality, diversity and human rights and a member of numerous not-for-profit boards.

This year, CSW59 will focus on the 20-year global review of the Beijing Declaration and Platform for Action, including discussion on progress made and the challenges still faced by governments in achieving gender equality.

Maria will be joined by fellow non-government delegate, Kimberley Abbott, a professional in the male-dominated field of engineering and founder of Roka Jewellery.

Minister Assisting the Prime Minister for Women and head of the Australian Government Delegation to CSW59, Senator Michaelia Cash, said the selection of the delegates was indicative of their commitment to the advancement of women.

“I congratulate Ms Abbott and Ms Osman on their extensive knowledge and experience that has led to their selection as Australia’s non-government delegates to CSW59,” Senator Cash said.

“This will be a significant meeting for discussions on gender equality – something we continue to strive for globally given the undeniable fact that too many women and girls still face human rights violations on a daily basis.”

CSW59 will be held in New York City from 9 – 20 March 2015.

Common sense wins out

The Senate Economics Legislation Committee on 11 February recommended the abolition of the so-called 100-member rule after draft reforms were referred to it for consideration.

It is likely the reforms will pass the Senate in the first half of 2015 with bi-partisan support, bringing a successful end to a campaign by organisations such as the Australian Institute of Company Directors.

Independent Senator Nick Xenophen issued a dissenting report but the majority of the Senate committee accepted that the abolition of the 100-member rule was appropriate not just because of its financial impact on listed companies, but also because it was an example of excessive regulation. “The amendments made by the bill will preserve shareholder rights, while reducing red tape and compliance costs for businesses,” the committee said in its written report.

The 100-member rule allows as few as 100 investors to call an extraordinary general meeting of a company at considerable cost to other shareholders, even if the resolutions on the agenda have no chance of being passed.

Its abolition will not be, as some have suggested, to the detriment of shareholder democracy. A group of 100 shareholders will still be able to place a resolution on the agenda for a company’s annual general meeting and can also request a company distribute a statement outlining their concerns to all other investors.

Hallmarks of a successful board

With 2015 well underway, executive remuneration firm Egan Associates has collated information outlining the challenges Australian boards are most likely to face during the year.

1. Cyber security
There were a number of high-profile attacks across the globe in 2014. The attacks will not stop coming in 2015. The attacks will only become more frequent, and it’s only a matter of time before many directors’ fears are realised and their company is tackled next. High priority targets would seem to be financial institutions, retailers and anywhere large amounts of senstitive consumer data is stored.

2. Sustainability
More pressure will be placed on companies by stakeholders and investors to justify the viability of various business models, given issues such as climate change, shifting demographics and social inequity. Boards can expect that investors and stakeholders will ask whether the business is sustainable and make investments based on the answers to that question. Even “sacred cows” are no longer safe.

3. Regulators
Regulators will continue to introduce compliance-based reforms that will either detract from directors’ attention on strategy or affect the functioning and performance of the board.

Likewise, continued pressure from the Australian Prudential Regulation Authority will cause boards of financial institutions large and small to constantly ensure that their focus remains on governance rather than management.

4. Activists and proxy advisers
There will be increased scrutiny from external parties on board actions. This will create pressure in some areas for boards to act in ways that go against what is best for the company under their stewardship. There is increasing pressure on boards to ensure that they are focused on value-adding activities for strategy and growth.

5. Economic setting
The consensus appears to be that markets will be volatile, unemployment will be high, consumer confidence low, global growth low and the dollar down. Foreigners will find investments in Australia less attractive, and there will be more demands on board time. While these challenges are not surprising, what will be interesting is how boards react.

Three tips for cyber security

Security experts say there are now only two kinds of organisations in the world: those that have been hacked, and those that have but don’t know it yet. An independent director might reasonably ask himself or herself, “Am I on the board of one that doesn’t know?”

Nathaniel Forbes, from Singapore-based Forbes Calamity Prevention, has interesting advice for directors pondering what they need to know about cyber security.  His thinking proceeds from three basic assumptions:

1.  Strong technology by itself provides no more digital security than strong locks, by themselves, provide physical security. Security breaches are perpetrated by people against unsuspecting (and unprepared) people. In any organisation, the first line of defence against bad behaviour is good governance, and governance is ultimately the responsibility of an organisation’s board.
2. How has Coke been able to protect the formula for its signature drink from disclosure for 130 years? Short answer: they treat that intellectual property as a corporate “crown jewel”. A company’s first step toward cyber-security is reaching consensus on one question: ‘What are our “crown jewels?” That’s not a technical task; it’s an analytical task that any director – even one who needed help to program a VCR – can understand.
3. The impact of digital hacking is often unknown and therefore frightening – but it is not unknowable. Like other risks, the consequences of unauthorised digital disclosure can be imagined and a prepared board can help manage them.

Our members honoured

The Australian Institute of Company Directors congratulates the following members who appeared on the Australia Day honours list this year.

Air Chief Marshal Sir Angus Houston AK AFC FAICD (Ret’d)

John Denton AO MAICD
Gregory Paramor AO FAICD
Major General Stuart Smith DSC AO GAICD
Bill Spurr AO FAICD

Mark Barnaba AM FAICD
Professor Rosemary Calder AM FAICD
Glenn Ferguson AM FAICD
Howard Fisher AM AAICD
John Gaskin AM FAICD
Dr Alexander Gosling AM MAICD
Jim Hallion AM FAICD
Dr Milton Hearn AM FAICD
Menno Henneveld AM FAICD
Michael Knipe AM FAICD
Stephen Loosley AM FAICD
Benjamin Main AM MAICD
Andrew Mathewson AM MAICD
Daniel McDaniel DSC AM DSM GAICD
Terence Meehan AM MAICD
Brian O’Sullivan AM MAICD
Heather Reid AM GAICD
Sylvia Rodger AM MAICD
Air Commodore Robert Rodgers AM CSM MAICD
Stephen Spargo AM MAICD
Kathleen Williams AM MAICD
Ross Wiseman AM MAICD

David Bentham OAM GAICD
Kenneth Bird OAM FAICD
Juliet Brown OAM FAICD
Michael Coffey OAM FAICD
Amanda Davidson OAM MAICD
Richard Davies OAM FAICD
Allan Gibson OAM GAICD
John Hopkins OAM FAICD
Air Commodore Robert Lawson OAM MAICD
Professor Derek Parkin OAM FAICD
Jacqueline Phillips OAM MAICD
Bruce Pyke OAM FAICD
Richard Stewart OAM FAICD
Gregory Sugars OAM FAICD

Superintendent John Ballantyne PSM GAICD
Raymond Burton PSM FAICD
Margaret Carmody PSM GAICD
Gail Milner PSM AAICD

Captain Wendy Malcolm CSC RAN GAICD
Mona Shindy CSC GAICD

KEY
Knight of the Order of Australia – AK
Officer of the Order of Australia – AO
Member of the Order of Australia – AM
Medal of the Order of Australia – OAM
Public Service Medal – PSM
Conspicuous Service Cross - CSC

ESS draft tax amendments

The Government has released draft amendments to improve the tax treatment of employee share schemes (ESS).

This change should help Australia attract talented technical specialists, directors and executives.

If passed, the amendments mean:

• It will be possible to defer tax on rights, including options, without those rights having to be subject to a risk of forfeiture.
• The maximum period for tax deferral is to be extended to 15 years from the current seven years, whenever deferral applies.
• Tax paid on options that are not exercised because they remain underwater will be recoverable.
• Eligibility for the ESS tax concessions will be extended to employees (and their associates) who own or control the voting on up to 10 per cent of their employer.

In addition, special concessions will apply for start-ups, which will allow employees to receive fair market value options tax-free and then only pay capital gains tax on the disposal of the share acquired on exercise of the option. This concession should be particularly attractive to entrepreneurs and their funders in the technology and bio-tech industries. Other countries such as the US apply income tax to the gains on “non-qualified” options.

If the announced changes are legislated from 1 July 2015, executive remuneration firm Guerdon Associates said boards may want to consider extending the maximum deferral period in their plans to 15 years.